Economic Watch

South Africa’s ‘RET’ racing down dead-end street


The politically loaded South African notion of ‘Radical Economic Transformation’ is fast on its way to nowhere, as terms like Gross Domestic Product (GDP) and economic growth remains little more than mere figures on paper.

That the term GDP, in the “domestic product” sense of the word, hardly exists in ‘real world’ South Africa, is clearly illustrated by the fact that of the latest 2017 SA GDP-figures, no less than 21% comes from R2,8 trillion invested by South African corporations abroad.

How removed the term ‘economic growth’ has also become from the experienced reality of the majority of ordinary South Africans, is illustrated by the fact that whatever measured ‘economic growth’ there was, it was constantly accompanied by a negative employment rate, now going for on three decades. In short it has been ‘jobless growth.’

What happens is that profits made in South Africa, often leaves the country, and then, while still recorded in the country as part of the GDP and economic growth figures, generates production and job opportunities elsewhere in the world.

Just yesterday, Alec Hogg of Biznews in his regular note to readers tells the story of three South Africans who five years ago invested in a business in California, where amongst other, it created productive employment for dozens of Americans.

Redefine time?

According to the industrial development deputy director-general of the Department of Trade and Industry (DTI), Garth Strachan, the country has been on a path of deindustrialisation for some time now.

At the same time, the value of purely financial transaction get calculated into the formulation of GDP and economic growth figures, including the profits of South African investments abroad. Figures that, to our mind, at best hides the real state of the economy and makes a close to zero contribution to actual production.

And, what about measuring the thousands of informal job creating businesses in the Bosbokrand area in Mpumalanga like in the thousands of similar sttlements across South Africa?

This begs the question, has the time not come to redefine the terms GDP and economic growth in the South African context?

And, has the time not come to realise that, what country needs is economic growth of a special kind? The kind that focus on job creation and that combats the global danger of ever increasing economic and social inequality and inequity?

Strachan, rightfully, when addressing delegates at the sixth conference of the Council for Scientific and Industrial Research (CSIR), said: “There is not a single country, anywhere, at any time in the world's economic history, that has had a successful programme of industrialisation, which has not had collaborative relationships with the private sector.”

However, if RET remains primarily a political slogan and don’t become the subject of practical cooperation between government and the private sector, the country will remain in the position where, in Strachan’s words, it’s “…industrial policy lacked coherence and alignment, and … (with) ‘massive’ fragmentation across government departments.”

Not just government responsibility

It would, however, also be a mistake to think it could be only government’s responsibility to give new practical content the country’s GDP and economic growth figures. The private sector also has much to answer for.

The chairman of Shoprite, Christo Wiese, in his letter last week for the retail giant’s 2017 annual report was outspoken in his criticism of government for its failure to push economic growth over the past financial year.

“Attempts to find practical solutions to our social and economic challenges have been futile simply because the wrong questions have been asked,” he said.

The right question is not, what people want or need, but what can they not do without?

“The answer is self-evident – our people need jobs,” he said and added that the group, as South Africa’s largest private sector employer, in 2017 paid R11.56 billion in salaries and wages to 143,802 employees, translating to an average pay of R80,409 per year.

However, another piece of information in the report highlights – probably unintended – another growing concern, income inequality. The take home salary of its CEO was R31.25 million – 390 times bigger than the average.

This is a phenomenon, common throughout the private sector, creating a whole cadre of people with enough personal reserves who, on the advice of personal financial advisers, add to the pile of money being invested abroad.

And, even modestly so, a more evenly spread of the salary bill amongst employees to be spent domestically, would have gone some way to stimulate real economic growth and increase real ‘domestic’ content of GDP.

Many other factors

There are many other factors that should also be taken into consideration to make true radical economic transformation a reality, from education, preparing citizens to deal productively with trends like the developing so-called Fourth Industrial Revolution, to enabling globally competitive production processes.

However, neither government, nor the private sector on its own, will get the economy out of the dead-end it seems to be stuck in at present. Giving new content to the terms GDP and economic growth could be a good start.

by Intelligence Bulletin Team

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