Better education needed to spur economic growth, says Jammine

29th September 2021

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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The central element to enable South Africa to achieve radical economic growth is education and skills development.

The lack of skilled workers and the problems with the education system are at the heart of South Africa's structural weakness and solving this challenge is necessary to create the environment in which jobs are created to enable people to make a living, says economic research consultancy Econometrix director and chief economist Dr Azar Jammine.

"One needs only to look at the education system, which is at the heart of our structural weakness, to realise what can be done if we can turn it around.

"If we can address these issues properly, in next to no time, South Africa will be able to achieve 5% to 10% growth that will help to resolve many of the problems facing the country," he notes.

Policies focused around manufacturing and reindustrialisation will be futile if South Africa's structural weaknesses are not addressed first, he stresses.

A potential strength, or comparative advantage, that South Africa has is if its labour force can be more productive. At the heart of the lack of productivity of the workforce, and why it will be futile to attempt to spark a manufacturing revival with such a workforce that is not adequately qualified, is the poor level of skills and education of the majority of the workforce, says Jammine.

Because of the lack of education, people cannot add value in an economy - and world economy - that is becoming more digital and technologically intensive, as numeracy and literacy skills are needed to take advantage of this change, he says.

"However, there are examples of the pace of development that can be achieved if we can upskill the workforce and ensure we educate our people properly. When I did research in Singapore a few decades ago, I saw with my own eyes what can be achieved."

At the heart of the decade-long recovery of Singapore was developing technical expertise and the technical competence of the workforce, says Jammine.

"The Asian Tigers recipe saw a lot of government intervention and State-owned enterprises formed a substantial element of the economy, but this was combined with a passion for encouraging private enterprise and entrepreneurship and letting people build their own careers and businesses.

"South Africa desperately needs to free up the ability to do business, and this involves deregulation and unleashing the potential entrepreneurial spirit in South Africa."

The oligopolistic structure of South Africa's economy is partly the result of sanctions imposed on the apartheid government, in which exchange controls led to capital in South Africa being bottled up in ever larger corporations and institutions.

"We cannot seem to get rid of these oligopolistic elements to allow more enterprises to get going in South Africa," adds Jammine.

South Africa must undertake more practical attempts to encourage the development of small enterprises and the concept of working for one's self and trying to develop one's self as a professional. Such a policy would also include encouraging more businesses to pay taxes, but this approach can open the way for a differential tax regime that encourages small business activity, he says.

Further structural challenges include the debt-to-gross domestic product (GDP) ratio, which deteriorated from 22% in 2008 to more than 80% in this year. This ratio would not be a problem if South Africa's credit rating were better; other countries have higher debt-to-GDP but are able to pay their debts on time.

"A huge mistake made by the government is that, in the wake of the global financial crisis of 2008/9, with such low levels of debt, they tried to counteract some of the ravages of the global financial crisis by having government spending more money and adopting an expansionary fiscal policy.

"However, instead of developing infrastructure, such as roads and bridges and power stations, South Africa spent it on expanding the public service and paying public servants more. There was a significant increase in the public service between 2010 and 2015, while in the private sector, employment was not increased during the same period. This was further exacerbated by more spending on unneeded patronage," says Jammine.

The world observed South Africa's progressively deteriorating fiscal metrics, which went hand-in-hand with State capture and the huge amounts of money being wasted on corruption, and has rated the country's ability to service its debt according to what the observable trends indicate. There was a diametrically opposed trend between the growth of the public service and expenditure to support it on one hand, and the decline in economic growth on the other.

"A decline in economic growth led to a decline in government revenue. This has reached critical proportions over the past few years, and was exacerbated by the destruction of the South Africa Revenue Service (Sars), which has since showed some signs of success in restoring itself. The destruction of Sars' integrity led to the amount of revenue collected relative to the size of the economy deteriorating badly."

However, even if the budget deficit is reduced to single digits from the current 14% to 15% of GDP, with a growth rate of only 1.5% to 2%, South Africa will still be heading for a large increase in public debt-to-GDP ratio.

The only solution over the medium-term is to start growing the economy faster, and this requires structural reforms to education systems, labour laws, business regulations and improving government's capability to perform its functions, he says.

President Cyril Ramaphosa, including during the launch of the African National Congress' (ANC's) 2021 election manifesto in September, has spoken about improving the capacity of the State and the huge weakness in the capacity of the State.

"This challenge of poor government capacity was worsened as cadre deployment, initially meant to transform the public service, changed to become a way to deliberately enrich cadres. Until the ANC gets rid of cadre deployment, I do not know how we can turn around the quality and capacity of especially municipalities to start performing better and improving service delivery," says Jammine.

"We need to kill corruption, invest more and consume relatively less. We need to improve education, break the monopolistic environment, loosen labour legislation and encourage more private sector involvement in State-owned enterprises to improve their ability to be managed appropriately. We need to get rid of cadre deployment to improve competence of government and kill corruption in government."

Currently, there are negative and obstructionist factions in the ruling party that oppose these reforms that have to be overcome and this will take a long time to do.

These are significant challenges that are unlikely to be resolved over the next few years; however, the long-term economic potential of South Africa is enormous, Jammine says.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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