Since 1994, the South African government has employed market-friendly policies in an investment-led growth strategy. Yet South Africa has averaged 1.2% GDP per capita growth over the last three decades, faring particularly poorly in the last decade by contracting 0.25% in per capita GDP growth. Despite concerted efforts made at investment summits and policy imperatives to crowd in investment, we are unable to move the needle.
The South African Reserve Bank recorded foreign direct investment net inflows of R96.5bn in 2023, an estimated 1.3% of GDP. A considerable 36% decline from the R151bn reported in 2022 at 2.3% of GDP, revealing that capital inflows remain inconsequential to drive up growth.
In 30 years, we have not met the required investment inflows of 25% to GDP for the economy to surpass the low growth trap and reach the required 5.4% GDP growth rate we set out as a target in the National Development Plan.
Gross fixed capital formation is plummeting in similar fashion, with both public and private sector investments contracting to 12% of GDP in 2023 from a high of 18% GDP in 2008, the highest in the post-apartheid period.
Dishearteningly, the Centre for Competition Regulation and Economic Development reported in 2016 that institutions in the top 50 JSE-listed firms have hoarded cash reserves amounting to R1.4-trillion (increasing from R242bn in 2005). These reserves that are not invested in the South African economy have been termed an investment strike, denoting that firms have chosen to retain profits and wealth, and accumulate reserves, instead of investing.
The economic system and policies adopted by the state over the past 30 years from Growth, Employment And Redistribution (Gear), the Accelerated Shared Growth Initiative of South Africa (AsgiSA), the New Growth Plan (NGP) and the current NDP have been at the helm of investment-led growth economic strategy, underpinned by market-friendly policies.
The rhetoric placing emphasis on weak state capacity and ineffective government execution as the sole reason for our economic woes remains unusually silent on the failure of the economic policy positions employed by the state.
Hushed we remain on the investment strike, yet there is an expectation that international investment must allocate capital stock. But domestically, private sector investment into the economy is withheld. Surprisingly, even as we witness macroeconomic indices uncovering widening income inequality at 0.65, the worst in the world.
Stats SA’s Quarter 1 Labour Force Survey reported a national unemployment rate of 41%, exceeding 40% in seven of the nine provinces. African women experienced 4.2% higher unemployment than the general population, while youth unemployment reached unprecedented levels of 60%. The recently reported contraction of GDP growth of 0.1% in the first quarter of 2024, with a 1% target for 2024, confirms we will remain on the path of inequality, poverty and lacklustre growth if we remain on this policy trajectory.
The silence on the mechanisms needed to rectify inequality and poverty, which is concentrated on the dispossessed and excluded, who are mainly Africans, is deafening. Redistribution and the economic participation of most households is a necessary condition for prosperity, productivity and economic growth.
In the context of limited infrastructure, political instability and governance challenges that would inhibit growth on the continent, how is it that the International Monetary Fund regional outlook reported the average growth rate in Sub-Saharan Africa at 3.6% in 2023?
The silence on the mechanisms needed to rectify inequality and poverty, which is concentrated on the dispossessed and excluded, who are mainly Africans, is deafening
Non-resource-intensive countries such as Mozambique (5%), Uganda (5.7%), Kenya (5.4%), Rwanda (6.2%), Benin (6%) and Gambia (5.6%) were all booming at over 5% growth rates in the same period.
Economic exclusion requires focused efforts and needs to be at the forefront of policy discourse and strategy if we are to see economic gains.
Market concentration and the dominance of firms across key economic sectors is a common feature that requires strong regulatory bodies. The general discourse is seemingly opposed to instruments that drive the public good and broadening participation of the historically disadvantaged in the economy.
Worryingly, local competition authorities and the B-BBEE Commission are often touted for disabling business and hindering investment with their “onerous” requirements, and have even been labelled anti-growth for advancing redistribution.
In our market economic system, there is private ownership of the factors of production, land and capital. Access to these resources determines access to entrepreneurial opportunities, enabling participation in the productive processes. They determine whether you are a bystander or an active economic participant.
Access to these factors of production also determines whether you earn interest, profits or interest, a salary, and at what level. South African CEOs, according to a Bloomberg survey, are the seventh-highest earners globally, while CEO earnings are over 700 times what a low-level salaried employee earns in the retail sector.
Markets have not self-corrected, but the national minimum wage legislation is frowned on and labelled a deterrent to investment and a constraint to labour market demand. Labour market failures require regulatory instruments to reconfigure an inclusive economy that prioritises and incentivises employment, production and industrialisation.
A sprinkle of broad-based BEE beneficiaries gaining wealth will not silence the necessary discourse on the need for substantive redress, which will remain a priority for the excluded. The middle class is undergoing a cost-of-living crisis and the large majority of South Africans live in abject poverty. This underscores the failures of BBBEE without a decisive economic strategy that sets out a clear path to redistribution and economic prosperity for all the people. Sadly, this means economic stagnation is almost certain.
Addressing the widening poverty and inequality, and in particular the widening of wealth inequality in South Africa, must now be the priority of the country’s policymakers. Various nations, including developing countries, that have chartered economic development that has expanded access and inclusion to the majority of the populace have ensured that economic policy prioritises full employment, industrialisation and inclusive policy instruments (these require state involvement in disbursement of factors of production) with a clear, targeted education-to-employment pathway. South Africa has embraced a market economic system.
It is necessary that this government of national unity recognises that the population requires from the state a decisive response to the economic class differences and exclusion that are prevalent in our society.
• Moleko is an economist at Stellenbosch Business School
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