Letter: SA’s big need for capital and low potential to attract it - Business Day
President Cyril Ramaphosa’s address to the World Economic Forum (WEF) put forward an upbeat picture of a country on the move, bravely tackling the inhibitors to growth as it marches into the future (“Global finance institutions need to reform, Ramaphosa tells WEF”, January 21).
The country, he said, is undergoing a “structural transformation that is sharpening SA’s competitive edge, boosting productivity and attracting investment.”
This invites comment. SA’s seminal problem for decades has been a failure to attract investment. In this we are performing dismally.
Since the 1990s, fixed investment has generally come in at less than 20% of GDP, and it has been on a general decline over the past decade.
In 2023 it stood at less than 16%. Compare this to SA’s middle-income peers, the biggest winners of the contemporary global economy, where the aggregate level of investment has exceeded 30% of GDP every year since 2007.
As the Institute of Race Relations has shown in a recent series of policy papers — the Blueprint for Growth series — while the causes of SA’s failures are complex, many are self-inflicted. Not least among these has been a policy milieu that has prioritised political control and rent-seeking over the efficient and profitable operation of markets.
These include the diversion of enormous resources into typically unproductive “empowerment” demands, a labour regime that discourages low-wage and unskilled employment (while the education system fails to provide an adequate pipeline of skills), an industrial policy laced with perverse incentives, and an interventionist state with neither the competence nor the sympathy with business to play the “developmental” role it fancies for itself.
Contrary to what the president claimed, there is no evidence of any of this being reviewed. Indeed, since last year’s election, race-based empowerment has been ratcheted up with such measures as the Public Procurement Act, proposed “sectoral targets” for determining hiring as well as the Transformation Fund, which would take control of a sizeable share of business earnings.
Individually and cumulatively, these interventions make it harder, more costly and less profitable to do business in SA. Investors, local and foreign, will simply decline to put their money into the country.
The real story is not the invigorating spin put out by an avuncular president, nor even the relatively small amounts of investment that land in SA. It is in the billions that fail to come.
A column in the Wall Street Journal noted: “SA has the biggest need for external capital and the lowest potential for attracting it of any emerging market.”
This was in 1998. Not much has changed, which suggests that Ramaphosa might more aptly have discussed structural stasis than structural transformation.
Terence Corrigan
Institute of Race Relations