South Africa’s primary economic challenges can be synthesised as follows:

·        High levels of poverty and inequality stem directly from the fact that too few people work.

·        Productivity is low relative to peer group countries.

·       Too few resources are invested in new production capacity and infrastructure, and existing infrastructure is inadequately maintained.

To address these challenges, the country has to increase employment levels – particularly for unskilled and low-skilled workers – invest in infrastructure, and increase productivity.

Identifying options and trade-offs

In preparing a national development plan, South Africa needs to consider the choices that will have to be made. Socioeconomic progress does not lend itself to a perpetual and uniform rise in all indicators all at the same time. And given its finite set of resources, set amid urgent and competing demands, South Africa will have to make some tough choices that will involve trade-offs. Achieving national consensus will depend on leadership from all social partners – government, business, trade unions and the community sector. As the country engages in broad-based public consultation on the commission’s diagnostic document, the issues highlighted below should be considered.

Growth and redistribution. It is possible to pursue pro-growth poverty reduction and pro-poor growth. Yet during a specific phase, choices may have to be made in allocating resources between measures that will increase growth and employment, and those that will expand welfare.

Salary levels. Moderating pay increases for managers and workers may need to be considered.

Empowerment. It may be prudent to emphasise specific objectives at certain times – for example, to support the goal of expanding manufacturing, including a stronger local supplier industry for the infrastructure programme; and facilitate the realisation of empowerment objectives in line with this imperative.

Quality and access. At certain points, pursuit of general equity in basic services may need to be emphasised to ensure access; at others, consideration may need to be given to raising levels of quality.

Price and access. If over the long term, prices charged for a service are below cost, a service is not sustainable.

Industrial policy. South Africa will need to resolve two sets of tensions – the first between “picking winners” and an open architecture approach; the second between following comparative advantage or defying it by subsidising or protecting certain industries.

Savings and consumption. South Africa will need to balance savings and consumption.

Insiders versus outsiders. How does a society deal with the widening gap between those that already participate in the economy and those not active? This is the trade-off between existing firms and workers, and new firms and the unemployed.

Growth and the natural resource base. How can South Africa develop its economy without degrading the environment; and what balances need to be struck in instances where the two objectives may come into conflict?

Balances in macroeconomic indicators. The country will need to consider the trade-offs related to inflation as well as interest and exchange rates. It is virtually impossible consistently to have simultaneously stable prices, exchange and interest rates in a world where prices are set externally.

Long-term rewards versus instant gratification. Both the public and private sectors will have to consider how resources are used, and the short- and long-term benefits thereof. This includes striking appropriate balances between current consumption (both in the public and private sectors) and long-term investments.

In preparing a national development plan, South Africa will have to make tough choices along the lines of those highlighted above. These choices have to be informed by debate on economic strategies and a credible policy framework that promotes competition, entry and innovation. The management of key economic institutions will need to be arranged to support these objectives. The policy will have to promote meaningful collaboration between economic sectors and between government, business, labour, universities and research institutes. Finally, the country will need to decide how it will assign sufficient capacity to meet these objectives.

Growth, Employment and Redistribution strategy - (65KB)