Adrian Gore to myopic Saffers: Look at how well SA is – really!

EDINBURGH — Discovery founder Adrian Gore is known for his optimism about South Africa. He is undoubtedly tired of all the negativity about the country, with corruption scandals playing into gloomy expectations about the nation’s future. Economists have many numbers to demonstrate how South Africa is declining. But Gore has others to counter predictions that the country is a lost cause. He shares his list of reasons why South Africans are unnecessarily pessimistic, including that the country’s wealth is considerable when you compare Gross Domestic Product figures as is his company’s financial situation, which boasts a revenue footprint larger than that of low-tax island Mauritius. BizNews publishes Gore’s overview on why he is an advocate of positive leadership in South Africa, plus a Free Market Foundation critique of Gore’s assessment. Share your views, below! – Jackie Cameron

Things are getting worse – but there’s an easy solution

By Chris Hattingh and Martin van Staden*

Discovery CEO Adrian Gore mentioned at the recent Leadership Summit that there is an element of “declinism” — a pessimism about the state of one’s country — in South Africa, and that it did not accurately represent the situation facing our country. While Gore might be correct that some things are improving, it cannot be denied that we are on a downward slope, and that if we continue to follow our current trajectory, there won’t be anything left to transform.

Speaking at the Free Market Foundation on 31 October, economist Dawie Roodt laid bare SA’s current fiscal situation and pointed out that, according to the Treasury, our GDP is expected to grow by only about 1.7% in 2019. Compared to emerging economies which invest an average 23% of GDP, SA’s fixed investment percentage is only 19%.

As a percentage of total GDP, the government spends 29%. Political vanity projects, for which we simply do not have the fiscal room — the National Health Insurance being one example — are planned and all they ever result in is increased bureaucracy, increased government size, and ultimately lower growth.

According to economist Njabulo Mhlambi, the public sector wage bill stands at about R328,000 per civil servant per year on average. This R587 billion per year for over 2 million bureaucrats and officials represents almost a third of the budget.

It was thus heartening that during his election campaign within the ANC, President Cyril Ramaphosa promised to cut back on the size of government. Finance minister Tito Mboweni also recently alluded to the idea of reducing the size of Cabinet from an astonishing 70 ministers down to 25 or ideally 20. But at the Jobs Summit held on 4 and 5 October, Ramaphosa announced a moratorium on public sector job losses. If the President intends to stick to this moratorium, it will be a grave mistake.

Many civil servants, with respect, work in fields and areas that are not important to SA’s immediate development. Practically everyone working in the sports, arts and culture, and small business development clusters in Cabinet are not producing anything that contributes to economic growth, employment, and prosperity in SA.

Despite making some efforts, the Department of Small Business, for instance, has failed completely to represent the interests of entrepreneurs who cannot afford to comply with government’s excessive and ever-growing red tape. It has not been able to restrict in any way the new National Minimum Wage Act, new taxes, and the evermore registration and licensing procedures in telecommunications, transport, and financial services, which have been allowed to be enacted into law and have a detrimental impact on small and medium enterprises.

It is only hubris for the government to think it can have entire State departments dedicated to luxuries like sport and arts and culture at a time when we have less than 2% economic growth and practically no job creation. The taxes that SA’s diminishing tax base is providing are being thrown to bureaucracies and vanity projects that we simply cannot afford or sustain.

How do we resolve this situation? Do we go down the same government-focused path of zero growth, or do we opt for something more radical? The solution, thankfully, is simple, and only requires political backbone.

The days of bowing before trade unions and big businesses clamouring for favours and protections need to end. The market is not intimidated by government or any movement and will wreck any country that attempts to defy basic economic truths. We can only hope that government finds the strength to harmonise its conduct with the reality of economics, rather than attempt to defy it.

Government must start by unbundling and privatising, or liquidating and closing down, all our major State-owned enterprises, like South African Airways and Eskom. Perhaps this can be done by giving all South Africans equal, freely-tradable shares in these enterprises. Air transport and electricity generation and distribution will be provided far more effectively by the private sector. It is imperative that the inefficient, and often-corrupt, hands of government be taken off the steering wheels of businesses that must be profit-driven.

The next thing government must do is repeal draconian provisions in our labour law, and allow the unemployed to get jobs without having to adhere to frequent unmeetable legal requirements. Labour laws make it expensive and difficult for people to trade with each other. The unemployed have to overcome barrier after barrier to find work. Businesses cannot employ more people as long as they have to carry such a burden of onerous legislation.

Thirdly, there must be a wholesale and comprehensive review and repeal of regulations in every field where government has decided to involve itself. The President must instruct all his ministers that for each new regulation they propose to introduce, two substantive regulations must be repealed.

Lastly, government must allow people to save money.

Roodt made the critical point that to grow an economy, you need to postpone consumption, meaning you need to encourage savings, which will lead to capital investment and consequently growth. If SA wants to reach the growth level of other quickly emerging economies, we would need to invest around R200 billion annually. But people cannot save money if their small surpluses are swallowed up by inflated food and fuel prices that are the consequence of government interference in the market. Government must lower, or better yet, abolish onerous taxes. A moratorium must be placed on the introduction of any new tax, and the Pavlovian taxes which are never utilised for their intended purposes, like sugar taxes, plastic bag taxes, or the fuel levy, must be scrapped.

There are many faux radical political movements in SA that promise change. All of them, however, propose to do more of the same: grow government even more, and take even more money from South Africans. That is not radical. Radicalness means embracing a free market, individual freedom, and a servant — as opposed to paternalistic — State apparatus.

  • Chris Hattingh has a degree in business ethics and Van Staden in law. Both are researchers at the Free Market Foundation.
Things are bad and getting worse, or are they? The case for positive leadership

By Adrian Gore

I am known for repeatedly making the call for positive leadership, to liberate our country’s incredible potential. What fascinates me, is the criticism I receive for my naivety, given the challenges we face. I am not discounting the fact we face real challenges, we do: GDP growth is at -0.7%; 50% of those aged 15-35 are jobless; we have a bloated public-sector wage bill and a hefty budget deficit to fill; and tragic inequality. My plea for positivity is not in spite of these challenges, but because of them – and it is rooted in cold, hard science.

Discovery CEO Adrian Gore

The optimism paradox – the gap between private hope and public despair – is an intriguing idiosyncrasy explained by behavioural economics. On the one hand is our belief, that in our personal lives, our future will be better than our past, known as the optimism bias. According to recent research from the Nobel Prize-winning economist Angus Deaton, based on data collected on 1.7 million individuals across 166 countries from 2006 to 2016, individuals are unwaveringly hopeful – to the point of consistently but irrationally believing they will be better off five years from now. The optimism bias can be explained by evolutionary biology. With our earliest ancestors facing threats posed by violence, disease, child birth and so on, the average lifespan was 21-35 years. To make any kind of progress in life we needed to imagine a reality that was different, and one we believed was possible. We are in essence, descendants of the optimists – the pessimists died off.

Counter-intuitively however, this private optimism is contrasted to a persistent and pervasive public pessimism, known as declinism – the belief that our world (or country) is on an irreversible downhill trajectory. Declinism too has its roots in evolutionary biology. Hunter gatherers were faced by constant environmental threats and were coded to seek out negative cues, a fundamental conditioning for survival. Last year, the global market and opinion research organisation Ipsos MORI surveyed perceptions of 26,489 people across 28 countries as to how the world is changing. 62% of respondents believe the world is getting worse, fueled by misperceptions of how the world has changed. The degree of optimism about the future differed hugely by the level of people’s knowledge about global development – those that were most pessimistic about the future tended to have the least basic knowledge on how the world has changed for the better.

The major flaw in much of the declinist narrative is the failure to distinguish between absolute and relative changes: relative decline is interpreted as absolute decline. Steven Pinker highlights these conclusively progressive trends in his latest book Enlightenment Now. Life expectancy is up, from a world average of less than 30 years in the mid-18th century to over 70 years today; the threat of infectious disease has been greatly reduced; and around the world, children are going to school longer, and literacy is on the rise. The list goes on.

The critical point is that as South Africans, we suffer this acutely. Not only are South Africans gloomy about how the world has changed and what the future holds; on a broad range of issues, South African survey respondents gave the least accurate guesses of where the figures on global and national development stood – out of all 28 countries. And while South Africans are not just impervious to the facts on progress, the study revealed they are confident in their erroneous perceptions.

Declinism could easily be excused as a peculiarity of cognition, except, it has real and dangerous consequences which impede our progress.

Firstly, we don’t see our country’s progress. The fact is, South Africa, like the world, is a fundamentally better place as time progresses. Our GDP is 2.5 times the size it was in 1994 on a dollar basis; formal housing has increased by 131% from 1996 to 2016; new HIV infections are down 60% from 1999-2016; and the murder rate per 100,000 is down 50% from 1994 to 2017.

Our country is also larger and more relevant than we think. Our provinces square up against other countries in terms of GDP: Gauteng is bigger than Kenya and Ethiopia, and the Western Cape is almost the size of Ghana. Our economy is substantial: in terms of stocks traded in 2017 (USD bn), South Africa trumps the Middle East and North Africa region, Singapore and Norway; and holds 82% of the pension fund assets in Africa, 18 times that of its second ranked peer, Nigeria. This is in spite of Nigeria’s GDP being larger than our own and their population being 3.4 times larger than ours. This is important structurally, these long-term savings are invested into government and corporate debt and company equity, driving growth. Our market also enables massive companies to be built. Discovery’s revenue footprint (including Discovery Health Medical Scheme) is more than half that of Mauritius; and both Standard Bank and FirstRand are bigger than all Nigerian banks combined on a tier 1 capital basis.

Secondly, we see problems as insoluble anomalies, and our decline as inevitable. What blinds us from recognising our progress is our myopic obsession with the problem of the day. Pre-2005, the issue was HIV/AIDS. Then we experienced crime in the early 2000s; followed by xenophobia in 2008, and the Eskom power crisis and labour unrest thereafter. In the past two years – Fees Must Fall, State Capture and land expropriation have occupied the public’s attention as the issues signaling our impending demise. It is precisely because these problems change, that they cannot be intractable. I’m not minimising these problems, they are tragic and need to be solved. I’m making the point that we have the ability to gain traction on these issues, albeit at times in a messy way.

The effect of the above is that we start perceiving our country and its economy as risky; and we avoid investing, when the opposite should be the case.

South Africa has a relatively stable economy, as seen by its GDP growth which is the lowest in volatility when compared against BRIC peers over 1994-2017. This suggests that we misprice risk and miss opportunities. Although the Rand is one of the most volatile currencies among the same peer set, over the same period. If we consider the country as a ‘company’, we can then use GDP as a proxy for the ‘revenue’ of the country, and the currency exchange rate as an indicator for the ‘share price’. If we then take the standard deviation of our currency over the standard deviation of our GDP – South Africa has the consistently highest ratio over time relative to the above cohort. This suggests a profound gap between perceived risk and real risk.

Our country has remarkable potential, but we need to deliver economic growth – vital to addressing our serious challenges of unemployment, poverty and inequality – and to delivering real improvements to quality of life. Looking back, had South Africa mirrored the rate of global or emerging market GDP growth, we could have been 17% or 38% bigger (respectively). The Bureau for Economic Research puts the cost of the last ten years at R500 billion, and the opportunity cost at 2.5 million additional jobs. Our rudimentary calculations show this could have had the dramatic effect of halving poverty.

We have a choice: a problem-centric leadership approach as per the above, which perpetuates declinism; or a vision-based leadership approach, which is an antidote to declinism. The latter involves acknowledging our country’s progress and creating hope; seeing our problems as real, but soluble, and seeking out positive cues alongside negative ones when reading our environment; and recognising the potential of our economy and investing in it. This is how change happens. Attitude drives fundamentals, not the other way around.

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