Challenges for economic growth

Published: 01-APR-04

Since the first democratic elections in 1994, economic empowerment and growth have been high on the agenda of the South African government. With millions of South Africans unemployed and underemployed, the government has no option but to give its full attention to the fundamental task of job creation and generating sustainable and equitable growth, writes Selby Makgotho.

Economic growth and employment are pivotal in addressing the challenges of job creation, fighting poverty and underdevelopment, and promoting equity in the country. Internationally, such initiatives are playing a critical role in absorbing labour, penetrating new markets and generally expanding economies in creative and innovative ways.

The stimulation of growth should be seen as part of an integrated strategy to take the South African economy onto a higher road, where the economy is diversified, productivity enhanced, investment is stimulated and entrepreneurship flourishes. Gross Domestic Product (GDP) growth is now being experienced, after declining during the apartheid years.

Macro-economic stabilisation, a profound restructuring of the real economy and substantial export success have been recorded since 1994. Statistics South Africa, however, points out in its 2003 report that the critical challenge remaining is to strengthen the link between economic growth and export success with employment creation, poverty alleviation, and a reduction in inequalities.

The report suggests that South Africa's growth will rise to a projected 4 per cent by 2005, with Consumer Price Inflation excluding mortgage rates (CPIX) falling to around 5 per cent per annum by that year.

Global competitiveness

Among emerging markets, South Africa increasingly stands out as a success story. The Pretoria-based Bureau for Economic Research predicts continued strong growth in manufacturing output over the next 10 years, in line with the South African Government's Vision 2014.

The country's global competitiveness has consistently improved over the last few years. There has been a steady rise in manufacturing production and in its quality. Statistics SA and the Bureau for Economic Research agree that investments grew by 6.3 per cent and are expected to continue to grow by up to 10 per cent a year between 2006 to 2014. According to the Bureau for Economic Research, most companies reported an increase of total fixed investment, from 11 per cent to 29 per cent.

The primary sector expanded by 3.7 per cent, driven by solid growth in the platinum-group metal and agricultural sectors. Buoyed by investment in the manufacturing sector, and the strong growth in construction spending, the secondary sector has expanded steadily, helping to create new employment opportunities.

Regional integration

South Africa's economy is inextricably linked to that of the southern African region. Similarly, its success is linked to the economic recovery of the continent through the New Partnership for Africa's Development (Nepad). Africa, says Kganyago, is an important market for South African exports.

The sound trade relations with the rest of the African continent should result in economic growth and development, increased employment, a reduction in poverty and inequality, diversification of productive activities, enhanced international competitiveness, increased exports, and increased African integration.

Alec Erwin, Minister of Trade and Industry, points out that the ministry has established trade and investment promotion offices on the continent for the purpose of facilitating trade and investment flows. "The department is providing supportive services to the Nepad programme, which is playing a critical role in catalysing trade and economic development," he said.

The Development Bank of Southern Africa (DBSA) - a key partner in funding investment projects - recently allocated R25m to mobilise necessary resources for investment in countries within sub-Saharan Africa. The projects to be taken into consideration will stem exclusively from the transport, energy, and information and communication technologies sectors, as well as water and sanitation. This facility, in the form of a grant, is assigned to finance Nepad project studies.

In Southern Africa, says Erwin, South Africa seeks to restructure regional arrangements promoting industrialisation. It supports a process in which integrated manufacturing platforms form the basis for an integrated regional industrial strategy. This entails using southern Africa as an integral part of supply chains for globally competitive manufacturing processes.

The centrepiece of South Africa's foreign policy is the 13 Southern African Development Community (SADC) countries. "The Strategic Investment Programme (SIP) of the Department of Trade and Industry is a significant incentive for investments. The SIP aims to increase private sector investment in innovative, profitable and wealth-creating business enterprises in South Africa, while simultaneously creating job opportunities within the industrial sector," says Erwin.

The SIP programme has approved 10 projects since its inception, attracting R2,97 billion in investments. The Africa Investment Forum - a joint partnership between the South African Government, Commonwealth Business Council and the Nepad secretariat - is also designed to create opportunities for partnerships between the public and private sectors.

The annual forum focuses on key investment issues and on developing the Commonwealth Business Councils' pioneering work on the themes of corporate governance and accounting standards, as well as confronting the issue of how business tackles HIV/AIDS, malaria and tuberculosis. Sector coverage includes power, transport, water and sanitation, telecommunications, and oil and gas.

Multilateral economic relations

The World Bank and the International Monetary Fund, in partnership with the World Trade Organisation (WTO), set the parameters for the economic policies of governments around the world. This has had serious implications for the content, evolution and trajectory of economic development strategies being pursued by developing countries, including South Africa.

As the process of globalisation is being questioned, it is imperative for South Africa to influence and shape the configurations of the emerging system of global governance. This is best done by participating actively and effectively in all multilateral forums, to ensure that its particular economic interests and developmental objectives, as well as those of the African continent, are taken into account.

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