Forging a unique economic model for South Africa

South Africa has made international headlines since the dramatic change in leadership last December. The country has high hopes that new president Cyril Ramaphosa will deliver on his promises to boost broad-based economic growth, root out corruption and build a more equal society based on decency and integrity.

So far, there have been positive signs that the former anti-apartheid activist and influential trade union leader turned businessman is resolute in these commitments and that the “new dawn” which Ramaphosa, a veteran African National Congress (ANC) member, hailed in his first state of the nation address earlier this year may indeed come to pass.

This is fueling a new optimism and hope in South Africa, which was palpable at Bloomberg’s Future of South Africa conference held in Cape Town in March. There, the country’s top policy makers, businessmen and bankers discussed the priorities needed to ramp up economic growth from 1.3% last year to 5% in a way that is inclusive and socially transformative.

Many ideas were debated, from relaxing tourist and business visa restrictions to further regional integration to boost cross-border trading, but the panelists were in broad agreement that South Africa’s optimal economic model will not follow a template.

It will be unique to the region and require a multi-faceted approach underpinned by skills improvement, job creation, infrastructure upgrades and sustainable growth built on a clear strategy to turn around failing and scandal-hit state-owned enterprises.

To build a capable state attractive to investors, panellist Stephen Koseff, the CEO of Anglo-South African banking group Investec, said that “it must be understood, what will drive the economy is not only manufacturing, tourism, services and education but all things coming together. There are multiple challenges and multiple opportunities.”

Creating a ‘boomerang effect’

Colin Coleman, panelist and head of the Goldman Sachs South Africa office, who has been particularly bullish in recent economic forecasts, echoed a number of the measures outlined by President Ramaphosa to stimulate growth. These include special economic zones, labor reforms and fiscal incentives to boost productivity.

Coleman suggested that once the government fleshed out these policy concepts, this would create a positive momentum that would drive a “boomerang effect” of cross-border and foreign investment.

For Coleman, the government needs to outline what package of reforms is to be negotiated in a tri-partite arrangement with business and labor to attract companies into South Africa.

“Of the top 100 companies that have over a $100 billion market cap, how many of them are servicing the African continent? What reforms do we need to have in place to attract those companies to South Africa? This is something South Africa needs to crack into jointly,” he said.

Coleman further stressed that the country’s sophisticated infrastructure, financial services sector, and access to the 1.5 billion people in Africa as a whole – together with the right incentives – should make South Africa a very attractive base for the world’s manufacturers.

Magda Wierzycka, head of investment firm Sygnia Asset Management, said that South Africa could also become a haven for the world’s technology firms, offering tax breaks and tax-free zones for international technology companies to import skills. Once imported, she also said South Africa could introduce training in the latest technology-related skills and upskill its own workforce.

Working with industries to increase employment

Transformation is critical for economic sustainability and long-term positive outcomes cannot be attained unless the two most pressing challenges in the country are dealt with: unemployment and inequality. Unemployment in South Africa derives essentially from a lack of education and, consequently, opportunity. Youth unemployment is currently at about 50%.

An ambitious corporate initiative backed by government, which aims to get one million people between the ages of 18 and 35 into paid work over a three-year period, launched in March.

“In all of the things we do and say, we need to find some new answers in reducing inequality,” said Pravin Gordhan, South Africa minister of Public Enterprises, who was formerly finance minister and is a highly respected figure in the ANC party and beyond. “How do we ensure that different sections of the population are all beneficiaries of economic growth?”

Richard Brasher, CEO of Pick ’n Pay Stores Ltd. said that “while it is easy to employ people, it is not easy to ensure they have the right skills.”

Industries such as mining and manufacturing, according to Brasher, could help fill that gap. “The good thing about industries such as mining and manufacturing is that they don’t require an MBA or doctorate or the full spectrum of privilege. They require hard work, determination, curiosity, basic discipline, turning up and giving your best together with an opportunity to progress.”

Taking a long-term view of infrastructure

Fintech boss Wierzycka said infrastructure is a key element to gain independence from the international community and generate jobs. She suggested legislation be introduced to force cash-rich pension funds to invest 5% of savings into infrastructure.

“With new optimism and confidence that money is not being stolen or wasted, people will be more willing to invest in projects,” she said. 

Mark Cutifani, CEO of mining corporation Anglo American, said South Africa should start investing into the infrastructure “we know we’re going to need in five years’ time and beyond to continue growth.”

Regional integration

Pravin Gordhan pointed out that the importance of regional integration and cooperation with the rest of the continent is one of the challenges facing South Africa, and one which the president has already embraced in his capacity as chair of the Southern African Development Community (SADC).

President Ramaphosa recently visited Luanda in Angola, Windhoek in Namibia and Gaborone in the Republic of Botswana to hold consultative meetings with the countries’ respective presidents.

This integration, along with the other measures outlined by the panellists, could become the building blocks of South Africa’s new economic model and jump-start sustainable progress.

Investec’s Koseff said that the key to economic growth is to “break the back of the growth cycle and get it moving properly”. Once achieved, “South Africa could be the platform for Africa that can create employment and be one of the leading economies in the world from an investment perspective.”