Addressing our non-growth problem

Phumlani Majozi says were have now spent a decade mired in 1% annual GDP growth

This week, Statistics South Africa (SA Stats) released the GDP (gross domestic product) numbers for year 2023. I was disappointed, and every concerned citizen should have been disappointed at South Africa's dismal economic growth of year 2023.

The country avoided a technical research recession, as the economy grew by 0.1%, quarter-on-quarter, in the last quarter of 2023. The economy had contracted by 0.2% in the third quarter of year 2023. The annual growth rate was 0.6%.

Such numbers are testament to our failure as a society, given the unemployment challenges we confront. Isaah Mhlanga, chief economist at Rand Merchant Bank (RMB), has said that South Africa needs at least 4% GDP growth to start reducing the current, sky-high unemployment rates. Some public figures have said that we need at least 5% growth. But then look at the past ten years, you are disappointed, as the economy grew by less than 1% on average.

We have the highest unemployment rate in the world, and the mostly affected by unemployment are young people who account for two-thirds of the jobless.

The dismal growth over the past year has been attributed to Transnet’s logistical problems, and Eskom’s blackouts. That is correct. However, there are other things that we must put forth that are contributors to South Africa’s dismissal economic growth rates. These are: the regulatory environment problem, the taxes burden problem, labour laws including minimum wage laws, the crime pandemic, educational and skills development problems.

Let me elaborate on these more in the following paragraphs.

The crime crisis

Let’s start with the crime crisis. It's a huge problem that the current government has failed dismally to address. It's a plague that has even harmed the reputation of our country.

One of the Bretton Woods Institutions, the World Bank, has said that crime costs South Africa about 10% of its GDP annually. Such a cost is massive and unacceptable. It's an alarming cost given our economic ills.

The recent crime statistics were a reminder that the crime problem persists at a terrifying rate. South Africa’s crime is shocking even by global standards. Murder is up and has been going up over the past ten years. In Africa, the most concerning country on homicide rates is South Africa, as highlighted by last year’s United Nation’s Global Study on Homicides.

Crime has contributed to the collapse of South Africa's railway system. Crime harm economic productivity and must be addressed urgently. The regulatory environment problem

Our economic productivity takes place in an environment that has burdensome regulations. Look at what has happened at the JSE (Johannesburg Securities Exchange) as many companies have been delisting. The regulatory requirements in the JSE are cumbersome and costly for many businesses. Then the question I ask is, why are these regulations not drastically reduced? That they are not drastically reduced demonstrates that the national leadership lacks rational judgment.

Regulations did not put themselves there, they were established by politicians. Hence, they can be reversed or drastically reduced by politicians.

The labour laws are also problematic. Things like minimum wages are not helpful in a country that has the highest unemployment rate in the world.

Economics 101 is clear on the negative impact of minimum wage laws in the labour market. Milton Friedman highlighted the problem of minimum wage laws very well. Milton once said “The minimum wage destroys the best kind of training programs we’ve ever had: on-the-job training. The main way people have risen in the labour force is by getting unskilled jobs and learning things……. In an attempt to repair the damage that the minimum wage has done to traditional on-the-job training, you now have a whole collection of programs designed to take up the slack.

Minimum wage laws must not exist as they do not make economic sense. They impede job creation and therefore economic productivity. Our real crisis is unemployment, and it needs to be addressed urgently.

The taxes burden problem

Taxes must be cut! One of the things that boost economic growth is tax cuts, and I am not talking about tax cuts for certain groups of people. I'm talking about tax cuts for all.

Tax cuts stimulate the economy. More money must be left in the hands of citizens. Citizens spend their money better than the government. Government’s programs are usually inefficient and often corrupt at taxpayers’ expense.

South Africa is amongst the countries with the highest tax burden in the world. Late economist Mike Schussler used to highlight the problem of the high tax burden very well. May he rest in peace.

Our tax rates are high even in contrast to several countries in Sub-Saharan Africa. As a developing nation, we need to lower our tax rates and have less tax burden to stimulate the economy and create jobs.

I've heard people talking about “balancing the budget”. The best way to balance the budget is not to increase taxes, with politicians who play Santa Claus by redistributing taxpayers’ money.

Our government is already facing enormous fiscal challenges. The mission of the government must always be to reduce government spending. That is how we must balance the budget or aim to balance the budget. We must cut government spending!

The education and skills problem

Another problem we face, is the lack of competitive education and skills development programs. We do not have the necessary, needed skills to fuel our economic productivity.

The government recognises this reality. According to eNews Channel Africa (eNCA), “New visa regulations have been put in place to attract more skilled workers to the country.”

In many cases, there are jobs but the skills that can execute those jobs cannot be found in South Africa’s market. We have a skills shortage problem.

What has worsened the situation is porous borders; we have allowed too many illegal immigrants to enter South Africa and that has resulted in an oversupply of unskilled people and has harmed the labour market. Why were illegal immigrants allowed to enter the country?

Our focus must be to invest in or improve competitive skills development and education. We must aim to see the results in three to four years. Training and skills development can do wonders and help boost economic growth.

What I've outlined above is not everything that impedes growth and needs to be addressed, there must be other things. However, if we can start by addressing the above, we will manage to rapidly improve economic growth.

Transnet and Eskom may work better in future, but they are not all that suppresses growth. More than just fixing Transnet and Eskom must be done. More! We can’t keep growing by less than 1%.

Phumlani M. Majozi is author of a new book “Lessons from Past Heroes” and a macroeconomist and political analyst. He’s the host of The Phumlani Majozi Show on YouTube. Subscribe to his show here: Phumlani M. Majozi - YouTube.