The success of an economy can be measured against a simple mantra: Everyone who wants a job, has a job.
This is the view of Kevin Lings, chief economist at Stanlib, who spoke at the 2021 Allan Gray Investment Summit. Lings singled out job creation and fixed investment as critical levers for South Africa’s long-term success.
However, he warned of a potential major stumbling block in the country’s economic recovery attempts: a lack of government fixed investment.
“You cannot talk about economic success until you add a significant number of jobs to the economy,” said Lings, against the backdrop of an all-time high unemployment rate. The extent of the jobs crisis was illustrated by the 1.5 million job losses suffered during the Covid-19 pandemic, combined with the more than half of working-age under-35s being jobless.
“For South Africa to make meaningful headway in the battle against unemployment, it must create at least 600,000 new jobs each year.”
Investment creates jobs
According to Lings, the recipe for job creation is simple: “Investment creates jobs.” But ingredients include 5% or higher annual GDP growth; investor-friendly economic policies and collaboration between the private and public sector insofar as investment is concerned.
“You need the government to do some critical infrastructure investment, but the private sector must shoulder the bulk of the investment and job creation responsibilities,” Lings said.
Yet, government fixed investment has fallen to below 5% of GDP, magnifying the risk of Eskom’s ongoing maintenance issues affecting other critical infrastructure such as transport and water and sanitation.
Meanwhile, the combined private and public fixed investment has slipped to below 15% of GDP, the lowest level on record, the economist said.
“It is impossible for us to be economically successful with this level of investment,” Lings warned, adding that the target rate of economic growth and job creation requires that South Africa’s fixed investment spending is around 30% of GDP. In other words, investment spending needs to increase by at least R750 billion per annum.
Business confidence promotes investment
One way to tackle the declining investment trend would be to address business confidence. “There is a very strong relationship between private sector investment and business confidence; this is the most critical relationship for our economic success,” said Lings.
He strongly advocated for developing economic policy based on its impact on business confidence. “If a proposed policy hurts business confidence, then can it.”
Economic policy, in turn, should create an enabling environment for the private sector to invest in technology and spend more cash on research and development, among other functions.
Five game-changers for South Africa Inc
Lings listed five positives that will make it easier for the public and private sector to collaborate on much-needed investments and address South Africa’s economic growth and employment imperatives.
- The favourable conversion of GDP growth into new jobs. South Africa is among the best countries at creating new jobs from each percentage point of GDP growth. “If we can lift GDP growth on a sustainable basis, then we will respond in terms of employment,” Lings said.
- International trade is at record levels, helping economies with high dependencies on import and export revenue. “Our imports and exports make up more than 50% of our GDP,” Lings said. “If we free up the port system it will help us in terms of growth.”
- Impressive trade surpluses on the back of booming commodity prices, with the windfall occurring at an opportune time for South Africa.
- Surging corporate tax revenues combined with a restatement of country GDP. According to Lings, these factors put South Africa on a better fiscal policy footing.
- Inflation is under control, paving the way for a stable domestic interest rate environment, even if the US Fed begins hiking rates earlier than expected.
Lings singled out the private sector’s participation in new energy projects and proposed improvements to port infrastructure as having game-changing potential for South Africa Inc.
“Government has recognised the need to partner with the private sector to drive infrastructure investment, now it is just a matter of acting on this, and implementing accordingly,” said Lings.
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