|
|
|  |
Is 6% Growth Possible?
Dr Cees Bruggemans, FNB Chief Economist
21 October 2005
With talk of 6% GDP growth rife, one wonders what motivates such optimism, other than political opportunism. Have we ever done 6% growth? And could we ever hope of sustaining such a pace?
South Africa has known periods of exceptional growth in its modern history. In the 1960s, with industrialization deepening and favoured by strong global growth, high commodity demand and prices, good capital inflows and strong stimulus from broadening infrastructure, South Africa enjoyed average GDP growth of over 5.5%.
A mere decade later, with political acceptance lost and the national finances rapidly deteriorating because of deepening conflict, a major gold windfall brought succour. Reviving from a period of under-potential growth in the mid-1970s (marked by the Soweto Riots), the country became galvanized by the exceptional richness of the gold boom, raking up 8% GDP growth in 1980.
But it couldn’t last. The basis wasn’t there to sustain it. Not the confidence, the private investment nor the policy stimulus. Instead, before long all support for the boom was reversed as the gold price plunged and the inefficient, protected economy proved too inflexible to respond adequately. By 1984 South Africa entered stagnation with little growth, lasting through 1993.
Since then we have recovered political acceptance, made the economy more receptive to global influences, and restored our finances. The economy’s inherent confidence has gradually returned as the opportunities beckoned, with less cutting short by external events. Even better, the last three years favoured us with another commodity boom and capital inflows, which were well utilized.
In the process, our average growth gradually picked up, from effectively nothing in the decade to 1993, to 3% in the decade thereafter, and to 4% since last year (once the GDP data has been more fully revised – upwards).
There were many skeptics in 1994 unable to believe we could throw off the stagnation of the previous decade, and preparing for a worse experience. Not even the actual 3% growth performance that followed was fully believed, with deep misgivings of ever again doing better.
Since then we have stepped up to 4%, admittedly assisted by renewed global tailwinds, but again gainsaid. Too few policymakers are questioning the contribution of the external windfalls making 4% possible, already moving the goalposts anew towards 6% growth, to be achieved within less than a decade from now.
Are we capable of this and what will it take?
It certainly needs the global environment to remain accommodative of South African needs, meaning good commodity demand and prices, low interest rates and copious capital inflows.
A strongly performing Asia will probably look after our commodity needs for many decades still. Global savings surpluses will probably ensure continuing capital access in most years for the foreseeable future.
Such global accommodation, though helpful, cannot be the ultimate determinant of our future growth story. For that we need domestic drivers.
In order to achieve 6% growth, three major wishes need to be fulfilled, just in the fairytale of old.
Firstly, our infrastructure shortcomings need to be addressed. More power stations, more roads, better functioning ports and railways, and better municipal infrastructure.
Secondly, we need more flexible labour markets, to ensure better pricing of labour relative to its productivity, and easier firing AND hiring practices, with a reduced legislative cost burden for employing labour.
Thirdly, we need a more skillful public sector, efficient administration and competent professional services (in education, health care and policing).
As things stand, we are living off old infrastructure, have ossified the labour market (thus inhibiting new job creation) and aren’t delivering the quality public services we need to support fast growth.
The good growth we are enjoying is as much our own doing as the exceptional contribution made by global conditions. To do even better, such as achieving another step-up from 4% to 6% growth, we have to make each of the three wishes come true.
We will probably achieve most of the infrastructure needs, will take a generation to upgrade the public service, while our strong democracy won’t allow extensive labour reforms any time soon.
We may wish for sustained 6% growth, but may have to live with a 3.5%-4% reality for a long time to come, and that is after acknowledging the impact of HIV/Aids rather than ignoring it, as seems to have become the fashion.
Keep abreast of the latest property market news. Subscribe to the IPS Newsletter:
Our preferred partners:
|  |
| |
|
| | UK: +44 (0)208 971 3245 |  | SA: +27 (0)11 880 5340 |
| | |
Invest in the most sophisticated property market globally. IPS has the total solution for investing. Want to know how? 
This concise and easy-to-read book covers just about everything (tax, costs, finance, legal entities, etc.) that you need to know about buying a property in S.A.
R 725,000