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indwe magazine – Oct 2005
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The Magic of Six
Towards 6% we go! Since the late 1990s, government has tried successfully to remove the large macroeconomic constraints to poor economic performance. Now President Mbeki has put the new Deputy President in charge of a team to come up with a plan and a strategy to achieve the desired 6% annual growth. If they achieve this, we all stand to benefit, and all of us will move closer to economic prosperity. Text: Shun Govender Images: © Getty Images/Touchline Photo |
| Both government and the private sector have to play their part in achieving the desired 6% annual growth. It is clear that government is gearing itself to do more in the areas of government savings, increased spending of public money on infrastructure development, targeting specific sectors of the economy to focus its growth strategies, and providing more incentives to business. The economy of a country grows when there is an increase in economic activity and business interaction inside the country and on the global level. Such activity results in a greater output of goods and services, and more jobs being created. This puts money in the hands of people. More people with money in their hands means more spending power. This stimulates the demand side of the economy, as we witnessed in the recent past when South Africans started going on a buying binge. The economy overall has seen a surge in consumption spending, with people buying more of everything. But even more important than demand and spending is the supply side of the economy. More orders come in and greater productive activity starts taking place, turning the wheels of the factories and firms to meet supply. Factory owners, shopkeepers, customers, and the taxman – everybody is happy. Going Up A 6% growth rate in the economy is what South Africa is striving for. At present the economy is growing at less than half of this, but it has to grow to a much higher level, say the economic experts. Public enterprises minister Alex Erwin says we need a yearly increase in the gross domestic product (GDP) of at least that percentage for the country to successfully address the serious issues of unemployment, poverty and economic well being for all South Africans. It is not going to be easy, nor is it going to happen overnight according to the Minister. Reserve Bank Governor Tito Mboweni echoes these views. According to a recent Business Day report, Mboweni pointed to the low skills base, the cost of telecommunications services and the current exchange rate of the rand as issues that need to be tackled before a 6% growth rate can be achieved. Sure Foundations In any economy, greater economic activity can only occur on sure foundations, and several factors have to contribute to produce such a good basis. The first and foremost consideration is political stability in the country, and a sense of safety among ordinary people. Political stability must also go hand in hand with smart action by the government to create the conditions in which the economy will grow. The policy makers have to create the right conditions to stimulate growth. The experts call this macroeconomic stability. In the case of South Africa, government has done a great deal to create a stable base and an encouraging business environment. One example is the prudent fiscal and monetary policies it adopted since 1994. Other factors that contribute to economic growth include more infrastructure and human capacity development. In other words: good roads and rail transportation networks, efficient port systems to carry the loads of expanding trade, and trained personnel to meet the demands of the job market. And money, in the form of savings and investments, are always needed to grow the economy. 10 Steps to Faster Growth In its cover story on economic growth, the Financial Mail of 29/07/05 spelt out the 10 steps that need to be taken to put the economy onto a 6% growth path: 1. Increase government spending 2. Tackle government lack of capacity 3. Liberalise labour markets 4. Plug skills gap (train or import) and stem brain drain 5. Fix education system 6. Cut red tape 7. Pick winners through sectoral policy 8. Cut corporate taxes 9. Reduce input costs 10. Raise the savings rate Don’t Drop the Ball We are also beginning to hear concerns being expressed by government ministers. Finance Minister Trevor Manuel seems to be worried about two major issues. The first is his concern that a large amount of money made available to provinces every year to spend on infrastructure development is not being spent on time. Such under-spending is serious because it affects service delivery. Recently he pointed to the under-spending of close on to one billion rand in capital expenditure in health and education. Some Stats on the projected increase on Infrastructure Spending Provincial Infrastructure/Capital Expenditure: 2001/02: R6,1 billion 2004/05: R10,1 billion 2007/08: R15,3 billion The other concern expressed by the minister is the growing amount of money that government has to allocate each year to assist poor people. It is not a case of the government becoming stingy about helping poor people with direct social grants, but rather a concern that if this trend continues to grow, then we will have less money available to spend on growing the economy and creating more jobs. The solution to poverty is through a process of sustainable development and not through long-term assistance. It is a matter of helping people to become economically active. Some Stats on Direct Social Assistance to the Needy Overall spending on Grants to Poor: 3,2% of GDP to reach 9,4 million individuals Growth in Social Grants Expenditure 2001/02: R20,6 billion 2005/06: R52 billion 2007/08: R61,8 billion Local Economic Development The pinch is usually felt at the bottom of the ladder, and in this case at the level of local municipalities. This applies in the business arena. Iraj Abedian, CEO of Pan African Advisory Services makes the pertinent point that business investment takes place in a specific locality. It is here that all of the right business ingredients have to be present and in good quality to make business happen. For example, the local authority must be able to take decisions quickly in order to curtail the costs of business. The basic local infrastructure such as roads and electricity has to be available and in good shape. The municipal authority has to drive an integrated local economic development strategy that attracts entrepreneurs in small to medium enterprises. We have moved beyond the stage of asking: can this happen? It has to happen! We do not have an option, but to make it work!  |