Select Page

Response to Minister Tito Mboweni’s Economic Strategy Document

KIZITO OKECHUKWU | SEPTEMBER 02, 2019

Source : www.ewn.co.za 

By now, anybody remotely interested in South Africa’s economy will be acutely aware of Treasury’s recently-released draft policy document on an economic strategy for South Africa.

It focuses on economic transformation, inclusive growth and competitiveness, and invites public discussion and input till mid-September.

This past weekend I perused the document, which I thought was well-written and somewhat thought-provoking. Although the information presented are not entirely new, the way it collates our challenges and avenues to redirect our economic path should be lauded. I will share more of my thoughts a bit later below.

I also engaged friends and colleagues – posing the question “what makes an economy competitive and productive?” One response was that an economy is competitive when it takes care of the well-being of its citizens, another was that it is when productivity levels are at their highest.

To push through my stance on this, the World Economic Forum listed Singapore as the most competitive country in the world and I thought in order for us to grasp why, we need to really study the country’s economic make-up.

Singapore prides itself on having some of the best-run SOE’s (arguably now a swearword in South Africa for both economists and the tax-paying public at large) that look at the acquisition of strategic assets and invest in sectors that drive economic growth and human welfare. They also focus keenly on the manufacturing sector, driving chemical exports, electronics, services and many other products.

Minister Tito Mboweni’s document paints a startling picture of South Africa’s dire economy and identifies various ways to turn the tide. Rather than dissect and nit-pick its entire content, I prefer to give my input by focusing on three key areas:

One – The Role of the Private Sector: This is the engine of growth. It provides most of the jobs in developing countries and pays taxes to governments; contributing to some 60-70% of their revenue and also invests heavily in building new industries. The sector’s primary goal is profit and whether we punt themes like shared growth, inclusive value, etc., it will participate in the economy mostly to increase its bottom line. A concern I have is that the document relies too heavily on the private sector capitalist involvement and, due to the historical injustices of the past, it might be difficult to see a way to eradicate inequality and the reach of some critical services to the low income households.

Two – The Role of the Public Sector: This sector is all about creating policies and regulatory frameworks. As the biggest buyer of goods and services in South Africa, public sector must use its financial muscle to define the economic trajectory of the country. It must also shape economic institutions and influence how resources are used and deployed, under constant scrutiny and with utmost transparency and accountability. I still believe that this sector has the intrinsic power to lead South Africa’s development. Although this is evident in the document, the ongoing challenges faced by the various SOEs and government departments distract from driving this home. Public-private partnerships across the world, have proven highly effective in driving economic growth. In 2014, the Australian Government published a paper on economic growth and poverty reduction in the Indo-Pacific region and it elaborates that, Government plays a central role in supporting economic growth and reducing poverty. It needs to provide good policy, strong institutions and efficient public goods and services to ensure the private sector can thrive and the benefits of growth reach all citizens. As well as developing and prosecuting policies which promote growth, governments must also commit to develop and sustain the institutions that implement, oversee and regulate those policies. This is the enabling environment that encourages the private sector to invest. The vast majority of constraints to growth identified by the private sector are directly linked to government decisions and action. Government’s policy and legislative decisions determine to a large degree the scale and quality of economic growth and the private sector’s role in it. The model of an open, export-orientated economy with a flourishing private sector gives developing countries the best chance of increasing prosperity and living standards. The provision of public goods is a key determinant of quality of life for individuals and communities and, hence, the attractiveness of a country to private investment. It is in government’s interest to promote growth that advantages the poor. This not only improves social stability, it increases the capacity of the poor to contribute and thereby further boosts economic growth”.

Three – Role of SMEs: They’re the backbone of any country’s economy. The role of SMEs cannot be seen as a medium term goal as put forward in the document. It must be an immediate goal for the country. The document’s diagnosis on the challenges faced by SMEs are accurate, but a regurgitation of what we already know. A plethora of research reports and our own GEN analysis acknowledge this. Issues like funding for seed and early stage start-ups, a 30% set aside procurement for SMEs by government, late payments and bureaucracies still plague the SME environment and cannot be relegated into medium term goals. The document’s proposed solutions are quite reasonable, but the real challenge remains the implementation. Will the same institutions that exist today be mandated to implement same reform? Are there measures that will be put in place to ensure implementation? Are there repercussions for non-implementation? I agree with the document’s proposed idea of interest as penalty on late payments for SMEs.

In nearly every problematic economic scenario, there will be winners and losers. The fact remains that the country at large will be the ultimate winner if the above three points are taken into careful consideration when implementing the policy document.

Just up the road from us, Nigeria has been plagued by many years of interrupted power supply and there is only one reason why it continues today. The potential losers do not want to back down because having an uninterrupted electricity supply means no more generators, which means the industrialists that manufacture or import generators lose out. Then there’s the petrol/diesel supply part of the equation, in which many top politicians or businessmen are financially invested. Hence Africa’s economic powerhouse (Nigeria) continue to lag because of lack of steady power supply.

The policy document did acknowledge that there could be losers in the process of adopting the document. South Africa must bring its losers to the table and find incentives for them to participate, or else they will derail any economic plan.

In closing, South Africa’s inequality and poverty challenges must be front, and centre of the document and any policy developed for implementation must be aligned to economically rescuing the most poor and vulnerable and creating an equal society. Private sector should also play its part in ensuring better collaboration with startups. Public sector must do more in terms of impactful programmes, technical support and viable funding mechanisms.

Now’s the time to heed the words of the King of Rock ‘n Roll…“A little less conversation, a little more action”

 Kizito Okechukwu is the co-Chair of the Global Entrepreneurship Network (GEN) Africa – 22 on Sloane is Africa’s largest startup campus.

ABAN & AfriLabs Partner to Launch Catalyst

ABAN, the largest network of Angel Investors in Africa and AfriLabs, the largest pan-African network of technology and innovation centers, are proud to introduce Catalyst, an initiative to support the African start-up ecosystem and deliver real, measurable impact to stakeholders.

read more

A Better Functioning Country Begins With Nation Building

Nation Building is a concept that can mean different things to different societies. This is especially true when the societies have a cauldron of different objectives, languages, cultures and creeds. It is even worse when a country is so fractured and factioned.

read more