Over the past year, we have embarked on an ambitious drive to leverage domestic and foreign investment to breathe new life into our ailing economy. In light of the dramatic course of events that unfolded over the past decade, we cannot look at the investment climate in a narrow sense. Our ability to resuscitate the economy is inextricably linked to correcting wrongs, restoring state credibility, and mobilising society behind a common agenda. This requires a more comprehensive assessment of our current moment, and the critical path we must traverse to move our country forward.
STRENGTHS
I will begin with our strengths. Previously, I placed leadership firmly among our weaknesses. This is now a strength, at least in the highest office. President Cyril Ramaphosa's New Dawn has set the wheels in motion to tackle state capture and restore governance credibility, especially in state-owned entities. The restoration of governance systems and controls in Eskom, Transnet, SAA, rail agency Prasa and the South African Revenue Service, among others, is under way. The Zondo commission is formally confirming what we already knew, though the depth and breadth of the state-capture project continues to alarm and to confirm how close we came to the brink of the abyss.
Importantly, the findings need to be followed through with prosecutions. The current cleanup of the security cluster is a major step in the right direction, and for the first time in a very long time it looks like we are set to have an independent National Prosecuting Authority.
More policy certainty has been brought to bear in mining, renewable energy and agriculture, unlocking significant new private sector investment (as illustrated in the R290bn committed at last month's Investment Conference). Already the legitimacy of the state is beginning to improve, and the beginnings of a new social contract for inclusive growth are taking root. But more needs to be done to extract the kind of trade-offs needed. Our current programme to effect wide-ranging institutional and economic restructuring continues to be distracted by populist sideshows.
Our economic fundamentals are strong, despite our poor performance. We are the African hub for financial services and the knowledge economy, and clearly have the most diversified economy on the continent. Our macroeconomic fundamentals remain sound, despite our current fiscal constraints. Our academic and research institutions are world-class, although we are under-funding innovation and technology development. We are a country endowed with an abundance of mineral resources.
We have thousands of kilometres of coastline and an extensive and modern logistics network of ports, airports, roads and rail. We have globally recognised ecological, adventure and heritage tourism assets, which could really start to leverage our weak currency if we concertedly address safety concerns.
Other strengths talk to our robust institutions, which saved us from economic ruination - the constitution, the judiciary, the media, civil society, academia, the Reserve Bank and the Treasury. Again, just as we were globally lauded in the mid-1990s for our constitution and reconciliation project, we are again being recognised as best practice in tackling state capture. But now is the time to consciously deepen and further embed public accountability.
WEAKNESSES
Our weaknesses, unfortunately, are still many. The economy is characterised by stagnation and inertia, with GDP predicted to grow by less than 1% this year. Until 2012, SA's growth performance broadly tracked that of the global economy. Since then, we have grown much slower than an already slowing global economy, suggesting that the slowdown cannot be explained by global conditions alone, but is due to domestic factors.
Underpinning our dismal growth performance is a crisis of falling investment. SA's fixed capital investment as a percentage of GDP currently stands at 18% and has been in a period of sustained contraction over the past few years. Fixed investment in China, by comparison, stands at 42% of GDP. We are ranked 121st out of 163 countries worldwide in terms of fixed investment. In the past four years, SA has fallen from the second-largest recipient of fixed direct investment in Africa to the sixth-largest. Attracting the kind of fixed capital investment that we need requires long-term returns, and therefore predictability and long-term policy commitments.
In achieving this, we must tackle the rising costs of doing business in SA. We have slipped in global competitiveness rankings. SA ranks 82nd on the World Bank's ease of doing business index, down from 74th in 2016 and lower than benchmark competitors such as Turkey (60th), Thailand (26th), Rwanda (41st) and Mauritius (25th). Most concerning is the country's ranking of 136th for "starting a business" - it takes an average of 45 days to register a business in SA, almost double the average for Sub-Saharan Africa.
As we reignite investor confidence in the South African economy, we must be more deliberate in channelling investment towards sectors and industries where we can create employment.
The greatest single challenge we face as a country is the jobs crisis. More than one in four South Africans of working age (or 6-million people) are unemployed, a rate of joblessness that rises to nearly 37% if we include those who have stopped looking for work. For youth, this figure rises to well over 50%. And it is only in the high-productivity jobs where we have seen an increase in employment. We must balance industrial policy and the various incentives packages to focus on deliberate employment creation. Subsidies must also be directed towards labour-intensive sectors where unskilled and semiskilled jobs can be created.
Linked to the crisis of joblessness is the challenge of structural inequality. The past 24 years have seen significant changes in the pattern of earnings, though less so in patterns of wealth. Income earned by black South Africans has increased from roughly one-third to just over half of national income. But while the black share of income has increased, the black share of wealth in the economy has not. The inequalities in wealth and opportunity present a threat both to the dignity of our citizens and to the strength and security of our society. Inter-racial inequality provides fertile ground for divisive populism.
Building a more inclusive economy must be at the centre of our national development agenda. But transformation is not simply about replacing a white elite with a new black elite. A fundamental restructuring of the economy is instead required in which rent-seeking is incrementally replaced with the development of new productive capabilities in which black South Africans have an increasing share. The current dichotomy between growth and transformation is false. We need to transform to grow, and we need to grow to transform.
In this regard, our health and education systems are in massive need of an overhaul. We simply have no excuse for underperformance in these key areas. Education in particular has proven a chronic failure, with the current system streaming pupils from poor rural and township schools (and technical vocational education & training colleges) towards unemployment.
Policy responses to combat inequality must move beyond the usual fiscal redistribution and asset redistribution to include measures that provide the poor and previously dispossessed with access to productivity-enhancing capital, skills, technology and markets.
Rebuilding the legitimacy and capacity of the state is crucial to achieving these goals.
OPPORTUNITIES
Africa's population growth compared to the world's demographic decline offers significant opportunities. By 2050, Africa's population will double and, by the end of the 21st century, Africa will have a similar-sized population to Asia. This demographic dividend makes Africa the fastest-growing consumer market. Moreover, new consumer trends (such as fast fashion) necessitate that production is located in close proximity to markets because fast markets cannot afford the one-month shipping delays from the East, for example.
The growing African market, and the shift towards regionalisation of production, could greatly benefit SA as an entry-point destination to Africa. And the Africa Continental Free Trade Area, which SA recently signed up to, bolsters this opportunity.
But regional integration remains low, with intraregional trade representing just 10% of total trade in Southern Africa (compared to 60% in Europe, 40% in North America, and 30% in Association of Southeast Asian Nations).
Exporting manufactured goods and services into the Southern African Development Community region and African markets in general is crucial to achieving economies of scale, increasing levels of production, and eventually penetrating global markets. We must do more to spur intraregional trade volumes in goods and services by simplifying and streamlining our trade policies, and removing obstacles to trade at our borders.
THREATS
There are a number of threats that, if not carefully managed, could undermine the steady progress we are making.
Firstly, we are highly vulnerable to negative impacts from de-globalisation given SA's high levels of dependency on foreign commodity markets and foreign portfolio inflows as core sources of growth. The past 30 to 40 years of globalisation have seen new winners and losers, with the net gains in income growth occurring in the developing economies (mainly China and India) and among the super-rich top 1% in the Western industrialised countries.
Living standards for the middle class and working class in the industrialised economies have declined, with consequent growth in levels of political disaffection and discontent. The offshoring of production and jobs particularly to China and South Asia has become a highly politicised issue in Europe and the US. Already, economies such as the US are actively enabling the deglobalisation trend, passing U-turn legislation to encourage their multinationals to return home, and embarking on trade wars to protect local industry.
The US tariffs on steel and aluminium, and those proposed on vehicle imports, while aimed at China, will have an impact most on developing economies such as SA. As a country, we must be more forthright in our approach to multilateralism.
A related threat is the production of new technologies such as robotics, automation and 3-D printing. Household appliance companies such as General Electric and clothing brands such as Adidas are relocating production back to the US and Europe, using robotics and 3-D printing to out-compete the low-wage, low-productivity economies of Asia.
To remain competitive, SA must transition to higher-value productive and service activities, and must build those industries and skills that are most resilient against automation and technological disruption.
Closer to home, an immediate threat we must manage is the growing impatience among our people. Years of populist rhetoric have created unrealistic expectations that a fiscally constrained and hollowed-out state simply cannot meet. The state's frontline forces in municipalities often lack the leadership, social legitimacy, and financial capacity to address this.
Related to this is the ever-present threat of a fightback, which will come through various forms and iterations, some obvious, some far more discreet, often fuelled by racist narratives. Often driving this mistrust are powerful interests that have everything to lose as corrupt patronage networks are disassembled.
The struggle for the soul of the governing party is far from over, and future assaults on the constitution and on the rule of law as obstacles to so-called transformation are to be expected. For this, we must be prepared. Political and civic education, especially among the youth, must be invigorated and platforms for robust dialogue promoted.
CONCLUSION
This year has been a turning point. Significant progress has been made on a number of fronts, most notably dismantling the state-capture project and beginning to restore investor and business confidence. As South Africans, we need to strengthen the dialogue about state capture and inequality and recognise that though these challenges are not unique to us, we can choose to shift from pariah to path-leader in how we confront and mitigate these socially destructive tendencies.
We are certainly not out of the woods yet, and perhaps the greatest threat to our democracy is the assumption that the worst is over. Institutional and economic weaknesses remain, which necessitates wide-ranging and sustained reforms. We need to be alive to the new threats emerging, not least related to vested interests.
We all must play our role in rebuilding our country, in tackling inequality, in confronting corrupt agendas, and in restoring inclusive institutions. Our future generations demand it.
• Jonas is a former deputy minister of finance and one of the investment envoys appointed by President Cyril Ramaphosa..