The economy: economic transformation and inclusive growth can only happen within a context of higher rates of

DUMA GQUBULE shares that economic transformation and inclusive growth can only happen within a context of higher rates of GDP growth

After a technical rebound during 2021, South Africa’s economy has returned to its pre-pandemic trend of low gross domestic product (GDP) growth and soaring levels of unemployment. The war in Ukraine, stringent lockdowns in large Chinese cities, soaring inflation and rising interest rates in the rest of the world will reduce global GDP growth and dim the prospects of recovery of a local economy that has taken body blows from renewed load shedding and floods in KwaZulu-Natal. With economists predicting low GDP growth and a rising unemployment rate until 2030, the outlook for transformation and inclusive growth is poor though there has been an uptick in empowerment deals and a strengthening of employment equity laws.

After a decade of low GDP growth between 2009 and 2019 – the economy grew by

1.6 per cent a year – South Africa suffered its worst recession in almost a century.

GDP collapsed by 6.4 per cent in 2020 due to the lockdowns implemented to contain the spread of the coronavirus pandemic. In 2021, the economy grew by 4.9 per cent – a bounce back from the previous year’s lows primarily because the lockdowns were less severe during the year. But the damage was severe. South Africa has an unviable economy. Between December 2008 and December 2021, the economy shed 225 000 jobs, while the labour force increased by 6.3 million people, according to Statistics South Africa’s Labour Force Survey for the fourth quarter of 2021. The number of unemployed people increased by 6.5 million people to 12.5 million.

The expanded unemployment rate increased to 46.2 per cent. The country had unemployment rates of 77 per cent for youth, 50.7 per cent for black Africans, 55.7 per cent for black African females, 53.2 per cent in the Eastern Cape, 52.8 per cent in Limpopo and 52.4 per cent in Mpumalanga.

ROCKY ROAD TO RECOVERY

At the beginning of 2022, there was hope for a strong economic recovery since most lockdown restrictions had been lifted. The government’s hopes were pinned on an economic recovery and reconstruction plan with two components – infrastructure-led growth and structural reforms, code for privatisation, deregulation, liberalisation and the withdrawal of the state from network industries, electricity, transport, telecommunications and water.

But in 2021, South Africa had an investment ratio of 13 per cent of GDP.

The annual shortfall to achieve the 30 per cent target set in the National Development Plan (NDP) is R1-trillion. The government has budgeted for infrastructure spending of R812.5-billion over the three years to 2024/2025. That is equivalent to about four per cent of GDP a year.

The annual shortfall to achieve the

10 per cent target in the NDP is R400-billion. Since 2019, the government has allocated a budget towards a planned R100-billion infrastructure fund, but each year, Treasury has cancelled the allocation. The fund has no money. The structural reforms, most of which are in the energy sector, will not go very far in closing the annual investment shortfalls.

Also, Treasury’s own forecast – GDP growth of 1.8 per cent a year between 2022 and 2024 – suggests that it believes that its recovery plan will deliver a faster rate of growth in the economy. The global economic outlook deteriorated sharply when Russia invaded Ukraine the day after finance minister Enoch Godongwana made this forecast in the 2022 budget.

Domestically, the biggest binding constraint on GDP growth is load shedding. Absa’s quarterly perspectives publication says: “Energy supply appears to be worse than we had previously anticipated. To put this into context, 2021 was the worst year ever for load shedding, but in the first four months of this year, Eskom has implemented load shedding for roughly the same number of days, but at a much higher intensity.”

WITH ECONOMISTS PREDICTING LOW GDP GROWTH AND A RISING UNEMPLOYMENT RATE UNTIL 2030, THE OUTLOOK FOR TRANSFORMATION AND INCLUSIVE GROWTH IS POOR.

“IThe National Income Dynamics Study Coronavirus Rapid Mobile Survey found that about 1.8 million people and 400 000 children lived in households affected by perpetual hunger.”

EQUITY, OWNERSHIP AND TRANSFORMATION

Former Black management Forum president mncane mthunzi says the government must increase its investments in infrastructure projects – roads, bridges, clinics and schools – not vanity projects to create jobs and inclusive growth. it must also increase the size of the expanded public works programme. “The government must go back to developing technical skills. The big mistake was when the government decided to close technical colleges.

“We must provide loans for people to start businesses as plumbers and electricians. Companies must also contribute and spend the three per cent of net profit after tax target in the Broad-based Black economic empowerment scorecard on supplier development initiatives. They must also increase employee share ownership plans because not everyone wants to be an entrepreneur. The trade unions must come on board and campaign for the democratisation of ownership in the economy. share schemes cannot be just for directors,” he says.

Black economic empowerment Commissioner Zodwa Ntuli is cautiously optimistic that companies are implementing ownership schemes. The commission’s research has analysed 473 Bee transactions worth R553-billion submitted to her office between 2017–2018 and 2019–2020. There were 272 transactions worth R188-billion in 2017–2018, 95 transactions worth R112-billion in 2018–2019, and 106 transactions worth R253-billion in 2019 and 2020. “This is a significant number and value of transactions, but we are cautious because they may not have been implemented properly. We are doing further analysis and will be publishing results of transactions between 2020 and 2022.”

Tabea Kabinde, chairperson of the Commission for employment equity (Cee), believes that recent amendments to the employment equity act will yield results in terms of a faster transformation.

“The Commission advised the minister of employment and Labour to introduce employment equity amendments currently in progress in Parliament. They will empower the minister to regulate sector-specific ee targets and the issuing of ee compliance certificates to expedite change and economic transformation in our labour market. The amendments aim to also check compliance on substantive equality, something the Cee has not been able to measure until now,” she says.

However, the most important lesson of the past 28 years is that economic transformation and inclusive growth can only happen within a context of higher rates of gDP growth. Between 2004 and 2008, the economy grew by 4.8 per cent a year. most of the economic value from Bee transactions was created during this period. The economy also created 3.1 million jobs between march 2003 and December 2008. The expanded unemployment rate declined to 28.7 per cent from 40.6 per cent during this period.

south africa desperately needs a new plan to achieve higher rates of gDP growth, accelerate economic transformation and prevent a predicted disaster scenario of rising levels of unemployment until 2030.

“THE TRADE UNIONS MUST COME ON BOARD AND CAMPAIGN FOR THE DEMOCRATISATION OF OWNERSHIP IN THE ECONOMY. SHARE SCHEMES CANNOT BE JUST FOR DIRECTORS.” – MNCANE MTHUNZI