Achievements, Failures and Lessons of SA Macroeconomic Experience

Posted by on Oct 23, 2013

Achievements, Failures and Lessons of SA Macroeconomic Experience

With 14 years of uninterrupted GDP growth, the SA economy during the last decade registered, arguably, its second ‘golden age’ after its acclaimed 1960s boom period.  Despite remarkable achievements, the period under review faced some critical policy inadequacies and outright failures. Resultantly, some key structural shortcomings have remained obdurate and potentially a risk to our socio-economic achievements. Unless the root causes of the prevailing shortcomings are identified and remedial actions are taken, the sustainability of economic growth and the attainment of further socio-economic development remain seriously at risk.


At present the single most obstinate factor hindering socio-economic development is the prevailing inadequacies of our education and training system. Widespread shortage of skills within the society is but one of its manifestations. It is a fact that the modernization and technological upgrading of the economy during the past decade has increased the economy’s skill intensity sharply. This in turn has accentuated the systemic unemployment problem. Meanwhile, the country’s human capital accumulation has proved wanting. Whilst much has been achieved in promoting access to the public schooling system, little has been achieved with regard to quality improvement of the education offered. Consequently, ‘unemployability’, widespread vacancies and huge skills gap have emerged concurrently.  Consequently, the income and wealth inequalities within the society have worsened.

Another crucial policy failure has been the absence of a well-defined industrial strategy that is rooted in the country’s comparative advantages and enhanced by an appropriate mix of factor prices and implementation institutions. In particular, some of the country’s sources of comparative advantage are either neglected or markedly eroded. Agriculture and agri-industries have received little, if any, attention. Moreover, a poorly managed land policy has caused much uncertainty in the farming sector.

Possibly one of the most damaging failures has been the absence of medium to long term planning for socio-economic infrastructure. This was most poignantly manifested itself in the recent electricity crisis. A number of other areas of infrastructure planning were equally neglected. Critically, the country’s aging urban infrastructure has been largely ignored. Even the key metropolitan centres suffer from basic symptoms of decay in their urban utilities, poor institutional performance and weak financial management capability. Local government institutional infrastructure, generally, has been left to falter.


A combination of factors over the period has had the unfortunate consequence of entrenching the rise of mediocrity within the government apparatus. Whilst the general shortage of skills has been a contributing factor, a series of misguided practices in respect of remuneration, tenure of office and recruitment criteria has led to growing inefficiency within the state. Most importantly, the absence of political and executive accountability has been a key contributing factor. For example, it is a fact that very few, if any, of the Ministers or the Heads of Departments are taken to task given the fact that their annual financial audits have been found unsatisfactory year after year. Such blatant condoning of poor performance has had strong systemic and corruptive impact on the operational efficiency of the public sector.


These failures have in turn led to the country’s faltering global competitiveness. While South Africa’s competitiveness rose markedly during the first decade of democratization, over the past five years, in a number of areas the country has lost its edge. These factors combined to culminate in a sharp fall of South Africa’s ranking by 5 positions in 2006/07’s Global Competitiveness Report.


Falling global competitiveness has led to export’s declining contribution to GDP.  This worsened the growing balance of payments deficit which surged due to rising imports. High current account deficits are not sustainable and cause macroeconomic vulnerabilities. Sustainable growth requires a robust export sector. Reversing the country’s falling global competitive ranking should therefore be a top strategic objective. After all, in a globalizing environment, it is the relative position that assumes rising significance for the sustainability of growth and social development. To achieve global competitiveness and sustain high export levels, a robust mix of private and public sector productivity increases is needed.


Whilst the private sector has done much to catch up with global productivity levels over the past decade, the same cannot be said about the public sector. In fact, under pressures of economic growth, the relative performance of the public sector has fallen. It is highly ironic that at the very time when government had plenty of revenue and the economy did so consistently well, the public services’ organizational and operational environment experienced notable decline. It is important not to overemphasize the importance of macroeconomic policy as regards creating and expanding employment, sustaining growth, and reducing inequalities. Undoubtedly, low inflation and stable macroeconomic environment are critical ‘necessary conditions’. However, there are equally important other factors required for sustainable and shared growth.


The establishment and promotion of an explicit set of value systems is of overwhelming significance. Over the past decade, a gradual but tangible rift has emerged between the country’s socio-economic ‘formal’ as opposed to ‘informal’ ethics. For example, in the business sector business executives and corporations formally subscribe to the ‘codes of good corporate governance’. Yet operationally they do not hesitate to collude and or abuse their market powers. Evidences of price fixing amongst pharmaceutical companies, bread producers and steel manufacturers have been high profile cases over the past year or so. The banking sector is also accused of malpractices and a report in this regard is yet to be made public by the Competition Commission.


The gap between the formal and informal ethics within the government is even more pervasive. Frequently, government ministers and departmental executives espouse ‘global best practices’, and yet operationally in their organizational and managerial behaviour there is little evidence of the values, standards, or practices that conform to their formal statements. Duality of the values is equally prevalent in labour unions and other social structures.


The economy now needs an appropriate mix of macro and microeconomic policies to help increase global competitiveness and deal with growing socio-economic inequalities. Significantly, the conceptualization of such a policy mix and its successful implementation require a skillful state. The success of economic policy henceforth rests on the capabilities of the state infrastructure and its effectiveness in policy development, coordination, integration and implementation. Transforming the modus operandi of the state therefore is indispensible if we hope to reverse some of the failures of the recent past.

To turn the prevailing public service environment around requires resolute political leadership. The public service needs to be largely professionalized. To this end, a conscious de-politicization of the public service is the first and necessary step. This needs to be further reinforced by political and management leaderships whose actions are congruent with their formal and policy pronouncements. Procrastination in this regard is bound to deepen a culture of mediocrity and bureaucratic compliance within the public sector. Public service inefficiency is inimical to the sustainability of growth and social development.


South Africa in 2008 has a different macro-financial configuration than a decade ago. Its public debt and fiscal deficits are within the norms of sustainability. In formulating our next generation policies, care should be taken that macroeconomic solutions are not made a substitute for micro-institutional measures that are needed. It is success in these areas that would define the prospects for further socio-economic success.