South Africa’s lacklustre growth has been driven by an underperforming education system, a swollen public sector, and a lack of strategic flexibility within South Africa’s private sector.
Addressing these issues will lead to stronger economic growth, increasing wealth equality, and a more stable social and political environment for South Africa.
These goals cannot all be reached in the short-term, and require both the private and public sectors to contribute to them if they are to be achieved at all. If they are reached, they will be to the benefit of all South Africans, and in the meantime, the journey towards them will change a pessimistic national outlook and reignite the hope of a brighter South African future.
The first issue facing South African growth is the education system, which is struggling to deliver the quality of graduates that is required to build a multi-faceted economy. South Africa ranked 75th out of 76 countries in the 2015 OECD education league tables, 27% of students who have attended school for six years cannot read (compared to 4% in Tanzania), and only 37% of children starting school go on to pass the matriculation exam. As well as failing to deliver a literate workforce, the South African education system perpetuates a system of racial inequality, with black students ten times less likely than white students to do well enough to study a subject like engineering.
While there has been a modest improvement in the standard and equality of the education system since the end of apartheid, these statistics illustrate the challenges that remain. Economies are largely driven by the intellectual capital of their workforces, and this is increasingly true in a world that is becoming more automated and specialized. If South Africa cannot improve its education system, it will struggle to drive and maintain long-term growth.
The second issue, a bloated government, impacts all sectors and is endemic to developing nations. It is an affliction that is often the result of a government that tries to reduce unemployment and improve public opinion by hiring large numbers of people. When this happens, leadership stagnates, bureaucracy increases, and skills cannot be brought to bear where they are most needed. Public employment in South Africa has grown rapidly over the years, averaging more than 6 times the growth of employment in the economy as a whole from 2008 to 2014, and must be slimmed down to facilitate a flow of talented people into the private sector and drive economic growth.
In conjunction with re-evaluating the size of its public sector, South Africa must reduce the bureaucratic impediments to doing business. It is too difficult to set up new businesses, hire employees (especially international transfers), and grow once a business is established.This stifles entrepreneurialism and innovation, makes South Africa a less attractive target for international investment, and limits the private sector’s ability to grow. Simplifying the complex process of operating a business in South Africa is a necessary step to enabling the private sector to expand as it needs to.
The third issue facing South Africa lies within the private sector itself, which has not adapted to the new opportunities. Businesses must capture the new markets; pricing for consumers with less disposable income, offering differentiated services to the growing urban middle-class, and expanding into other African markets, which offer a significant opportunity.
With the South African economy recently coming out of a recession, consumers are struggling to maintain their standard of living at a time when they have less disposable income to maintain it with. By adjusting pricing and product and service attributes, companies can capitalize on these opportunities but many South African businesses have been slow to do so.
But first and foremost, South African companies need to get their mojo back. All too often I meet defeatism when the opportunities look bright. Cash flow is often strong and capabilities within companies are stronger than ever. Releasing this energy is what is needed.
South Africa has much in its favour. Its geographical positioning, inherent strengths, and international reputation mean that it can reassert its status as a leading emerging economy. There is no reason that it cannot match the growth of countries like Poland, Colombia, and Egypt, and should be targeting minimum GDP growth of 3% per year to 2025. Tackling problems systematically and aligning public and private growth efforts will drive the country towards this goal.
The keys will be improving education, reducing the size of the public sector, and increasing private sector flexibility to seize growth within the rapidly changing African landscape.