Have the low-hanging fruit rotted in South Africa?
11 Aug, 2023

Sanisha Packirisamy, Economist at Momentum Investments

 

Back in 1961, James Meade, a renowned Nobel Prize laureate in economics, made a well-known prediction that painted a bleak future for Mauritius. He highlighted the nation’s susceptibility to weather and price fluctuations, as well as its limited employment prospects beyond the sugar industry.

 

Instead, the country emerged as a shining example, boasting the second-highest per capita income among African countries and earning the top rank in the World Bank’s Doing Business survey for all sub-Saharan nations in 2020.

 

Although there are no guarantees for its future prosperity, effective leadership, consensus-building, prudent macroeconomic management, and strategic policies for the private sector positions Mauritius favourably for the times ahead.

 

Is it possible for South Africa to achieve the same transformation as Mauritius? I believe the answer is definitely yes. However, this outcome hinges on the proactive stance of our authorities, who must swiftly initiate the right strategies to grasp these so-called low hanging fruits – quick wins that are easy to implement – that lie within reach.

 

It is knowing how best to use available resources and implement interventions that are most feasible, technically, politically, and administratively. These are actions that will likely have the greatest positive impact on growth and employment.

 

South Africa has been overwhelmed with bad news, and the mood of the country has remained sour, with weak business and consumer sentiment.

 

Expressing optimism about South Africa against this bleak background might seem out of place given flat growth in per capita incomes since the global financial crisis in 2008, job insecurity, malfunctioning state-owned enterprises and widespread corruption.

 

Very few are doubting that this will be a very difficult year, but what makes me more optimistic on economic activity in the medium term is tangible progress on priority reforms which have been identified for their potential impact on economic growth and job creation.

 

Fast-tracking the delivery of economic reforms

 

To fast-track the delivery of economic reforms which are at the core of the Economic Reconstruction and Recovery plan (including those that have been delayed or blocked before), a joint initiative between the Presidency and National Treasury was set up to monitor progress and actively support the implementation of these reforms.

 

Since the launch of Operation Vulindlela in October 2020, a narrow list of focused priorities has been identified as the main economic levers to achieve the greatest positive impact on growth and employment.

 

Let’s have a look at each of these priority areas:

 

1. Stabilising electricity supply

 

Reforms under Operation Vulindlela have been aimed at addressing the shortfall in electricity, the lack of competition in electricity generation, the inability of government to fund investment in additional generation capacity and to arrest the deteriorating quality of municipal electricity distribution services.

 

2. Enhancing the efficiency and competitiveness of freight transport

 

The subpar performance of South Africa’s logistics system has resulted in the loss of significant export revenues for the country. Operation Vulindlela seeks to enhance the efficiency and competitiveness of freight transport.

 

3. Improving the supply and quality of water

 

Reforms in the water industry aim to increase investment in the maintenance and construction of water infrastructure as well as to improve water quality. Via the successful reinstatement of the Blue Drop, Green Drop and No Drop water quality monitoring systems, government will ensure that water sources are protected, wastewater treatment plants are functioning, and leaks are fixed.

 

4. Reducing the cost of and improving access to data

 

Reforms in the digital communications sector will reduce the cost of data, expand internet access to low-income households in outlying areas, drive new investment in telecommunications infrastructure and unlock gains in the knowledge economy.

 

5. Attracting skills and encouraging tourism

 

The successful implementation of the eVisa system now serves 34 countries and should facilitate growth in the tourism sector. Tourism is a quick and easy way to create jobs for relatively unskilled persons. Growing this industry can establish a strong multiplier effect on the economy. Meanwhile, further work is being explored to expand visa waivers and establish a points-based system to introduce greater flexibility into the visa process.

 

Policy uncertainty hinders investment

 

These concrete reform efforts are firmly underway, despite an uncertain political future.

 

Even though the private sector is reluctant to partner with the state given a widening of the trust deficit, there has been an easing of investor anxiety towards South Africa in some areas where radical economic transformation proposals have been vastly watered down. Nevertheless, government could still do itself a favour by spelling out its goals more clearly to further reduce policy uncertainty and to reignite confidence in the long-term sustainability of South Africa as an investment destination.

 

The so-called low-hanging fruit or quick wins we have outlined in addition to arresting increasing lawlessness and encouraging accountability are vital in stimulating private sector activity. In turn, this has the potential to ease socio-economic pressures and reduce joblessness, inequality, and poverty through an increase in employment, boosting living standards and advancing social inclusion.

 

If authorities act quickly to promote these low-hanging opportunities by creating an enabling environment for more private sector participation, increasing competitiveness in the country’s product and labour markets, restoring the integrity of South Africa’s democratic institutions and reducing corruption, we could follow the example of Mauritius and get the economy going again.

 

ENDS

 

Author

@Sanisha Packirisamy, Momentum Investments
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