There is apparently a ray of hope amid the contracting economy, shrinking manufacturing sector, load-shedding, youth unemployment and now drought.
South Africa has always been a land of contradictions, or what some portray as a kind of self-designed exceptionalism. Its history, by default, has led to a skewed, asymmetrical economic picture, a tale of two countries and a sad paradox: a land of plenty floating in a sea of poverty.
Depending on one’s vantage point, this is a sophisticated economy, with its companies’ equity market capitalisation rivalling that of many advanced economies; seen from another angle, it is still a very unequal developing economy, the fruits of which are not benefiting the majority of its citizens. They have to turn to government social handouts to survive. Former president Thabo Mbeki dubbed South Africa’s economy one of two nations – one black and poor, the other white and wealthy.
This oxymoronic portrait of South Africa became especially apparent this year. The economy contracted, the rand was at its weakest, the manufacturing sector continued to shrink, the lights were frequently out, half the country’s economically active youth were still not working, more were laid off, and we are now facing the worst drought in years.
Amid this gloomy picture, however, there is a ray of hope. In the song Tomorrow from the musical Annie, lyricist Martin Charnin wrote: “Just thinkin’ about tomorrow/ Clears away the cobwebs and sorrow/ Till there’s none … Bet your bottom dollar that tomorrow/ There’ll be sun.”
Hard as it may sound for some South Africans, including this newspaper, to believe that the sun will come out tomorrow, the consultancy McKinsey Global Institute and rating agency Moody’s seem to be betting their last dollar that the South African sun will definitely come out tomorrow.
This past week, Moody’s said the country would avoid a dreaded recession and the economy could show growth of at least 1.7%. The rating agency said the country was not likely to be downgraded in the next year or so, though it also cautioned against crippling hurdles in the economy. McKinsey seems to agree that there’s no need to put the economy on a life-support machine just yet; with a major surgical procedure, it could pull through.
In its report, titled South Africa’s Big Five: Bold Priorities for Inclusive Growth, McKinsey reminds us that the country can revive itself, can refuel and restore its past economic glory, and realise its true potential. The priorities are manufacturing, infrastructure investment, natural gas for power generation, boosting exports of services to the rest of Africa, and “unlocking South Africa’s full agricultural production and processing potential”.
It says these bold priorities “can reignite South Africa’s progress” and add R1-trillion to our annual gross domestic product (GDP), creating 3.4-million new and desperately needed jobs by 2030.
This is heartening. It gives us a reason to cheer up amid the understandable cynicism about economic development and a pensive mood about the future – both features of South Africa’s attitude and social conversation.
McKinsey points to South Africa’s excellent economic productivity and its high-ranking financial markets as an advantage in the battle to repower its economic engine. South Africa, it says, “can draw on its skilled labour to grow into a globally competitive manufacturing hub”.
But the report likewise points to big gaps in the provision of electricity, water and sanitation, even though South Africa has invested in infrastructure and urged public-private partnerships to “make infrastructure spending up to 40% more productive”.
It was a cold, dark winter for South Africa as the Eskom crisis resulted in more power outages, which constrain growth. At least the opening of unit six at the Medupi power plant is expected to add nearly 800 megawatts to the strained power grid.
But McKinsey advises that South Africa needs to tap into natural gas “as an alternative to diversify the power supply”, estimating that gas-fired power generation could add R140-billion to South Africa’s GDP.
On jobs, McKinsey says South Africa can make a dent in the unemployment rate, one of the world’s highest, if it can focus on skills training and quality education. It says 30% of new jobs will require technical, managerial and professional skills, which are lacking among most of the unemployed, especially young people.
South Africa needs to fix its education system. Both Moody’s and McKinsey plead for action on this, the key to long-term economic growth and job creation. “Unless South Africa can create the workforce to fill the jobs it creates,” McKinsey says, “manufacturing and services companies will struggle to grow.” Moody’s urged South Africa to address inadequacies in the education system and to do something about alleviating skill shortages.
The government is aware of this chronic deficiency: it was prominently highlighted in the National Development Plan. But, if one looks at the state of our technical colleges and the expectations of industry, there seems to be policy disjuncture and a lack of political will. This cannot continue if we are serious about arresting economic decline, and we have to halt it or we will continue to fail the majority of South Africa’s citizens.