Goldman Sachs Report
Goldman Sachs has recently released a comprehensive report, tracing South Africa’s successes and challenges in the past two decades. The report covers issues in the social, economic and political field.
In terms of the successes, the report highlights that South Africa has made structural advances in 10 key areas of the economy – namely;
Macro fiscal and monetary balances have improved; government debt has gone down whilst foreign reserves have risen; Overall costs of capital have declined; Corporate valuations have improved relative to global peers; Real assets returns have compared favourably; Trade between China and Africa has offset European Trade; Disposable income of South Africans has risen; Spending has increased as a result of the rise in the Black middle-class; Wage inflation and government grant have supported the spending trend and per unit productivity has also gone up.
At an economic level, the Report indicates that the Debt-to-Gross Domestic Product is currently sitting at 42% and thus still compares favourably with most developed markets in the international community. Since 1994, the report shows, the GDP has almost tripled from $136 billion to $385 billion. It is claimed that this tripling in the GDP has reduced inflation from an average of 14% to an average of 6%.
Furthermore, at a political level, Black ownership in the Johannesburg Stock Exchange has escalated to 21% by the end of last year (2012) compared to the 5% Black ownership of 1995. It is conceived that this improvement in Black ownership is a result of the implementation of the Broad-Based Black Economic Empowerment Act (No. 53 of 2003) – which calls for enterprises in South Africa to put certain stakes of ownership into the hands of Black people. In any case, the only reasonable inference that could be drawn from these successes is that South Africa’s ability to reach its economic potential has improved – albeit only marginally.
At a social level, the budget allocated to social welfare grants has substantively increased from 2.4 million to 16.1 million. This is said to be an indication of the governments’ commitment to foster social justice in South Africa – for the betterment of the economically marginalised.
Whereas South Africa has attained these successes, there can be no doubt that large challenges still remain ahead.
In terms of challenges, serious improvements are needed in respect of Unemployment and Inequality; Current account deficit; Volatility of currency; Consumer indebtedness; Decline in the size of the mining industry; Labour instability and wage inflation; the Productivity of the education and health sector; Infrastructure; Access to the internet and Research and Development and Sovereign credit ratings.
In terms of inequality, it is well known that South Africa is one of the world’s most unequal societies – where economic power tilts on one side of the scale, with the rich getting richer and the poor getting poorer. The challenge of inequality is a challenge which threatens social cohesion in the country.
Moreover, according to the report, both the mining and the manufacturing industry – which are known to be amongst the largest employers in South Africa – have reduced their share in the country’s GDP, resulting into an overall performance lower than that which would have been achieved, had they not lowered their share.
Labour strikes have also become an issue whose effect has equally been felt both by the public and by the private sector. Union membership has, in terms of the report, increased by 23%. What is more puzzling is the fact that 71% of the education, and 51% of the health, budgets are spent solely on salaries. This happens in light of the low education quality and the low standard of health-care service in the country. This challenge requires strong policy intervention.
In addition, whereas the middle class has risen substantively – however; the accompanying challenge is that indebtedness has also escalated, jumping from 57% to 76%.
If these challenges are to be countered, the report recommends that: Investment in the mining and the manufacturing industry should be revived; Foreign reserves need to be accumulated so as to hold the rand from speculative attack; The government must take reasonable steps to reduce unemployment and inequality; Public sector productivity and effectiveness must be improved and South Africa must increase its GPD growth rate. Finally, attention must be given to innovation, research and development.
by Andreas Krensel