| A recent forum hosted inJohannesburgby consultancy Frontier Advisory hauled out a crystal ball to gaze into the future. A panel of experts shared their diverse views on the theme "Projecting the Future: Two Decades Ahead -South Africain 2034," speculating on the economic growth of the country in the next 20 years and how challenges can be overcome.
A summary of commentaries follow by Frontier Advisory's Senior Research and Strategy Analyst,Simon Schaefer, which sets out the thoughts of three speakers at the forum.
Khulekani Mathe,
Acting Head of the National Planning Commission Secretariat
South Africah as been enjoying 20 years of democracy and has made progress both politically and economically, yet many problems remain. Looking into the future, the National Development Plan - 2030 (NDP) lays out priorities and targets forSouth Africain the next 20 years.
At the individual level, the government is committed to working harder to ensure that everyone enjoys a decent standard of living. It will focus on core elements which include housing, water, sanitation, electricity, safe and reliable public transport, quality education and skills development, safety and security, quality health care, social protection, employment, recreation and leisure, a clean environment and adequate nutrition.
The NDP will follow a three-fold strategy in implementation. Firstly, it will develop labor-intensive industries such as mining, infrastructure and manufacturing. Secondly, it aims to expand the service sector, including financial services and telecommunications; and lastly, it will establish a more effective social wage.
More importantly, the NDP will take a problem-solving approach to tackle underlying issues. For instance, the socio-economic disparities of the past are still defining today. Some opportunities are still based on race, gender, geographic location, class and linguistic background. Inequality brings a sense of being cheated by society and thus people demand more. The recent strikes in the platinum, metal and engineering sectors are practical examples of such issues.
On ownership and driving economic development, privatization is not a "one-size-fits-all" solution. State-owned enterprises (SOEs) have to be managed better and bring about greater levels of efficiency, although most of them operate in a monopolistic setting. Eskom (a South African electricity public utility) cannot solve the energy problem alone. Diversification of power generation will require collaborative engagement of the SOEs with the private sector. A further example is the manufacturing sector in South Africa where the sector is projected to be shrinking as the cost structure makes it difficult to compete with countries such asBangladesh. In such instances, moving up the supply chain and expanding the service sector are good ways to sustain the industry.
Expanding trade and other economic activities with the rest of Africa is crucial given that the rest of Africa is already an important partner for South Africa, accounting for 29 percent of exports and 14 percent of dividends earned by South African firms. Moreover, Africa is rich in natural resources with 20 countries out of 48 countries in Sub-Saharan Africa (SSA) being classified as "resource-rich" countries. It is estimated that SSA has 221.6 trillion cubic feet (Tcf) of proven natural gas reserves - roughly 7.5 percent of the world's total. By country, Nigerial eads with 182 Tcf, followed by Mozambique and Angola.
South Africais experiencing rapid urbanization. Approximately 60 percent of South Africa's population resides in the country's urban centers. This share is projected to increase to 70 percent in the next two decades. Global trends such as the shift from "West" to "East," especially to China (which is set to be the largest global economic power), climate change, and the rise of Africa as a region, all provide opportunities forSouth Africa. It depends on whether South Africa can take advantage of these trends and manage potential challenges.
Dr. Miriam Altman,
Head of Strategy, Telkom; Commissioner, National Planning Commission
With the NDP as the departure point of discussion, the main message from the NDP's diagnosis is that South Africa is a middle-income resource economy. This, however, is mostly in appearance since rents are poorly distributed, which is common to African middle-income resource economies.
South Africahas not been taking serious advantage of the global trade in services, compared to countries like Malaysia, Korea, Indonesia or Turkey. These economies have demonstrated an emphasis on identifying their comparative advantage and maximizing on investments in education, research and development, distribution of wealth systems, having a fall back economic system such as agriculture, and having strong social security systems amongst other areas.
The 11 million jobs and the 6.5-percent unemployment rate that South Africa wishes to attain by 2030 would be a great success if the country becomes a truly middle-income country in the next 20 years.
Manufacturing has a falling share of employment globally due to the advancement of technology which improves productivity. More than 70 percent of employment created in South Africa( and in general on a global scale) is from the service sector. Given this, it is unlikely that more than 0-3 percent of employment created in South Africa will come from manufacturing.
A look at the mining industry in South Africa also shows that there is need for the sector to be supported and expanded as it has an uncontested comparative advantage. Binding constraints, including the regulatory framework, energy, water, rail services, research and development in energy conservation, mine life and the alternate use of metals, are key areas which need attention and investment.
Beneficiation (smelting and initial stage processing for instance) is one of South Africa's competitive advantages, but there is a general consensus that the economy is losing ground in value-added products and it is not strategic to sell raw materials (for example chrome versus ferrochrome).
Tim Cohen,
Editor, Financial Mail
Tim Cohen did not share the positive sentiment of the other speakers, as his expectations of South Africa are very high and more difficult to meet. He argued, however, that pessimism is not necessarily negative because people tend to engage more if they are worried about certain issues.
There are two reasons for taking the pessimistic position. Firstly,South Africah as not enjoyed strong growth for a long time. South Africa had a flat growth rate before the commodity crisis. The South African economy grew until the financial crisis in 2008, but the rate of growth has declined since then.
Secondly, instead of focusing on what will happen in 20 years, South Afric as hould take a closer look at the five-year plan. South Africah as underperformed and it should tackle the real problems instead of debating whether the attitude should be optimistic or pessimistic.
There are several steps that South Africa can take to boost its economy: Explicitly adopting an export-oriented economy, especially taking advantage of its mining sector, is one example. Providing exporters with incentives and creating Export Processing Zones (EPZs) should be the first step.
The second reason for a pessimistic outlook is due to South Africa's rigid labor market. Freeing the labor market does not necessarily lead to lower wages. Brazil, for example, has much stricter labor requirements than South Africa, but they are counterbalanced by more relaxed hiring or firing policies to ensure labor mobility.
In addition, a stronger incorporation of technology into the economy will be an important step for creating value-added products as most systems in more developed countries optimize on technology. Embracing technology may enable South Africa to move toward an upward growth trajectory.
Being a member of BRICS,South Africais constantly comparing itself to Brazil and China, which are vastly different from South Africa. South Africa should rather aim to learn from countries with similar growth paths and profiles such as Malaysia. In addition, Chile, Colombia and Turkey also share similar problems with South Africa and thus their policies can be valuable references.
(Frontier Advisory is a strategy and investment advisory firm based in Johannesburg, South Africa ) | 
