The path to prosperity is clear — let’s take it

As SA enters a new political era it is worth recalling that this is not the first time, we’ve had a government of national unity (GNU). Following the 1994 elections Nelson Mandela’s ANC led a government that brought together several parties that differed on many issues but agreed that an absolute prerequisite for the success of the new democracy was political stability and economic growth.

Then, as now, SA was reeling from a long period of economic stagnation and deepening inequality and poverty. But thanks to sound economic policies and deliberate steps to build investor confidence, economic growth rose from close to zero in 1994 to more than 3% a year in the space of only three years, laying the foundation for even higher growth right up to 2007. This rapid increase in GDP brought about lower unemployment and bolstered the state’s capacity to provide housing, utilities and social assistance to millions who had been denied these basic services under apartheid.

The newly sworn-in GNU has a similar historic opportunity to reverse nearly two decades of decline and set us back on a path to inclusive growth. The wave of optimism that swept through our equity, bond and currency markets after the announcement of the GNU hinted at the scale of this opportunity and how quickly fortunes can turn on expectations of sound economic policies and good governance. It is now up to the new government — along with its willing partners in the private sector and civil society — to ensure that these expectations are realised.

Fortunately, the flywheel is already in motion. Even before the elections there were signs that some binding constraints on GDP growth were beginning to ease. New leadership at Transnet and greater collaboration with the private sector have led to marginal but real improvements in rail and port efficiency. Eskom’s performance has improved materially, even with higher than usual planned maintenance, while the private sector was quick to take advantage of policy reforms and invest in renewable self-generation. Fewer outages and the associated reduction in diesel spending by SA companies bodes well for margins and business growth.

The election outcome spurred hopes that critical reforms will accelerate and that the state will continue to partner with the private sector in alleviating structural constraints to growth. One result was a strengthening of the currency, with immediate positive implications for inflation, fuel prices and interest rates. For several years now Operation Vulindlela, led by the presidency, has served as a useful model of co-operation between the government and private sector to drive tangible change in our economy.

Successes in driving energy reforms and nascent victories in freight and port logistics should be celebrated. They provide a blueprint for a second phase of co-operation between the public and private sectors. Areas of enhanced co-operation could include continuing reforms to the energy and logistics sectors, water provision, municipal government performance and lowering crime.

The maturity with which parties have approached the post-election period bodes well for business confidence — a key leading indicator for private sector investment and employment growth. A 10-point increase in business confidence could easily see about 100,000 jobs added in the next 12 months.

The combination of job growth, rate cuts and improvements in state-owned enterprise (SOE) performance implies that GDP growth over the coming year could well exceed the consensus forecast of about 1%.

And these are just the immediate consequences of the positive reaction to the election. With clear evidence of the GNU’s commitment to removing impediments to growth we should see further rate cuts and improvements to business confidence, accelerating GDP activity and job growth. Herein lies the power of the economic flywheel: small but positive incremental changes build on themselves to deliver significant long-term benefits.

An extra one percentage point of GDP growth a year will raise government revenue by about R100bn a year within five years, augmenting the state’s capacity to support the most vulnerable, ensure social stability and invest in critical public services.

On our estimates, a bump in GDP growth from 1% to 2.5% would create an additional 2.1-million jobs within a decade and add R335bn annually to the fiscus. Should annual growth advance to 5%, we’d see about 6.3-million jobs added in the next decade and more than 17-million new jobs across the formal and informal sector within 20 years, in effect lifting SA to the status of a developed economy. Such a scenario would also add an additional R2.75-trillion to government coffers, hugely boosting capacity for social upliftment, public infrastructure and service delivery.

Apart from our own recent history, we can look to the examples of developing countries such as Singapore and South Korea that have managed to lift their nations from developing to developed economies in the space of three to four decades. India, too, has a concrete plan to achieve developed nation status by 2047. With a growth-friendly policy environment and a government that regards the private sector as a partner in achieving shared goals, we believe 5% annual economic growth is within reach for SA.

There is no shortage of factors working in our favour: our wealth of natural resources, our strategic geographic position within a vibrant African market, our sophisticated financial and legal systems, and the ingenuity and resilience of our people.

The key to unlocking these formidable advantages is now in our grasp. There is a clear consensus among the major parties that more rapid economic growth serves everyone’s interests. This point alone is worth celebrating. But to capitalise on this moment of opportunity the new government must move quickly from statements of intent to tangible action.

The path to greater prosperity for all South Africans is well marked — it remains only for us to take it. We’ve done it before; we can do it again.

This article was originally published on Business Day.