Opinion: What does the NDP mean for SA? 1

Last week’s #NDPdebate saw a strange question and answer session that we followed via Twitter. This one says it all:

Anyone out there who is still wondering what the NDP is all about should watch this quick video where Prof Raymond Parsons explains what the NDP means for South Africa:

Opinion: Growth and austerity, South African edition Reply

In a week when the Rand has plunged, wage claims in the mining industry have been particularly crazy and inflation ended up slightly higher than expected with the repo rate remaining unchanged, it is easy to get drawn into a panic about the South African economy. This post wants to suggest that there are also some very good structural reasons to panic as well.

In an earlier post I wrote about growth prospects and how all the drivers of growth are currently quite weak. Then I came across this post by Michael Spence at the Project Syndicate blog. He writes about growth and austerity following the Reinhart and Rogoff story and the case of Southern Europe, but in a number of places he might as well have been writing about South Africa:

From the standpoint of growth and employment, public and private debt masked an absence of productivity growth, declining competitiveness in the tradable sector, and a range of underlying structural shortcomings – including labor-market rigidities, deficiencies in education and skills training, and underinvestment in infrastructure. Debt drove growth, creating aggregate demand that would not have existed otherwise. (The same is true of the United States and Japan, though the details differ.)

In South Africa we do not have the excessive levels of debt that you find elsewhere. We do however have a combination of socio-economic imbalances and low growth rates that have made ratings agencies question our ability to sustain current debt levels. The result has been a ratings downgrade in 2012 and another warning already this year. With the deficit currently at 5.2% of GDP, the Minister of Finance has outlined the plans to reduce this to 3% of GDP.

Austerity is coming

Austerity is coming

There are questions about whether this is even possible. Projections show that tax revenue has to grow with 11% through to 2015/16.  That is faster than the nominal GDP, projected to grow at 9.5% over the same period.  This means higher tax rates, new taxes, or more efficient tax collection to earn the increased tax revenues.  At the same time spending must grow by only 8% over the period.

This clearly means less support for consumption-based growth, but is there any chance that a sounder fiscal footing can restore confidence and in that way aid growth? I strongly doubt this. In an environment of weak growth globally, exchange rate fluctuations, labour unrest, inflationary pressure and policy uncertainty (the Business Licensing Law as a prime example) a bit more fiscal discipline is unlikely to do the trick.

So, when we worry about what is happening in the macro-economy, we should keep in mind that policymakers’ hands are pretty much tied!

Graduation ceremonies: Master’s degrees! 2

This week we are hosting degree ceremonies on campus for Master’s degrees and PhD degrees and the School is proud of the contribution that we have made. Today six students received their Master’s degrees:

  • GradeZahné Coetzee in International Trade (with distinction)
  • Joanna Wroblewski in International Trade
  • Sibulele Zwedala in Economics
  • Clarisssa van Tonder in Economics
  • Gert van Wyk in Risk Management
  • Antoinette van Niekerk in Economics (with distinction)

Congratulations to the students and supervisors!

Guest post: Success of the NDP depends on collaboration between Business and Government 1

SUCCESS OF NATIONAL DEVELOPMENT PLAN DEPENDS ON INCREASED COLLABORATION BETWEEN BUSINESS AND GOVERNMENT, SAYS PROFESSOR RAYMOND PARSONS

 

Prof Raymond Parsons

Prof Raymond Parsons

Giving a keynote address at the Annual Conference of the Steel and Engineering Industries Federation (SEIFSA) in Midrand today on the National Development Plan (NDP), Raymond Parsons, Special Policy Adviser to Business Unity South Africa (BUSA) and  Professor at the Graduate School of Business at North West University (Potchefstroom Campus) said that the NDP might be SA’s last opportunity for a long time to avoid a ‘low growth trap’ in the economy in the years ahead.  SA had reached a fork in the road to the goal of shared prosperity. The challenges of unemployment, poverty and inequality could not be adequately addressed at current growth rates of 2-3% and that the SA economy needed to triple in size by 2030 on the basis of much higher rates of inclusive growth. This was the only way in which SA could have an economy which was bigger, stronger and better by then, he said.

Professor Parsons said the NDP presented a unique opportunity to inject more ‘long-termism’ into decision-making in both the public and private sectors, going beyond the electoral and short-term business cycle to create a more certain framework for future policy creation. He said that it was now essential, given the external and internal challenges facing the SA economy, that not only should the plan gain widespread acceptance in both the public and private sectors, but that its successful implementation would also require a high degree of collaboration between business and government. In the spirit of the NDP, the government had already indicated its desire to work more closely with the private sector, such as in infrastructural development,  in order to secure favourable outcomes, and that it was now necessary for business to gear itself accordingly, said Professor Parsons. More…