Economic Growth in South Africa

The question of economic growth in South Africa is a matter that has been discussed frequently and long, with very few real insights.  There are some very serious reasons why the South African economic growth is so sluggish.  Not all of them are discussed below, but those that are mentioned, if correctly addressed, will be material in accelerating economic growth.

The first real question is corruption.  The first question that is raised in a discussion of, for example, a high-level delegation to China headed by the President, is “Who is getting the pay-off, and how much is it?”  The experience in South Africa is such that any intelligent citizen is driven to believe that the only reason anything is done is that some official, or, more likely, several citizens, are benefiting by bribery, participation in the contract or advantage of some sort deriving from the action.  Witness the Arms Deal, which saw a huge and valueless purchase of munitions driven by pay-offs to a group of top politicians, the Police Head Quarters building lease, the persecution of innocent foreign-owned companies by the South African Revenue Services, which demanded a huge penalty for a ‘transgression of the VAT Act’ that was afterwards admitted by the responsible junior official to have been erroneous, the fact that two Commissioners of Police were discharged for corruption, the huge number of officials in various parts of Government who have lost their positions (often without further consequences!) as a result of corruption, the fact that an Advisor to the Premier of a Province brazenly asked for a bribe of R1 800 000 before the Government of that Province would agree to support a project planned to create 350 000 sustainable jobs!  The full list would cover many pages.  Many countries expressly forbid their citizens paying a bribe, and many investors take the moral position that there will not under any circumstances be a payment of a bribe to achieve any right or any favourable position or contract.  Numerous investors in industry in South Africa, both actual and potential, and both South African and foreign, have walked away from doing business in South Africa as a result of the very high level of corruption in Government.

The second factor is the very low level of education and skills training in the country.  During the abovementioned jobs development project, research found that the locally-available skills were substantially lower than the acceptable level required to support a large investment in the country by European companies seeking to establish industries to undertake the work outsourced by those companies in high labour-cost countries.  The project was designed to supplement these skills shortages, but the Premier of the Eastern Cape Province remained unwilling to provide any support to the project.  The promoter of the project was informed by a senior person in the civil sector that the reason for the failure of the Provincial Government was that the promoter had failed to bribe the correct person!  The failure of the education system in at least two of the Provinces has demonstrated the absolute incapability of the Governments, both central and Provincial, to manage this most vital aspect of a country’s development.  The very poor performance of the Education Departments, coupled with the surprising improvement in the Matric pass rate when the average citizen and the average employer has not been able to see any improvement on the ground, has caused a high level of distrust in the value of the pass, and the statistics of the pass rate.  It is now a fact that, where previously a degree by any of the major South African universities was accepted by foreign employers as absolute evidence of capability, now such a degree is treated almost with contempt.  Personal experience of recent graduates has tended to validate this attitude, and the continuing reports of the fact that law graduates have difficulty with language illustrates the problem.

The very high cost of labour, in total terms, when compared with the low productivity of that labour, is a significant disincentive to investment in any industrial activity that is not location-bound.  Where an industry can be undertaken in any of several locations, the industrialist makes a rational assessment of the total costs of labour, among other factors, and goes where the balance of productivity and cost is most favourable.  Included in the cost of labour are factors such as wage and benefits conditions, the cost of reporting to the numerous bodies, the likelihood of strikes and their duration, the hours of work per year, the cost of BEE requirements, the cost of complying with employment equity requirements and many other similar factors.

A factor that is now frequently taken into account by potential investors is the uncertainty of future Government actions.  This is exacerbated by the clear unwillingness of central Government to distance itself in clear terms from the harebrained demands of Youth League leaders for ‘expropriation without compensation’, by the continuing anti-White and anti-West stance of the Government, and the general bumbling behaviour of the Government and its seeming unwillingness to state clear policies that are conducive to the establishment of industries in the country.

A further factor is the amount of taxation, in the widest sense, that the Government imposes.  This includes direct taxation of earnings, the double taxation of such earnings by the taxation of dividends or other withholding taxes on the earnings of foreigners, the indirect taxes in the form of road tolls, airport taxes, Eskom prices, import duties and the many other charges, fees and levies imposed by Government.  The proud statement by the Minister of Finance in his Budget speech, that the Budget now exceeded one trillion Rand, is a clear statement that the Government sees its function as extracting as much of the income and capital of the citizens and investors as possible, rather than providing the environment in which those people can maximise their own personal income and wealth, with the Government share at the lowest possible level.  Further proof of this is given by the bullying tactics and the illegal extortion of penalties practiced by SARS, a practice that appears to have originated under the stewardship of the current Minister of Finance, a practice that has served as a significant deterrent to investors who prefer to invest in countries where the rule of law is upheld by Government.  This practice was given a strong encouragement by the recent imposition of regulations that permit entry and search by SARS without Court Order, a practice that flies in the face of every rule of democratic government.  Many investors recognise the fact that the policies and the strong Communist/Stalinist tendencies of the Government in power must inevitably result in higher taxes and operating costs, and therefore lower net income, in the future.  They also recognise that these tendencies may result in the grabbing of their assets without any form of normal legal process.  The example of Zimbabwe looms large, and the Government appears to view the maniacal rule of that dictatorship as a shining example of good governance.

In short, any rational assessment of the economic situation in South Africa must conclude that the economy is set to decline, that the level of employment has little hope of rising, until the Government makes a substantial turnaround in its attitudes, in its encouragement of the organised criminality that its members appear to consider to be their right, and until people are appointed to senior positions, from Ministers to senior clerk, on the basis that they are competent to do the job, rather than on the basis of their ability to contribute to the power base of those who appoint them