The panel was broadly unanimous in identifying the following impediments to higher levels of economic growth:

Skills shortages and the failure of the education system mean that South Africa is unable to deliver the number and level of skilled professionals necessary to grow its way out of poverty and inequality. A number of the panelists remarked on the small percentage of pupils who leave school with higher grade maths good enough for university.  The Institute has previously noted that fewer than 5% of pupils are able to attain this, despite very high levels of state expenditure on education

Bureaucratic red tape restricts the space for entrepreneurship and the establishment of small businesses. The panel broadly concurred that red tape in South Africa was extensive. It was also a ‘unique’ obstacle to growth, said one economist, because many of the officials responsible for implementation lack the skills to do a proper job.

Labour market regulation was identified as a particular concern. The Institute has long argued that unskilled people need to be priced into the labour market rather than effectively excluded from it by unrealistically high wages. It is also grossly unfair that many of the people denied skills by apartheid education should now also be denied the right to negotiate employment contracts on such terms as they are willing to agree.   

South Africa has also been consuming more than it produces, as confirmed by our gaping current account deficit (now in the region of 7% of GDP). This is partly because the government has fostered consumption rather than building up key productive sectors, such as mining and agriculture. As some of the economists noted, the mining sector has been in recession in the midst of possibly the greatest commodities boom the world has ever known. In addition, South Africa has shifted from being a food-exporting nation to a food-importing one.

Governance concerns also emerged as an important constraint on growth. One member of the panel noted the large number of qualified audit reports regularly issued to various government departments. This suggests a disturbing degree of inability to adhere to standard financial controls. In addition, skills shortages within the public sector have made it very difficult for the state to deliver basic education, security, and health services. Yet such services are some of the basic building blocks of a successful economy.

Policy failures and the law of unintended consequences have also damaged the economy. One panelist noted that employment equity legislation has resulted in a massive shift of skills from the public service to the private sector. Another noted that it has contributed to the brain drain from the country. All emphasized that South Africa cannot afford to lose more of the scarce skills it battles to replace because this will further reduce the limited  productive capacity of the country.  

Infrastructure shortages are another key constraint emphasized by all the panelists. The government plans to spend R750bn on infrastructure over the next five years to enhance our productive capacity and reduce the costs of doing business in South Africa. But success in this vital venture is by no means assured. The country lacks the necessary skills to build or maintain power stations, ports, railways, and pipelines. It also lacks the savings to help fund a steep increase in fixed investment and cannot rely solely on borrowings and capital inflows to finance them. Importing the necessary plant, materials and other equipment will also widen the current account deficit, making it still more unsustainable. 

The striking message to come out of the seminar is that many of the key constraints on growth stem from socio-political and governance factors. The good news is that these impediments to growth are within the power of the government to resolve. There are clearly many external constraints on growth -- including rising oil prices and the sub-prime crisis in the United States -- which the government cannot control.  However, the impact of these external factors can be lessened to some extent by addressing the policy and governance issues which fall squarely within the government’s scope of responsibility. This reaffirms that South Africa’s future lies very much in the hands of its government and therefore also in the hands of its electorate. If the country proves unable to address its major economic challenges, its citizens should look inwards in understanding many of the reasons why.

- Anthea Jeffery and Frans Cronje

Have your say on this and other Institute opinion log on at www.raceleader.org.za

Forthcoming publications

Our May Fast Facts takes a critical look at proposed new expropriation legislation. A Press Briefing to launch this report will take place at 4:30pm on Thursday 15 May at our Johannesburg offices. All our Media Alert subscribers will receive email invitations. An invitation will also be posted on this site from next week. The media and all other interested parties are welcome.

Forthcoming events

On Tuesday next week we host SA: The Good News for an evening briefing at our offices. Click here for details.