"SOUTH AFRICA'S ECONOMIC FUTURES: PROSPECTS AND POLICIES"

(27 JULY 2000)

1. INTRODUCTION

On 5 April 2000, Nedlac launched its 'Expanding Dialogue' series. This series aims to provide constituency representatives the opportunity to engage in informal discussion amongst themselves and with specialists, who do not ordinarily attend Nedlac meetings, on topics that are of relevance to the pursuit of economic growth and social equity.

The speakers at this, the fourth of such discussions, were:

• Dr. P. Pillay, independent economist.
• J. Cargill and K. Heese, BusinessMap SA.
• S. Friedman, Center for Policy Studies.

B. Hogan, chairperson of theParliamentary Portfolio Committee on Finance, chaired the discussion.

Approximately 30 representativesof the Nedlac constituencies attended the discussion.

2. THE SPEAKERS

This section briefly highlights a few of the major points made by each of the speakers.

2.1. P. Pillay

P. Pillay's full paper will be available on the Nedlac website. His presentation focussed on the following two main aspects:

2.1.1. Poverty

(a) Absolute poverty is decreasing in the South African economy. Quotaing a UNISA (University of South Africa) study, Dr. Pillay noted the decrease in absolute poverty has lead to a halving of levels of inequality in SA, however the GINI co-efficient remains at approximately 0.63. This indicates that South Africa remains one of the world's most unequal societies. Allied to the 'hard numbers' of poverty it is important to understand the multiple dimensions of poverty. The SA experience of economic poverty is exacerbated by social poverty. This is particularly so because of large-scale urbanisation as people seek to alleviate their economic poverty. Yet, in the course of urbanisation the social structures that ameliorate the effects of poverty are disrupted and destroyed, leading to a deepening of the experience of poverty.

The decrease in absolute poverty is not attributable to an increase in economic prosperity, but has largely been due to active government intervention. In order for a substantial decrease in absolute poverty to occur, economic growth is essential.

Understanding the impact of poverty and poverty alleviation programmes on peoples lives is limited by the lack of detailed data and analysis.

2.1.2. Human ResourceDevelopment

In order for economic growth to occur, it is imperative to get the level and quality of skills development right. The international evidence in this regard is overwhelming - economic development cannot occur without adequate investment in and delivery of education and training. Certainly one is not going to attract high levels of investment without increasing the skill level in the country.

The government's achievements in these areas are considerable. Yet, the major area of progress has been in the development of policy, while progress in increasing skill level in the country has not been as successful as was hoped. Notwithstanding, relatively high levels of expenditure, the outcomes of the education and training sector over the last 6 years have not been encouraging. Therefore the modes and mechanisms of education delivery must be revisited. While it may be necessary to reassess levels of funding, it is essential that the quality of expenditure and, in particular, its relationship to the outcomes of the education and training system is subjected to examination and change.

2.2. J. Cargill and K.Heese

Ms. Cargill and Ms. Heese presented the preliminary results of research that they had been undertaking on the investment environment in SADC. BusinessMap will be publishing the results of this research in October 2000. Their presentation focussed on the following issues:

2.2.1. Poverty

Low levels of income in SADC are identified as a serious constraint to growth. This is because low income translates into a limited domestic market for investors. Accordingly, the predominant sort of investment that are seen in SADC are for extractive industries, where their growth is not contingent on the existence of reasonable levels of domestic income.

2.2.2. Issues raised byinvestors in SA

Macro-economic reform is an important element of creating an environment that investors perceive as conducive to investment. However this, in and of itself will not lead to investment. Investors experience and / or perceive a series of constraints to investment, which need to be 'peeled back' before investment occurs. These include:

• Commitment to privatisation.
• Transaction costs.
• Incentive and tax packages.
• Market size
• Political stability.
• The impact of HIV / Aids on the skilled labour force.
• Constraints on skilled immigrants.
• The quality of infrastructure.

The manner in which these different variables impact on the investor's decision varies according to its relative importance to the sector. This means that a 'blueprint' approach will have limited efficacy. Instead government needs to find ways to acknowledge sector differences in the development of an investor friendly environment. This includes providing investors with sector specific information.

2.2.3. Perceptions matter

Investors' perceptions have a significant influence over their propensity to invest. Accordingly, perception management is critical. When one is a low growth country situated in Africa, one needs to be careful in dealing with global markets, as the leeway between positive and negative perception is limited.

An important component of perception management, is the degree to which government is seen to being open to discussions with potential investors. The research had shown that companies that had been able to have an informed dialogue with government were more predisposed to investment than those who had been unable to have such a discussion.

2.3. S. Friedman

Download S. Friedman's full paper. These are the main points from his presentation:

2.3.1. Recipe addiction

Friedman argued that the South African policy debate is constrained by what he terms an addiction to recipes for economic growth. In other words, if South Africa follows certain predefined steps they will inevitably lead to economic growth in general and foreign direct investment in particular. However, people invest in the context of a variety of different configurations of economic and social policy. The only possible conclusion therefore is that there is not one recipe but that economic policy has to be formulated taking cognisance of the domestic socio-economic environment. In doing this it is essential that one remember that economics is a behavioural science. That is it seeks to change or support the behaviour of economic agents, it is not a pursuit of the perfect model. Accordingly, economic policy needs to take cognisance of what will change people's economic behaviour in a way that supports growth and development.

2.3.2. Race and economic behaviour

People's perceptions of one another are a critical determinant of economic behaviour. South Africa's history means that these perceptions are strongly influenced by race. These perceptions are then played out in a variety of ways that are not conducive to economic growth. Addressing the impact of race on people's economic behaviour and decisions is critical to securing a sustainable economic future.

2.3.3. The future

An agreement between the major economic actors on social and economic policy is essential to securing economic growth. This is simply because economic growth is contingent on people working together. If there is no agreement on what the policy ought to look like it is impossible to expect that people will work together in a way that promotes growth.

In order to attain this agreement it is important that South Africa move away from a narrow conceptualisation of what constitutes economic policy and start to take cognisance of broader social variables. Economic growth is too importance to be the domain of economics alone. It is about democracy, politics, race and social consensus.

3. DISCUSSION

A broad-ranging discussion followed the speakers' inputs. These are a few of the points that emerged from the discussion:

3.1. Perception and Policy

The debate revolved around whether perception or actual policy was more important. Good policy was said to be integral to attracting investments, enhancing economic growth and development. However, it is equally important that such policy should have the support of major socio-economic actors especially the investor community, trade unions, etc to give it legitimacy and credibility. Thus technically sound policy by itself is not a sufficient condition for successful development. To be 'good' policy it also requires the support of major socio-economic actors. The receipt of such support is contingent on the perceived benefits from and credibility of the policy. Accordingly, the management of the perceptions of socio-economic actors is critical in attracting investment, creating jobs and promoting social development.

An important part of the management of perceptions was identified as the provision of information. The BusinessMap survey revealed that most SADC investors did not think that investment promotion agencies added any value, primarily because they were unable to tailor information for investors' specific sector-based requirements.

3.2. Domestic and Foreign Investment

Participants questioned the usefulness of the distinction between foreign and domestic investment. It was argued that the priority is to establish the general conditions for economic growth in a manner that finds resonance with domestic needs.

3.3. Race and Economic Development

Race is an important feature of South Africa's economic development that had largely been ignored. It was critical that the impact of racial disharmony on the economy and society be addressed in a direct fashion. The disharmony was reflected in a multiplicity of ways and in many different sites throughout society. The legacy of racial polarisation had resulted in societal fragmentation that militated against the formulation of a social consensus on South Africa's economic future.

3.4. What can we agree on?

Most participants agreed that there is a need for the formulation/articulation of a "national project of socio-economic transformation" which should constitute the basis of the relationship by the NEDLAC's constituencies. Consequently it was important to start a discussion on this "project of national transformation", rather than simply focussing on 'the best recipe'. In the course of this discussion it is important for all parties to clearly articulate both their needs and what they would contribute to such a process.

Such a discussion would lead to a situation in which programmes are constructed in order to support the socio-economic relationships within society that are necessary for investment, economic growth, job creation and social development. Thus the objective becomes finding a path that can be agreed to and pursued by the NEDLAC's partners rather than the dissipation of energy and resources on diverse and conflicting objectives.

4. WAY FORWARD

Nedlac's next session of informal dialogue will focus on "South Africa's Economic Futures: What pacts are possible?" The discussion will be held on 31 August from 14h00-16h30. Invitations and papers will be sent out in due course.

Attendance