New deal could ease SA’s economic woes

07 May 2018 | Story Brian Levy. Photo World Bank Photo Collection. Read time 6 min.
Commuters approach the Wynberg taxi rank in Cape Town on their way home. Informal traders capitalise on the passing trade.
Commuters approach the Wynberg taxi rank in Cape Town on their way home. Informal traders capitalise on the passing trade.

South African President, Cyril Ramaphosa, has impressed many since taking over the country’s reigns earlier this year.

But unless the citizens become convinced that the core challenge of constructing a more inclusive economy is being addressed effectively, the gains will prove ephemeral.

South Africa has made significant progress over the last 20 years in reducing extreme poverty. The proportion of the population that confronts hunger on a daily basis declined from 27% in 1995 to 11% in 2010.

But the country has struggled to address inequality. Relative to other middle-income countries, South Africa’s economy is extraordinarily dualistic – its citizens are either affluent or poor, with little in-between.

The richest 10% accounts for a much higher proportion of total spending than in almost any other middle income country in the world, including Brazil, Mexico or Turkey. And unionised white and blue-collar workers also do moderately well. Beyond these narrow segments, opportunities for upward mobility for the bulk of the population have been harder to come by. The excluded middle of South African society currently confronts a seemingly unscaleable cliff which separates them from the wealthy and formal sector employed minority.

How can this be turned around? I believe that a credible new deal for the country based on three factors would offer a fresh, hopeful way forward. It should include:

  • strengthening ‘ladders of opportunity’. The country urgently needs feasible ways for its poorer citizens to journey, step-by-step, from low- to middle- to high incomes;
  • government investment so that the ladders of opportunity – such as schools and skills training – work effectively. This will need more money from taxpayers. And;
  • a new approach to how public services are governed - with much more active, collaborative engagement by citizens, private firms and non-governmental organizations.

Ladders of opportunity

To improve the prospects of upward mobility South Africa will need to improve support for early childhood development, basic education and of its opportunities for vocational training. Compared with other middle-income countries, a much lower proportion of children under the age of six are in early childhood development programmes. And far fewer between the ages of 15 and 24 are in tertiary or vocational education. There is also troubling new evidence that South Africa’s per child spending for schooling has declined sharply in recent years.

The country also needs to expand earnings opportunities for its citizens. This can only happen with accelerated economic growth and private sector job creation.

But a call to leave job creation to the market isn’t enough. Programmes to support entrepreneurship sound appealing, but have a very mixed track record. Public works programmes, and an employment tax incentive targeted at younger workers, have shown some success. Both should be scaled up.

South Africa will need to overcome the skewed access to urban land and housing, one of the most pernicious legacies of apartheid. For poor South Africans living at the edge of cities, the costs of transport to-and-from work are the equivalent of 40% of their earnings.

Health as always is a critical aspect of development. Some ambitious initiatives like the universal healthcare initiative, have been set in motion to expand access to health care – but scaling up barely has begun.

Providing the requisite fiscal resources

Building effective ladders of opportunity will not come cheap. The country will have to find additional money to fund opening up opportunities for its citizens.

There is room for manoeuvre on the tax collection front. At 28%, South Africa’s 2014 revenue collection as a percentage of GDP was in the mid-range among middle income countries, well below Brazil (34%) and Turkey (36%) - or for that matter the high-income US (32%), Australia (34%) and Germany (45%). And South Africa’s taxes on wealth are relatively low.

Though taxpayers, always and everywhere, would like to pay less, South Africa continues to have ample room to finance the costs of building a more inclusive society by increasing taxes (perhaps especially taxes on wealth) if – and it is a big if – the governance of these efforts can be improved. Which brings me to active citizenship.

Active citizenship

A successful ‘new deal’ will require renewed commitment from all South Africa’s citizens.

In his inaugural State of the Nation address, Ramaphosa invited South Africans to play their part in the addressing the country’s challenges. The engaged approach he was advocating goes against the grain of the hierarchical – government should deliver – perspective.

Experience from other countries shows that focusing narrowly on the management of public bureaucracies is insufficient to turn around weak public performance. Plenty of studies suggest concrete ways in which an active citizenry can contribute to broader development.

These include making use of the energy of parents and communities to strengthen educational outcomes. In Kenya, for example parents and communities have been encouraged to take on their educational roles more effectively. This can have a powerful positive influence.

Partnering with the private sector to strengthen work-related skills development could yield great results. Opportunities range from support for technical colleges, apprenticeships, and sectoral training authorities.

And South Africa should try and harness the energy of non-governmental organisations (NGOs). There are a range opportunities to achieve gains at scale through pro-active partnerships between these NGOs and government. One example is in early childhood development where NGOs are already active.

The ConversationSouth Africa cannot get out of its present predicament if everyone shifts the responsibility – and the blame – to someone else. With a ‘new deal’, a different future is possible. But getting there will require letting go of stale ideologically-driven debates. Instead, it will require embracing the vision of an inclusive ‘new deal’ across the spectrum of society, both as taxpayers, and as active citizens.

Brian Levy, Academic Director in the Graduate School of Development Policy and Practice, University of Cape Town.

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