New compact needed to consolidate gains of last 20 years

25th April 2014

By: Terence Creamer

Creamer Media Editor

  

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In Ernest Hemingway’s novel, The Sun Also Rises, the question “How did you go bankrupt?” is posed. The response: “Two ways. Gradually, then suddenly.”

For South Africa, the ‘gradually, then suddenly’ analogy could just as well be applied to the liberation struggle. For years, progress was glacial and gruelling. But once democracy was eventually attained (not by some miracle, but through struggle and compromise), change was not only rapid, but also relentless.

The legislative agenda alone was so large and ambitious as to be considered punishing. The racial transformation of government departments and State companies was also remarkable, notwithstanding the ‘sunset clause’ compromise.

For business, too, change became part of the daily routine. Legislative and moral imperatives drove the first, albeit clumsy, efforts towards black economic empowerment. South Africa’s enthusiastic (some would argue overenthusiastic) embracing of trade liberalisation and globalisation meant that it could no longer be business as usual, especially at factories built on tariff protection and a philosophy of import substitution.

Fundamental changes to the labour legislation forced executives to rethink past, often callous, patterns of industrial-relations behaviour. Unions, freed up from some of their anti-apartheid role, began exploiting the space created to campaign for improved labour laws, better wages, improved working conditions and prodevelopment economic policies.

On the infrastructure front, the focus fell firmly on improving access for those previously treated as less than an afterthought in the delivery of housing, water, sanitation, transport, electricity and waste-management services. In many areas, particularly electricity and water, progress was nothing less than remarkable. At the start of the 1990s, less than one-third of South Africans had access to electricity. By the end of 2012, the percentage of households with access to electricity had risen to over 85%.

These changes were not always easy. At times they were only made because of the purposeful and determined leadership of heroic South Africans, most notably former President Nelson Mandela. But on the whole, South Africans, across the racial spectrum, were rewarded socially and economically for embracing and adapting to change.

The benefits were tangible in the form of higher economic growth and improved access to schooling, modern health facilities and job opportunities. But some of the benefits were also less tangible, as South Africans began enjoying the warm embrace of the international community, with all its sporting, cultural and economic spin offs, epitomised by South Africa’s successful hosting of the FIFA 2010 World Cup.

Democracy also brought with it greater transparency. South Africa’s Budget process, for instance, is ranked as the second-most-transparent and accountable in the world after New Zealand’s. The media has flourished over the past 20 years, with robust commentary and reporting the order of the day.

However, this mainly positive picture cannot, and should not, obscure the reality that postapartheid South Africa is simply not as good a place to live and work in as it could be 20 years into democracy.

The downsides of the ‘New South Africa’ are well known and documented. Crime remains high, as does violence against women and children. There are serious quality problems at public schools and while, South Africa may have overcome its initial unwillingness to acknowledge and deal with the HIV/Aids crisis, the treatment of patients at State hospitals sometimes borders on the inhumane.

South Africa is also finding it difficult to deal with illegal immigration and ongoing rapid urbanisation, which put a strain on urban resources and infrastructure. Pollution and a deterioration of ecological infrastructure pose health risks, while South Africa’s biodiversity is threatened, with over 1 000 rhino killed in 2013 alone.

In the business milieu, industrial relations have become increasingly hostile at a time when South Africa is struggling to find its way in the wake of the ‘Great Recession’ and as the prospects for factory and mine automation become increasingly realistic. Inadequate social and economic infrastructure is boiling over into regular service-delivery protests at local level, while undermining growth and exports at the national level.

Corruption is at worrying levels, with South Africa fast approaching a tipping point. Unless the problem is aggressively checked, there is a real risk of corruption becoming endemic across all spheres of life – from enrolling at a public school or securing an identity document or, driver's licence, through to accessing government contracts or avoiding law enforcement.

Integrally linked to poor educational outcomes, with the country ranking last in maths and science education in the World Economic Forum’s latest ‘Global Competitiveness Report’, is South Africa’s worrying skills mismatch. This means that companies are unable to fill key positions, despite an unemployment rate of upwards of 25% on the narrow definition. Immigration reforms could help in the short term, but are no substitute for addressing the domestic talent pipeline.

The high level of joblessness, especially among young people, is also the main contributing factor to South Africa’s two most worrying problems: poverty and inequality. Greater attention and priority will have to be given by government and civil society to genuinely addressing both problems, as a failure to offer credible solutions poses a real threat to democratic stability and economic advancement. The reality is that too many of our citizens are being left behind.

In many ways, the May 7 election will be about sending a signal to citizens and the international community that there is a political mandate to tackle this country’s many problems, while reaffirming that South Africa remains broadly on the right track for the majority of South Africans.

Post election, the South African economy should begin to recover a little faster, assisted by international factors, as the world economy, and the African region, in particular, grows more rapidly. The key challenge, though, is to ensure that growth is driven not only by external factors, but also by internal ones. This will require the successful execution of the multibillion-rand infrastructure projects being led by State-owned enterprises, such as Eskom and Transnet.

But for a real and sustained acceleration to be achieved, greater trust and confidence will have to be established between government and business, as well as between business and labour. Rising confidence has the potential to encourage South Africa’s private sector to lift investment levels, while providing a signal to foreign investors that South Africa’s investment climate remains attractive and that the country remains a natural gateway through which to access resources, infrastructure and consumer markets in the rest of Africa.

A less hostile labour climate, similarly, would go a long way to lowering the investment fear factor and would also encourage business to fully commit to the skills upgrading that is going to be so critical to improving competitiveness levels and increasing value-added production and exports.

Rebuilding public-private trust and confidence will also be critical if South Africa is to liberate itself from its current low-growth economic trajectory, which has become a critical impediment to job creation and sustaining programmes that reduce the full impact of poverty and inequality.

It became clear from the February Budget that South Africa has more or less exhausted the fiscal space it once had to sustainably introduce new safeguards to protect its most vulnerable citizens and stimulate the economy. It also became apparent that a new partnership or compact is needed to create the confidence required to enable job-rich growth.

South Africa’s large public infrastructure programme notwithstanding, the next phase of this country’s recovery will have to be led by the private sector, with the first phase having relied on government’s now fragile balance sheet and the second on accommodative monetary policy.

But private balance sheets will not be unlocked in the absence of confidence. And confidence will not emerge by itself, especially in a context of growth-sapping infrastructure bottlenecks and, even more importantly, the current volatile labour climate.

Here again, Hemingway’s ‘gradually, then suddenly’ analysis is instructive. If a new social pact is crafted, endorsed and diligently maintained over a sustained period, the initial gains will probably be gradual. However, once momentum has been created, it is quite feasible that the pace could suddenly quicken. Together with policies and programmes that encourage inclusivity, a material acceleration in growth will offer the country the critical leverage it needs to overcome its current problems.

But, worryingly, the bankruptcy analogy is equally relevant. Should South Africa’s political, business and labour leaders fail to put the country first by embracing a common growth and development framework, the deterioration could be gradual at first, and then sudden.

 

 

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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