Corporate Interest

Much work ahead for Team SA – addressing economic progress in South Africa

5 March 2010

Behind the great marketing job that Team South Africa did at Davos this year, some uncomfortable realities emerged. Looking at the way that successful emerging markets have lifted millions of people out of poverty, it is clear that a simlar vision is long overdue in South Africa.

Guest contributor Michael Spicer is the chief executive of Business Leadership South Africa, and a trustee of the Anglo American Chairman’s Fund.  The article below is published with the kind permission of the Sunday Times Business Times.

Listening to leaders of several successful emerging markets and those of some deeply troubled developed countries, I suddenly realised that SA’s economy had far too much in common with the latter.

How so? We are a consumption-driven society, generally living on credit. The country, too, runs a large current account deficit and, therefore, is dependent on others financing investment needed for the standard of living to which we collectively think we are entitled. In turn, we depend on foreigners because our productive economy is too small and not competitive enough.

Faced by the recession, we have focused on saving existing jobs, whether they are competitive or not, and on placing even more emphasis on distributional issues to alleviate poverty. While this is understandable given the human cost of the recession, it is also symptomatic of a vision of an economy as providing a fixed pot of wealth over which interest groups must struggle for their “fair” share.

Looking at the way that successful emerging markets have lifted millions of people out of poverty by registering consistently high growth rates over extended periods of time (The Growth Commission of 2008 focused on 13 countries that had done this by growing at 7% or more over 25 years), it is clear that such a different vision is long overdue in SA.

The point is vividly illustrated by Korea, a country that in the 1960s was behind SA in development terms and now has a per capita income 2.8 times SA’s.

Many recent analyses of the SA economy have focused on structural constraints to higher growth. Our own Accelerated and Shared Growth Initiative for SA (Asgisa) listed six, while others such as the Harvard Panel have had slightly different points of emphasis.

The fact is that South Africa is not making sufficient progress because there is no shared vision that prioritises growth as a national goal and encourages behaviours to accord with that goal. Rather, the current confusion of economic goals encourages national behaviours that prioritise consumption and distribution of existing wealth.

The first step would be for society, led by government, but with business, labour and civil society in close support, to agree on a vision of doubling the size of the economy within a generation. The second step would be to examine attitudinal and behaviour changes, as well as policies, to meet this goal.

For example, in business, three actions would demonstrate changing attitudes.

Firstly, all analyses of the SA economy have focused on its lack of competition and competitiveness. There are still too many anti-competitive practices in the business sector. Business needs to root out these, including sharp business practices aimed at extracting unwarranted rents from consumers. My organisation has in mind a Competition Charter to give expression to such a change in behaviour.

Secondly, business must grasp the nettle of executive remuneration and ensure that rewards are commensurate with real corporate performance that benefits all stakeholders. This means not just observing the letter of corporate governance codes but the spirit as well.

Thirdly, without absolving the state of its responsibility for fixing the educational system or for addressing issues of labour market flexibility, business should behave in ways that treat employees as an asset rather than a cost.

For its part, government must address state capacity by professionalising the civil service. The ruling party must break with cadre deployment and balance goals of transformation with merit, performance and accountability. It must also end the conflation of party and state.

Secondly, since the economy also suffers from lack of competition in the public sector, the state-owned enterprise (SOE) sector must be opened up to competition. An end to patronage/cadre deployment is also required to ensure top professional skills are available for the top SOE jobs.

Thirdly, and this is a challenge for business and other sectors as well – morality and reality require that corruption at all levels be rooted out. Finance minister Pravin Gordhan is likely to assert in the budget the need for efficiency gains in a time of sharply constrained national income. Significant efficiency gains will flow from reducing tender fraud and corruption that erodes wealth creation.

Finally, labour will have to come to terms with the fact that slavish defence of the interests of the unionised members is often at the expense of the unemployed. Trying to ban labour brokers or to assert “decent” work as an immediate imperative, rather than a goal that does not rule out informal or temporary employment, is to deny large swathes of South Africans any employment at all.

Related to this, the defence of teacher union members’ interests, irrespective of ability, performance or discipline, above the interest of school children cannot continue.