Director: ReVive Advisory & Turnaround
South Africa is a small country in a hostile world. The gloss of 1994 has gone, and the harsh reality of poor governance, poor economic management, corruption, rampant crime, and massive failures in maintaining and developing our infrastructure have deterred foreign and domestic investors.
In our most critical election since 1994, we must ask hard questions of both the ruling party and those who would lead. The discussion has moved beyond the failures of the African National Congress (ANC) and is now focused on choosing policies that will enable successful economic growth and the measures that need to be put in place to implement them.
In the first of two articles, I will look at the elements that we need to focus on if we are to build a robust economy. South African comedian Trevor Noah once made a witty yet truthful observation about our national ability to take our own route when resolving issues. “Don’t worry, we will meet you there. We just need to go the long route,” said Noah; however, this may not be the most prudent time for that approach to the challenges highlighted below.
A troublesome outlook
As part of my annual preparations, I have always found it useful to look at the various dimensions of the environment we operate in. In this article, I have highlighted some of the key issues that the UN report (World Economic Situation and Prospects) discusses. The report does not make for a good night’s sleep. However, it does show the real opportunities for South Africa and what we need to ask of the economic leadership of our Country.
In this article, I highlight the key non-financial challenges we face in 2024.
Weak economic growth
The report points out that economic growth in Africa is projected to remain weak, increasing from an average of 3.3% in 2023 to 3.5% in 2024. The global economic slowdown, tighter monetary and fiscal conditions, and high debt sustainability risks will remain a drag on the region’s growth prospects.
The unfolding climate crisis and extreme weather events will undermine agricultural output and tourism, while geopolitical instability will continue to adversely impact several subregions in Africa, especially the Sahel and North Africa.
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Uneven labour market recovery
The report points out that developing countries face divergent near-term growth prospects, particularly when it comes to uneven labour market recovery.
The US and Europe employment levels have recovered and exceeded pre-pandemic levels. This recovery was uneven. Contrastingly, developing economies experienced divergent trends with Brazil, China and Türkiye experiencing declining unemployment rates.
The report adds that many developing countries (especially in Western Asia and Africa) continue to struggle with high unemployment. In most economies, wage growth failed to offset the impact of inflation and exacerbated the cost-of-living crisis.
Deteriorating labour conditions
The report points out that labour market conditions in many developing countries will likely deteriorate in 2024 amid weaker prospects, with the lagged effect of monetary tightening taking a toll on employment.
In my view, structural reforms are required in the South African labour market place to make it more skilled, flexible, and productive. Key interventions include:
- when it comes to skills, our education system is over funded given the shocking outcomes we achieve;
- when it comes to flexibility, restructuring hiring and discipline processes are arcane and small businesses simply cannot afford disputes and will therefore not risk growing and creating jobs; and
- productivity is driven by aggressive training and skills development with actual outcomes from onerous skills development levies that remain untouched in key sectors of the economy. We need to address this.
Our departure point with these interventions is to make us globally attractive to investors.
Inflation is ebbing but the benefits are not filtering through
The report points out that global inflation is ebbing. However, are we seeing the benefits of this? If left unchecked, food price inflation can exacerbate food insecurity and poverty.
High food prices have been a significant driver of food insecurity in developing countries, disproportionately affecting the poorest households, which spend a larger share of their income on food. In low-income countries – particularly those in Africa and Western Asia – poverty rates remained well above pre-pandemic levels.
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Despite promising developments, food prices showed signs of an uptick in the second half of 2023, particularly in Africa, South and Western Asia. This is driven by limited pass-through from international prices to local prices, weak local currencies, war, and climate-related shocks.
The inflationary trend in developing countries has also aggravated poverty, reversing some of the hard-won progress in poverty reduction.
International trade is losing steam as a driver of growth
The report points out that, in 2023, global trade growth weakened significantly to an estimated 0.6%, a sharp decline from 5.7% in 2022. It is expected to recover to 2.4% in 2024, remaining below the pre-pandemic trend of 3.2%.
This slowdown is attributed to a slump in merchandise trade. By contrast, trade in services, particularly tourism and transport,( Our SEO missed the Boat) continued to recover. A shift in consumer spending from goods to services, monetary tightening, a strong US Dollar, and geopolitical tensions impeded global trade.
Exports from developing economies suffered setbacks, with demand from developed countries weakening and financial conditions restricting trade financing.
On a more positive note, international tourism showed signs of a robust recovery, particularly in Eastern and Western Asia, and is expected to reach pre-pandemic levels by 2024.
There is an emerging trend of realignment in international trade relations, with countries seeking to secure supply chains closer to home or from more resilient sources.
All of these trends could be of benefit to SA if the logistics and energy challenges can be speedily addressed. The issues impacting Transnet, Prasa, Portnet, SAA, and Eskom all must be addressed as soon as possible.
Industrial policy is being deployed for sustainable development
The report points out that industrial policies are increasingly being seen as crucial reforms for fostering structural changes. Further, supporting a green transition is being revived and transformed. This shift is aimed at fixing market failures and aligning innovation with broader development goals. Innovation policies are also changing with more ambitious, systemic and strategic approaches being employed.
The COVID-19 Pandemic and geopolitical tensions have underscored the importance of domestic resilience, leading countries, and regions such as China, the US and the EU to invest heavily in the high-tech and green energy sectors.
The bottom line
Developed economies and several large developing economies such as China are investing unprecedented amounts in research and development in targeted sectors. Many developing economies, constrained by limited fiscal space and structural difficulties, continue to struggle to fund industrial and innovation policies. This growing technological divide could further hinder the ability of developing countries to strengthen their productive capacities and move closer to realizing the SDGs.
It is time to take a hard look at our Industrial and Trade policies. Perhaps we should focus on the economic sector cluster of Government. The business of business is crucial to our future, and given the impressive mismanagement, it is time to change the leadership of the economic cluster. Lets have the conversations that matter this year.
