Lack of competition

Identifying weaknesses

find employment. The 6.70-million-strong cohort of unemployed people is compounded by a further 2.90-million who have given up looking for a job and 12.70-million who are not economically active (Stats SA, 2021).

Exacerbating unemployment is a mismatch between labour demand and supply, with the labour force retaining a large number of low and unskilled people. A nonalignment between the skills that graduates are being equipped with and those which are required by the economy is contributing to the unemployment crisis. South Africa has been suffering from a chronic shortage of skills for many years, notably in the engineering and information and communication technology fields, but government has only recently moved to plug the skills gap through importing skilled labour. Although the move to assist foreign workers with critical skills to gain work permits is welcomed, concerns have been raised about how long it took government to reach this point.

Lack of competition

The economy is bedevilled by high concentration, little competition, and anticompetitive behaviour. One participant mentioned that South Africa is a country of fives: Five big banks, five big retailers and five big construction companies.

Big players have been accused of questionable collaboration. Collusion, for instance, has occurred in the construction, banking and telecommunication industries. The Competition Commission in 2013 fined 15 construction firms a collective R1. 46-billion for collusive tendering (Engineering News, 2013) and in 2017 referred cases of collusion against several international banks for alleged price fixing and market allocation (Engineering News, 2017). A lack of competition holds back innovation, keeps prices high, and denies many people access to services and opportunities to start businesses.

Interventions for fostering growth

Several sectors were identified as ripe for potential policy improvements, ranging from power utility Eskom and independent power producers, to SoEs, skills development and beneficiation of platinum-group metals (PGMs) and other minerals. Alleviating small business regulatory compliance, improving the ease of doing business, rethinking BBBEE and acknowledging the cost of crime were also mentioned.

Suggestions for addressing growth constraints in South Africa

Address electricity generation Restoring security of energy supply should be a top priority, as it cuts through every sector of society. Large-scale and sustained investment in new electricity generation capacity, particularly in renewable-energy sources, such as wind and solar, and related grid capacity, is planned in terms of the Integrated Resources Plan and other energy transition policies. Public–private partnerships through collaboration with independent power producers (IPPs) are often associated with renewable-energy investments. However, there is a view that IPPs should also participate in the baseload electricity space. For instance, IPPs could be involved in the repurposing of State-owned power utility Eskom’s coal-fired power stations.

Resolving Eskom’s financing woes is also critical. Through Nedlac processes, suggestions have been made that national government take on some of the debt refinancing for Eskom to reduce interest payments overall, and that the Government Employees Pension Fund and other retirement savings be mobilised to support Eskom.

Build skills for the economy South Africa’s skills development lacks clear focus. To address that, the country must decide on what skills its economy requires and home in on those before selecting another set of skills to focus on. The capital that private companies earmark for BBBEE and tertiary education bursary schemes could be used to create a private-sector-run education fund. Such a fund will pay for qualifying students, based on merit, and for studies required to develop the skills-set needed for the economy. The impact of such a fund, over two to three decades, would be broader than that of the current BBBEE policy.

Create competition With most subsectors of the economy dominated by one or two companies, it is difficult for small and medium-sized companies to grow and create jobs. Attention beyond that of the Competition Commission is required.

Interventions for fostering growth

Deal decisively with State enterprises

Institute labour market reforms

Improve local government

Pursue new mining opportunities SoEs play a significant role in the economy and dominate some sectors, forcing out private-sector capital. Yet, SoEs are not functioning effectively and are a drain on the fiscus. Some suggestions for dealing with SoEs include: • Assess which SoEs should remain State-owned, based on national interest and strategic considerations, and which would better serve the community as private entities. Once SoEs have been identified for privatisation, such a process should be vigorously pursued. • Create competition for SoEs by allowing the private sector to build and operate railway lines, ports and so forth. • Depoliticise SoEs. • Learn from what other countries have done regarding SoEs. • Stop funding serial lossmaking SoEs, unless of strategic importance and within predefined criteria, to reduce the burden on the fiscus. The recent R10.50-billion South African Airways bailout, for instance, could have been invested in a fibre network that could have had a major impact on education.

Inroads have been made into labour market reforms over the past couple of years and with unions weaker than they were a decade ago, it may be an opportune time to implement more labour reforms. Restraint on trade unions, specifically unions in the civil service, is required, to stop the ballooning civil servant bill and ensure fiscal soundness.

There is an urgent need to improve local government’s capacity, with many examples of citizens taking over services of towns. Wellfunctioning local governments will improve service delivery, create job opportunities, and reduce pressure on inflation. Project managers are needed at local government level to increase accountability. About 1 200 applications were received for the Presidency’s technical advisory panel to support the Infrastructure Investment Plan. Those not appointed to the panel could be assigned to municipalities to strengthen their technical capabilities.

There are opportunities for new-generation minerals that can be exploited, from vanadium to copper. PGMs are also destined to play an important role in the greening of the world through green hydrogen. South Africa should take advantage of these opportunities by an increased focus on an expanded programme for minerals exploration, as well by pursuing policies to promote minerals beneficiation. Suggestions to ensure local beneficiation include liaising with international firms that have the technological and manufacturing capabilities to ensure that plants are established locally and extending incentives for investment.

Interventions for fostering growth

Reconsider BBBEE The BBBEE policy, although the objectives are supported, must be improved, with a greater focus on skills development and education. Some of the suggestions include: • Abolishing the current policy and introducing a replacement programme that focuses on black economic skills transfer, or BEST. • Instead of only doing a share ownership initiative, companies should also consider a profit-sharing initiative that employees benefit from. For instance, 10% of profits could go to employees in a fund, where 30% is saved and the balance is available for beneficiaries to use. Such a model will stimulate economic growth from higher spending and will increase savings. • Introducing a punitive structure alongside the BBBEE framework to bar offenders who do not honour the intentions of the BBBEE Code of Good Practice, from further empowerment transactions or business dealings.

Reduce bureaucratic impediments

Regenerate rural areas Structural impediments, including stifling red-tape and a highly bureaucratic environment, are making it increasingly difficult for the economy to achieve growth, with entrepreneurs and small businesses most affected. Government has been urged to reduce the bureaucratic burden that it has placed on the economy. The point has been made that South Africa seems to “only have bureaucratic solutions” to its problems. Rural areas remain underinvested and continue to be sources of migration to overpopulated urban areas. More than 66% of the South African population live in urban settings (UN, 2018). Rural areas and second-tier cities could be made special economic zones (SEZs) – geographically designated areas set aside for specifically targeted economic activities – with a tax subsidy to incentivise the private sector to invest in them.

Root out corruption More urgency is needed in stamping out corruption. Those found guilty of corruption from both the public and private sectors should be jailed. There have not been any high-profile convictions for State capture. • The judicial process should be reviewed to expedite the conclusion of cases and to eliminate the abuse of the system. • There are far too few judges. More investment is required for the hiring of additional judges to reduce backlog. • The cost of engaging in corruption and breaking the law should be made higher. Personal accountability is required to ensure that individuals are not protected by the institution or organisation that they represent.

Interventions for fostering growth

Sequence policies Not everything can be tackled at once. Policies must be sequenced and a more execution-driven approach to development is needed. The timeline of the NDP should be reassessed. Each objective of the plan must be aligned with an election cycle, so that citizenry has an opportunity to assess a government on implementing a very specific policy in its term. That may change the way citizens reward politicians for failure to implement policies.

Speed up digitisation

Transform special economic zones Digitisation holds significant potential to reshape the economy and could serve as a hub for growth and employment. Delays in laying the infrastructure and implementing reforms to take advantage of the Fourth Industrial Revolutions must be tackled. Spectrum allocation challenges also have to be addressed to tap into the benefits of high-speed broadband. South Africa needs the roll-out of 5G if it is to be able to compete in the global economy. Government has developed several SEZs to attract investment and arrest the premature deindustrialisation of the economy. International experience with SEZs dictates that they need to be globally competitive ‘zones of exception’. For SEZs to perform optimally, government should ensure the necessary policy and liberalisation to allow for zones and provinces to compete. This will facilitate that kind of competition and technology transfer that has been the underlying driver of growth in the world’s most successful economies.

More emphasis is also needed on providing reliable and cost-effective enabling infrastructure to encourage private-sector investment in SEZs. Unlock capital South Africa has several development finance institutions that operate in the infrastructure field, but needs more that deal with the retail end of the economy. These for instance should focus on small and mediumsized enterprise financing or housing financing.

Conclusion

South Africa needs to celebrate its successes and seek to replicate these in other areas. Some of its successes include a vibrant democracy, a free media and free expression, an independent judiciary, a constitutionally protected South African Reserve Bank and the way inflation is contained with sound monetary policy. The turnaround of the South African Revenue Service since the State capture period is also worth nothing, allowing for improved tax collections efforts.

Another positive is the country’s demographic dividend, although opportunities may be somewhat limited by South Africa’s already having had its urban transition. Projected to 2030, South Africa could benefit from a major demographic dividend, as the proportion of working people in the total population increases. Although it should also be noted that too sharp a population growth rate without the necessary concomitant growth in GDP can result in too many people looking for jobs, which can be a risk to the economy and fiscus. The bigger pool of possible employment seekers could, however, create opportunities for new businesses.

There is also potential for increased trade with the rest of the continent through the African Continental Free Trade Area (AfCFTA), which creates a single continental market for goods and services in Africa. AfCFTA is the world’s biggest free trade area, measured by the number of countries participating. The pact connects 1.30-billion people across 55 countries (World Bank, 2020).

AfCFTA is considered a game-changer for the continent. It will help reduce trading challenges, such as different regulations from one African country to another. By facilitating the movement of goods and services among African countries, AfCFTA will create opportunities to accelerate intra-Africa trade, grow local businesses, create jobs, and increase infrastructure development on the continent (Williams, 2019).

It has been noted that, although the Ramaphosa administration is taking measures to redress policy implementation paralysis, progress is slow. To get the economy on a sustainable growth trajectory, policy uncertainty and implementation paralysis must be addressed. Strengthening institutions is also critical going forward.

Linking the NDP to an active citizenship will also be of benefit to the country. Getting people involved in every level of society – from rural area to towns and cities, nationwide – will assist in addressing accountability failures and set the stage for sustained and inclusive economic growth.

Although South Africa is facing serious challenges there are opportunities to rejuvenate the economy and hope prevails.

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This report has been published by the Inclusive Society Institute

The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions separately from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy.

The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values.

In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.