Are we on course to become a winning nation?

Wangari Maathai, Nobel Peace Prize winner and author of "The Challenge for Africa - A New Vision" says, "For decades, Africa has been urged to emulate the financial system and practices acquired from the industrialised world. While this structure has enriched the West, practising it without caution has only impoverished Africa. The current crisis offers Africa a useful lesson and its greatest challenge: nobody knows the solution to every problem; rather than blindly following the prescriptions of others, Africans need to think and act for themselves, and learn from their mistakes."

In that context, I have recently read with great interest Clem Sunter's "SA - A good place to be" and the "Habits of Highly Effective Countries" by Leon Louw of the Law Review Project. Both of these articles are long, but extremely well-written. In attempting to answer the question above, I have liberally quoted from both reports and hope that you, the reader, will gain some confidence in the policy options we have chosen and what our vision is for the future as set out in the State of the Nation address.

As Leon Louw says:

Most of the world's economies are becoming freer, which means that the government will have to accelerate its post-transition trend if it wants to maintain or improve South Africa's position relative to other countries. Strong correlations suggest that domestic policies are decisive determinants of prosperity, which is good news because it means prosperity is a matter of choice, not destiny.Developing countries, such as ours, have a simple choice: they decide whether to stay poor or become rich, and whether to do so slowly or fast. The overwhelming coincidence between growth and most policy objectives suggests that growth is both an effect and a cause. Factors that are good for growth are likely to be factors that are also good, for example, for savings, investment, job creation and competitiveness. Additionally, high growth means more wealth and coincides with more and better education, health care, infrastructure, security, safe water and clean air. High growth appears to be very forgiving.

Policy makers can make many mistakes and the consequences will be ameliorated if there is high growth. The data suggest that excessive regulation stifles productivity in Africa, Latin America and the former Soviet Union. It is associated with inefficient public institutions, longer delays, higher costs, more unemployment, increased corruption, less productivity, lower levels of investment, and bigger illegal ('informal' and 'underground) sectors.

Clem Sunter, using a soccer metaphor, argues that for SA to stay in the Premier League, and avoid the relegation zone and the second division, we need focus on three areas:

The first one is inclusive leadership. The last thing that South Africa ought to be in the global "Hard Times" scenario is a divided team. Inclusivity means on the one hand keeping the rich minority - who have the capital and a fair measure of skills - on side; but also creating the opportunities for the marginalised poor to become part of the mainstream economy. In other words, it's a delicate balancing act, and it's reassuring that Jacob Zuma has made inclusivity central to his initial presidential theme.

The second is to show tangible results in rectifying the problems that have caused South Africa's recent slide in the Premier League. This has nothing to do with ideology on the Left or the Right, and everything to do with back-to-basics management. The best way for South Africa to raise this is for all of us to recognise the pockets of excellence that exist in our midst (for example the South African Revenue Service and the  Red Cross Children's Hospital in Cape Town) and then benchmark other similar organisations against those pockets of excellence.

The third is about the evolution of a dual-logic economy consisting of an outward-looking economy that earns enough foreign exchange to cover the country's export bill (which is real issue since the current account deficit is around seven percent of GDP); and an inward-looking economy that creates enough new jobs to make a dent on our appalling unemployment rate of 23.5%.

On the positive side the 2009 World Competitiveness Yearbook, South Africa has risen to 48th out of 57 countries, compared to 53rd out of 55 last year. Reasons given include our resilience to the global financial crisis and our recovery from the rolling electricity blackouts experienced at the beginning of 2008. Indeed, our financial and insurance sectors have almost escaped the whole toxic debt tsunami unscathed, and we are relatively unencumbered by debt as a nation.

In addition, we shall probably experience a shallower "V" than Europe and the US despite the dramatic decline in our GDP. All these sporting events on our calendar act as an excellent gap-filler. On top of that, Zimbabwe has every chance of resurrecting its economy in the near future, for which we will act as a gateway. On the other hand, we have to make tangible progress in the areas where we rank lowest in the "Premier League" - unemployment, brain drain, available skills, life expectancy/health problems, pupil-teacher ratios in secondary schools and organised crime.

Sunter concludes: "We feel that South Africa is not a bad place to see out the global economic "Hard Times", or even the "Perfect Storm" if it looks like engulfing the world. Obviously quite a few young South Africans living overseas agree with us. They are returning home."

Leon Louw continues:

Representatives of the South African government have said on many occasions that they have 'the fundamentals in place' and yet we have not achieved levels of growth and job creation which protagonists of such policies promise. This research suggests that the answer to the government's question is that it has some of the fundamentals 'in place' and those that are not in place have denied it the prosperity it hoped for.

Accordingly, the government should not abandon 'fundamental' policies it adopted in accordance with the world's experience, as it is threatening to do, but should supplement them with the missing pieces of the puzzle. It seems extremely probable that, if it does so, the country will become the world's next 'economic miracle'.

Needless to say, government operates under the constraints of political realities, and some of the policies indicated by this research are politically difficult or impossible for it to implement, especially regarding labour. Even so, policy makers are most likely to make good decisions if they are aware of what lessons can be learned from the world's experience.

According to this evidence, the country is likely to enjoy continued and accelerated improvement only if it maintains or increases its lead in policy areas where it is ahead and addresses areas where it lags. According to the Economic Freedom of the World report SA performs in the top 20% of nations in the following policy areas:

• Impartial courts (rule of law),
• Judicial independence (rule of law),
• Credit market regulations (finance),
• Ownership of banks (% of deposits in private banks),
• Protection of intellectual property (rule of law),
• Private credit (% of credit to private sector),
• Hidden trade barriers (no barriers other than published tariffs/quotas),
• Price controls (regulation),
• Regulatory trade barriers (trade),
• Avoidance of interest rate controls (leading to negative interest rates),
• Size of trade sector compared to expected size (trade),
• Military interference (rule of law),
• Business regulation,
• Revenue from taxes on international trade as a % of imports plus exports (trade)

But, South Africa is significantly behind the world's winners (and where it has much in common with losers) in the following policy areas:

• Integrity of legal system (crime rate),
• Restrictions on capital market transactions with foreigners (exchange control),
• Transfers and subsidies as % of GDP (welfare),
• Share of wages set by centralised collective bargaining (labour),
• Time with government bureaucracy (regulation),
• International capital market controls (exchange control),
• Freedom to own foreign currency bank accounts (exchange control)
• Recent inflation rate (monetary policy)

These are priority areas for reform if the government wants to become a winning nation
Leon Louw concludes, "South Africa's 'Short List': The proverbial "bottom line" is that the world's experience suggests that South Africa is likely to prosper if, and only if, it:

1. reduces crime;
2. relaxes and preferably scraps exchange control;
3. reduces time people have to spend with bureaucracy;
4. relaxes or scraps insistence on centralised bargaining;
5. shifts from spending on economic regulation and parastatals to spending on transfers and subsidies.

Additionally, the government should sustain and preferably increase its lead over the world's highest growth countries regarding:

6. the rule of law;
7. foreign trade liberalisation;
8. business liberalisation;
9. banking and financial market liberalisation.

Regarding items three, eight and nine, there has recently been a potentially serious shift in the "wrong" direction. However, if the regulatory review plan and AsgiSA are supplemented by the policies in the Short List that are not already included, and if these policies are implemented resolutely, international experience predicts prosperity for South Africans.

The question we need to ask ourselves is twofold, first, is the Government seriously engaged in the "Winner/Loser" debate, and second, is the new 10 point priority plan outlined by President Zuma putting us in the Winners lane?
 
Cees Bruggemans, Chief Economist of First National Bank said this week, "Beyond the short term, the Zuma ambition is one of improving public service delivery, both as a service to the people but also in support of growth, in this respect continuing the Mandela and Mbeki agendas."

He continues:

It is an intimidating list:

• Undertake comprehensive rural development linked to land reform, agricultural reform and food security.
• Improve education
• Improve public health care
• Fight crime and corruption while strengthening the judiciary
• Pursue African advancement
• Ensure sustainable resource management
• Utilise state levers to achieve many things through procurement, licensing, financial support to assist small/medium enterprises, broad-based BEE and affirmative action (its implementation recognising the need to correct past imbalances)
• Reduce regulatory burdens on small businesses
• Promote National Symbols (sport, names, anthem)

There can be little doubt that these visions will be guiding the country in coming years, even if our future is primarily shaped by global forces. It remained unstated, but the recession will eventually end and the country will embark on a new economic expansion in which the national income will again rise substantially, employment will expand anew and the resources will be found for yet more public services.
 
As such Mr Zuma is catching the cyclical wave at its very lowest point. With him we can look with confidence to the years ahead in which much should be achievable, if not always without a squabble or two.   
Having read what Messrs Sunter, Louw and Bruggemans have said, what do you think? Are we on track to become a winning nation? At SAGN we recognise that many of our challenges are in the arena of policy formulation, being aware of ones that work, and especially ones that don't work. But, many of our "Winning Nation" challenges are of a social nature and we can all do something about that!

By Steuart Pennington