Is South Africa about to make an historic mistake? A presentation by Professor Ricardo Hausmann

Ricardo Hausmann is one of the world’s leading experts on what drives economic growth, especially in developing countries. Professor Hausmann was in South Africa in February/March 2017 at the invitation of the Centre for Development and Enterprise, giving a series of lectures to various audiences both in government and out. This report distils some of the key insights offered in those lectures. The first few entries set out how Professor Hausmann thinks development happens; the last set out his concerns about the deep, historical mistakes South Africa could be making.Click here for the full report.




Reforming India: Successes and Challenges in a High-Growth Country.

In March 2016, the Centre for Development and Enterprise invited Gurcharan Das to speak at a dinner in Johannesburg. He is the well-known author of India Unbound, a detailed account of India from independence to the global information age, which was published in many languages and filmed by the BBC, as well as the more recent book, India Grows at Night: A Liberal Case for a Strong State. This CDE report summarises the views and insights he shared with a South African audience on some of the achievements and challenges emerging in India as it moves to become the fastest-growing country in the world. Das also responded to questions from the audience on topics that are of particular interest to South Africans.

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INSIGHTS AND KEY RECOMMENDATIONS

More than 20 years after apartheid, far too many South Africans live in poverty. The reason for this, and for our enormous inequalities, is that far too few South Africans are employed. This has serious implications for our politics and stability, ultimately putting at risk the political, social and economic achievements of our democracy.

Without faster, more labour-intensive growth, we will fail to employ the millions of people who need work, condemning them – and their children – to lives of grinding poverty. Slow growth will also mean that state revenue will not keep pace with legitimate demands for access to all levels of education and training, essential infrastructure and improved social welfare. South Africa’s poor will be left behind, society will stagnate, race relations will worsen and instability will increase.

These priorities comprise a basis for encouraging a nationwide conversation. They offer a clear diagnosis of what is going wrong and a focused set of catalytic recommendations for getting the country back on track.

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CITIES

Cities produce more than 80 per cent of global economic output. No country has grown to middle-income status without urbanising, and none has grown to high income status without vibrant cities. Cities, therefore, are key platforms for national, regional and global growth.

The centrality of cities is not, however, evident in South African policy documents and economic analyses. Even the National Development Plan devotes only a few pages to cities in its chapter on transforming human settlements. However, if the South African economy is to grow more rapidly, and if it is to do so in a way that creates mass employment, this can only happen in our cities.

This study makes the case for resetting South Africa’s national priorities to focus on its cities, embracing urbanisation, and harnessing the productivity gains that could be achieved in larger, better-run cities. This would put more people in work, create more wealth, and improve social, economic and political inclusion.

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ACCELERATING INCLUSIVE GROWTH

South Africa’s developmental goals are clear: the reduction of unemployment, poverty and inequality; the transformation of the economy to better reflect the country’s demographics; the creation of a just and inclusive society; and the consolidation of our democracy. However, debate about them often fails to acknowledge that they cannot be achieved without robust economic growth sustained for a significant period.

According to the National Development Plan (NDP), the economy needs to grow at more than 5 per cent a year until 2030 if we are to achieve the goals of eliminating poverty, ensuring that 60 per cent of adults would be in work (up from about 44 per cent at present) and reducing inequality as measured by the Gini coefficient from 0.69 to 0.60. In this regard, the NDP is exactly right; if South Africa is to end mass poverty and unemployment, its economy needs to grow far more rapidly. This makes its performance in recent years nothing less than disastrous.

Over the past five years, the economy has grown at just over 2 per cent a year and, following a rapid further drop, is now expected to grow at about 1 per cent a year for the next few years. This is lower than the rate of population growth, which means that however the fruits of economic activity are shared, the average South African will be getting poorer in the years to come.

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BUSINESS AND GOVERNMENT

The dysfunctional relationship between business and government is a key reason why the South African economy is in trouble.

This document offers an analysis of this failing relationship. Its principal messages are:
• A solid business-government relationship is essential for faster growth and mass employment.
• South Africa cannot hope to achieve growth and mass employment with a government that is anti-business.
• Companies and business organisations need to reassess their role in South Africa and their own contribution to the flawed relationship with government.
• The silence of business leaders and their organisations is not a good strategy for a country in trouble, with a racially discriminatory history.

This report will first deal with business and then government in our analysis of what is going wrong. It will conclude with recommendations for both parties on how best to start building the better working relationship that is so vital to growth and employment.

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AN EXPORT PROCESSING ZONE FOR THE NELSON MANDELA BAY METRO

Over the last few decades China has become the centre of global manufacturing, particularly of labour-intensive exports. However, rising wages in China mean that many firms are looking for other locations to base either existing operations or new factories. The number of jobs being relocated is potentially very large; one estimate, by the former chief economist of the World Bank, is that the number will eventually be 85 million.

At present, most of these relocated jobs are destined for Asian countries including Vietnam, Bangladesh and India, although some African countries, notably Ethiopia, are starting to attract some manufacturing firms.

Even a tiny share of these jobs would be enormously beneficial to South Africa. The first major benefit would be the new jobs created. These are labour- intensive (unskilled and semi-skilled) activities that South Africa desperately needs, and which its present growth path fails to deliver. The second benefit would be the increase in exports, which would enhance economic growth and hence indirectly have a further positive impact on employment. (See the CDE Growth Agenda series Report 2, Jobs.)

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GROWTH IN A TIME OF UNCERTAINTY: Does South Africa have a growth plan?

 

South Africa desperately needs faster growth. But to achieve that, the country must confront important questions: how to attract more labour-intensive industries; how to promote urbanisation; and how to get the balance right between state and market in the economy and in the delivery of services. These are the conclusions of a new report by CDE, GROWTH IN A TIME OF UNCERTAINTY: Does South Africa have a growth plan? Read the executive summary above or read the full report online here.

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POLICY GRIDLOCK? Comparing the proposals made in three economic policy documents

 

CDE Focus, October 2013

Government’s three major economic strategy documents fail to offer a common view on government policy. This is the key conclusion of the newest report by CDE, Policy Gridlock? Comparing the proposals made in three economic policy documents, written by Prof David Kaplan of UCT. The report notes that, while the three documents agree that employment growth is the country’s top priority, they offer conflicting assessments of what is obstructing employment growth, what kinds of new jobs should be created, in which industries, and at what pace.

Read the executive summary above or read the full report online here.

 

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Press release

 




Why Africa needs its private sector – Paul Collier


 

Whether Africa’s future will be one of plunder or prosperity to a large extent depends on the role the private sector gets to play in it. Professor Paul Collier, from Oxford University and the author of the best-selling book, The Bottom Billion, made this argument during a speech at a dinner hosted by CDE in June 2013. In it, he argued that Africa could grow rapidly in the next few decades, but that this would happen only if “effective organisations” emerge and if the governance of extractive industries was improved.

 

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