South Africa’s ambitious path to prosperity: How to achieve economic growth

South Africa’s path to prosperity demands an ambitious annual growth of 5.4%, as advised by the National Planning Commission. A shift from cronyism to productivity is crucial. Recent revelations from the Department of Agriculture expose plans to enforce racial ‘transformation’ in the agricultural sector, raising concerns about state interference. To achieve sustainable growth, South Africa must prioritise prudent governance and discard past mismanagement practices. The pursuit of a 7% growth rate requires a departure from bureaucratic intervention and a genuine commitment to fostering economic resilience.

Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.

Call it what it is: Squandering

By Terence Corrigan*

For South Africa to escape from its current malaise, it will need growth of 5.4% per annum for a sustained period. This was the judgement of the National Planning Commission a decade ago. Without this: a figure which would reflect rising investment and encourage rising employment, not only would South Africa be doomed to endless economic crises, but its survival as a constitutional democracy could be imperiled.

This is an existential issue.

If South Africa is to get growth in motion, it will need every resource that South Africa can muster. Equally importantly, there needs to be a prior recognition that after years of mismanagement of the country, these resources are desperately limited. A growing economy will depend on whether South Africa is able to shift its mode of operation from one premised on cronyism and corruption to one premised on prudence and productivity.

For years, this has been the implicit promise of President Ramaphosa’s government. There is not much practical evidence to support this undertaking. Recent documents obtained by business advocacy group Sakeliga speak strongly to the contrary.

Sourced from the Department of Agriculture, Land Reform and Rural Development – some marked ‘Confidential’ ̶ they provide evidence of a plan to use ‘empowerment’ criteria to enforce racial ‘transformation’ on the agricultural sector.

Of the four documents, the two most important are those entitled A Plan for the Alignment of DAFF’s Internal Tools for the Implementation of the AgriBEE Sector Code: Enforcement Measures and AgriBEE Enforcement Guidelines. These documents spell out the various pieces of legislation over which the state has power, and which it can use to force along its ‘transformation’ agenda.

Its key terminology is in the word ‘levers’. Like the notorious phrase ‘levers of power’, (that the ANC determined to commandeer in 1997), these are pressure points where the State could coerce private interests to do its bidding. These included aggressive application of Broad-Based Black Economic Empowerment criteria to such matters as water allocations, import and export permits, phyto-sanitary approvals, support for agro-processing funding support, land use authorisation, hunting permits and so on.

The conclusion of the AgriBEE Enforcement Guidelines puts it like this:

‘It is envisaged that through achieving AgriBEE Sector Code’s scorecard targets, more black people (Africans, Coloureds, and Indians) will own and manage agricultural enterprises and assets. However, the Sector Code needs to have ‘teeth’. The AgriBEE Enforcement Guidelines are regarded as the ‘teeth’ which will ensure faster implementation of AgriBEE Sector Codes by measured entities. This can only be achieved by making BBBEE a qualification and legal requirement for Government to:

issue new licenses and permits, as well as renewals;
grant concessions and rights (eg. water rights);
provide financial support and incentives (eg. Empowerment Funds);
buy goods and services, through Preferential Procurement;
enter into and sign Partnership Agreements with industries, investors and other Governments; and
disposing of state-assets, in any form or way.’

The language of ‘levers’ and ‘teeth’ underlines more than the dirigiste view of the economy that South Africa’s bureaucracy clings to. Perhaps an excessive fixation on ‘capitalism’ has reduced appreciation of economic matters to impersonal mechanisms that can be flipped around from the air-conditioned comfort of an office (assuming the air-conditioner is working). But these documents show the lamentable lack of understanding of the way an economy works and the resources necessary for it to thrive.

It is simply not possible to replace an existing commercial class with one more congenial to a society’s political masters. This has been the path that South Africa has tried to follow. What it has produced is cronyism, and all that comes with it – and growth rates of 1-2%. It has also betrayed black entrepreneurs, as political connections came to overwhelm economic considerations. The country is paying a stiff price for this.

South Africa’s farmers operate in an intensely difficult environment. Not only do they exist in harsh climatic conditions, not only do they not receive the subsidies given to their developed-world peers, but they have to deal with failing infrastructure, insecurity and perennial biosecurity hazards.

Not content with this, the state wants to ‘intervene’ in farmers’ ability to comply with the administrative requirements that it has set for them. Call this what it is: the wanton squandering of a chronically limited entrepreneurial capacity.

Sakeliga notes, accurately, that these plans have not been comprehensively rolled out. This is an ironic instance of the where state dysfunction has been a godsend for the country. (Though elements of this thinking have been on display, with the recent regulations on water use.)

We at the Institute of Race Relations believe that a growth rate of up to 7% is not only necessary but achievable, provided a suitable set of circumstances can be created. These documents remind us just how far from that point South Africa is place