TCS: Frans Cronje — Unlocking SA’s growth: From early progress to future potential

Key topics:Rapid post-1994 job growth and improved living standardsEarly democratic gains interrupted, not absent, across services and economyKey reforms could boost growth, investment, and political stability.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Frans Cronje.For much of the democratic era, South Africa has been cast as a country in decline. Headlines emphasise failing municipalities, persistent unemployment, corruption scandals, and weak growth. That narrative is not baseless. But it is incomplete. A longer view of the post-1994 period reveals that South Africa did, for several years, demonstrate an extraordinary capacity for progress that might easily be built upon to set the country up for a strong 2030s.The first fifteen years of democracy especially were not defined by collapse but by the rapid expansion in living standards from a deeply unequal starting point. It is the interruption of progress, not the absence of any, that needs to be repaired for the country to reach its great promise.Start with the data on job creation. Despite the popular description of the early democratic period as one of jobless growth, formal employment expanded significantly. The number of formally employed South Africans rose from just under 8 million in 1994 to nearly 15 million by 2008. Jobs were created across construction, retail, finance, trade, and public services. Today, however, eighteen years after 2008, the economy has added barely two million jobs to the 2008 figure.Service delivery shows the same pattern. Between 1994 and 2008, the share of households without electricity fell from just under 50% to below 20%. The number today is, however, marginally higher than that of 2008. Every service delivery indicator shows essentially the same pattern.Jobs and services were provided in large part because the economy performed strongly. The economic growth rate rose to around 3% immediately after 1994 and then to 4% and 5% in the decade between the 1998 Asian financial crisis and the departure of then-president Thabo Mbeki in late 2008.Growth lifted because fixed investment rates grew from around 15% of GDP, inherited by the African National Congress (ANC) from the last apartheid administration, to 22% by 2008 – when it was well on its way to hitting the lower end of the emerging market average for that figure, at near 25%. Today, however, the number is back below that inherited from pre-1994.Fixed investment, in turn, lifted because investor confidence levels lifted. An index tracking confidence nearly doubled between 1994 and 2008. Today, however, it is back at its pre-1994 lows.Government debt levels were cut in half between 1994 and 2008 but have now exceeded their pre-1994 highs. The inherited budget deficit of 1994 of near 5% of GDP was turned into a surplus thirteen years later – and the ensuing saving on the government’s interest bill financed the rollout of the emerging world’s most expansive social welfare system.As job growth and service delivery were being lifted by economic growth, a myriad of other positives began to manifest in the long-term data. The murder rate was 50% lower in 2008 than it had been in 1994. The rate of violent protest action had halved in the decade and a bit after 1994. The middle class, as measured via car ownership and bonded homes, had grown very strongly.It really was a very remarkable period of progress for which neither the country – nor, for that matter, the ANC, which led these efforts – ever received the requisite credit.When one makes that point, especially the latter one, the accusation of partisan bias is not far behind. That’s a pity. The reason to emphasise the progress is that if it were true that no good had come of democracy and that life was better pre-1994, then there would be a need to re-invent the policy wheel, as it were, to set things right. That is neither necessary nor advisable, as a pretty solid blueprint exists of how to make South Africa make progress.It starts with lifting investor confidence and reducing the cost of committing capital to South Africa. Lock down property rights as fully secure and stop taxing capital on arrival, and that is mostly achieved. Then sort out port and rail logistics so that South Africa’s mining, manufacturing, and agriculture economies can get goods out. Placing ports and rail under private management achieves that. Third is to produce sufficient dispatchable electricity to make higher levels of fixed investment feasible. That is easily done by freeing Eskom to refit its defunct coal fleet.Three simple reforms to open the door to capital, sort out major logistics, and produce more power should easily take the current rate of economic growth from the forecast 1.5% of GDP to nearer 3% – which could easily be the case before South Africans go to the polls in 2029. Add serious new trade and investment pacts with China and America and that 3% number is more than assured. From there, more focussed reforms would lift it to between 4% and 5%.The political consequence of that is easy enough to estimate. The ANC would most likely see its support rise back to over 50%; at the very least, even if that party were to fall just short of 50%, the ANC/Democratic Alliance (DA) partnership would be strengthened by the tenor of national government policy. The Economic Freedom Fighters and the uMkhonto weSizwe Party would shed significant support. And the DA would hold its established middle-class base. Levels of protest action would fall sharply.It all makes predicting where South Africa is headed quite difficult to do. The current low-growth status quo may, of course, hold and there are downside scenarios. But the reforms needed to realise the upside are easily within reach – making the upside result perfectly plausible for South Africa by the end of this decade..*This article was originally published by The Common Sense and has been republished with permission.

TCS: Frans Cronje — Unlocking SA’s growth: From early progress to future potential

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