Looking to the Future: An Economic Plan for the New South African Regime

As South Africa turns to a new elected leader in Cyril Ramaphosa, many question the direction he will lead the country economically. Following the economic downturn in 2008-2009, the economy of South Africa has more or less grinded to a halt. The unemployment rate has reached an alarming 27.7%, while GDP growth stands at a mere .7%. Among these trends, public debt is rising, real household income per capita has flatlined, inequality remains extremely prevalent, and social discontent is at large.

These recent negative economic actualities have caused many influential people to formulate different opinions on the steps that need to be taken. Some hold the feeling that economic leadership needs to lock down the economy in order to facilitate growth. This includes fiscal consolidation plans, reduction/expulsion of union power, and a deregulation of the markets. Other South African economists and scholars believe the solution lies in the exact opposite approach, calling for state-led industrialization, free tertiary/university education, and a more equal redistribution of land. In recent history, these questions regarding reform have struggled to reach an answer due to the lack of strong leadership and stakeholder involvement. The citizens of South Africa now turn to the new elected leadership and President Ramaphosa for a strong plan forward in hopes of sustained, healthy economic growth and development.

The institutional reforms are heavily debated and necessary, but other reforms are more clear. For instance, urbanization and investment in cities is something that would greatly improve economic productivity and quality of life. Many residents live in “informal settlements” which limits work opportunities because of location. The current cities suffer from racial divides and are not good options for living. While the universities and financial institutions are there, the development needs to be more inclusive. Investment into cities, urban areas, and developing a good blueprint for living and working would allow more people the opportunity for work and enhanced quality of life. This would result in a more productive economy and growth of GDP.

There are a couple more steps that can be taken in order to improve the livelihood of South african residents. The development and facilitation of agricultural lands would not only create more jobs, but also increase the food security in the nation. Along with facilitating agriculture, the energy sector of the country is currently monopolized by state-owned industries and prices are very high. If private ownership can compete in that market it would allow prices to drop for the entire nation.

Which approach would most improve South Africa’s economic development issues? Can President Ramaphosa rally the country behind him and prove his leadership skills? Would the investment in cities be the most beneficial investment for South Africa right now?

Sources: Andrew Donaldson, Project Syndicate

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8 Responses to Looking to the Future: An Economic Plan for the New South African Regime

  1. ahny19 says:

    Comparing and contrasting the various paths of economic reform South Africa could adopt is intriguing particularly in the context of its new political administration. It’s striking to observe the decades long discourse on whether the state should execute a proactive Keynesian-approach opposed to a Classical, minimal degree of intervention continue to be debated today. The case of South Africa shares many of the similar challenges that other developing nations struggle with such as economic stagnation, high unemployment, fiscal burden, and public discontent. However, the racial segregation and presence of financial institutions distinguish South Africa’s economy. The challenges of raising quality of life is an issue that affects even emerging economies and it seems to be one of the greatest concerns of the country. As many of the world’s developing nations and regions have and continue to embrace major economic overhauls–often neglecting economic metrics such as the standard of living–I’m interested to observe the progress South Africa will make on behalf of its citizens. In particular, I’m curious as to how the country’s welfare state will change and if there will be any reforms on its tax regime (subjects I’m currently exploring for the term paper).

    • the prof says:

      Ex-colonies often suffered from an institutional vacuum upon independence. That was less true of South Africa, but the reverberations of apartheid continue. Moving from one in-grown, dominant political group (under Afrikaaner leadership) to another under the revolutionary-era heroes who constituted the ANC leadership … well, let’s hope!

  2. herndono20 says:

    The idea of moving towards deregulated market is that to open up opportunities for industries to grow without the limitations government intervention. However, this approached requires foundational skilled labor force to man these new jobs. South Africa is similar to other developing countries with their wealth distribution and difficulty for the poor to enter these labor forces. With no regulation economic growth would only mobilize the stagnant economy for a short period of time because there would still not be enough consumers earning a sustainable income to provide the cash flow that growing industries need. Government intervention would be a better idea because that allows for free education to increase human capital, and it also allows for a better distribution of wealth. South Africa needs to raise the average income of their struggling lower class to sustain its own economy, regardless of whether or not they invest in industrialization of new cities and firms. A hands on government approach allows for a more equal distribution of land for the general population, aiding the poor living in rural insufficient households.

    • the prof says:

      One deficit of “Big Push” is that it creates a political / bureaucratic system with strong vested interests. Is there a powerful constituency among the ANC leadership and local politicians and government officials for improving education? There may well be, I can tell a story to that effect relying upon “all politics is local.” In general though we need to try to think through the political economy of resource allocation.

  3. pezzij19 says:

    One thing that I’m curious about is if there is a comparable case study. Now like John said, there are certain characteristics of South Africa that set it apart from the rest of SSA and others, but I’m sure something could be found. If there are historical examples of public intervention or a more laissez faire policy in a stagnant, developing/somewhat developed country, potentially the successful policies could be adopted in South Africa. Appropriate modifications could be made to adjust for population, geographical and economic differences or possibly that would not be necessary if there laissez faire is the answer.

    My initial thought is Malaysia, liked we learned about in the book, potentially the Chinese model, or somewhere like Brazil. But I don’t know if these are necessarily comparable due to the difference of demographics, historical differences, political circumstances, economic situations, or size of the countries.

  4. reamest18 says:

    Though increasing agricultural lands appears to be an appealing option, the country can not sustain an industry that relies so heavily on water – at least at the current moment. With the threat of “Day Zero” approaching, it should be the government’s top priority to shore up its access to clean water for the entire country. Doing so would prevent a disaster scenario in which the already poor communities are forced to limit their consumption of water. If water is limited to 6.5 gallons per day per individual, how would agriculture be sustainable? I think the government should look at core issues facing the country before moving to other ventures.

  5. Ezequiel Piantoni says:

    It is shocking to see these poor economic figures for South Africa. A 27.7% unemployment rate is extremely unhealthy for any economy. I would be interested to know though, if working in the black market is popular in South Africa, and if so, if people employed in the black market are still considered “unemployed”. Additionally, I agree with reamest18 in that the country cannot keep expanding the agricultural lands when their water production is so low. It is just not sustainable. Should the country go borrow internationally and invest in a more industrialized economy so that dependency in agriculture goes down and employment raises?

  6. nshimyumukizas18 says:

    I just wanted to make a quick observation in that by the way the blog talks about it, it seems that Cyril Ramaphosa is the new president of South Africa, even though he was just elected as the deputy-president of South Africa/ ANC leader. Recent news suggests though that the current President Jacob Zuma is expected to step down with a smooth power transition to Ramaphosa. As one of the strongest economies in Africa, it is alarming to see the economic numbers for South Africa. However, a new face in the political administration is needed for a country with a long history of racial divides. With an unemployment of 27.7%, it can create unrest and violence, especially in the cities. As a result, Ramaphosa has a big task ahead which has to start with building an inclusive state that reduces racial divides and inequality. But the big question would be if maybe he is going to be like his predecessors and be just another ANC big leader? Or should South Africans have a president from other parties too?

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