Financial incentives to grow economy

During bad times, most economies lose jobs, meaning increased unemployment. During bad times, companies also generate lower levels of revenues. With less people employed and less revenues generated, less taxes are collected by government. During the 2008/09 fiscal year, Treasury raised R683 Bil in revenue and the 2009/10 fiscal year saw government revenue decline by 2.6% to R665 Bil and since then treasury has seen a steady increases in revenues.

For the current fiscal year (2011/12), Treasury expects to raise R824 Bil in revenues and by this measure alone, South Africa’s economy is certainly showing growth, this is in spite of our high unemployment rate of 23.9%. During these prevailing good times, Treasury has indicated that it would reduce government spending and this will allow government to divert more of it’s revenue towards the servicing of debt.

However, what SA really needs is a vibrant economy, one that could attain double-digit growth. Such growth cannot be achieved by doing the conventional, especially as this relates to fiscal policy.

SA needs to attract higher levels of Foreign Direct Investment (FDI) as opposed to Foreign Portfolio Investment (FPI) which is what SA currently has abundance off. PFI, by its nature is fickle. In order for SA to attract significant FDI, a number of critical things must be done by the government of President Zuma.

Rub shoulders with leading countries

Those managing Brand SA must work closely with government and especially the department of International Relations and Co-operation (DIRCO) in an effort to lift SA’s standing on the global economic and political stage. SA becoming a member of the BRICS formation was certainly a good step in the right direction. This sends a message to the world that SA is a powerful political and economic player on the global stage. More and more however, SA must be involved in platforms which allow the country to be constantly seen in the company of leading nations such as the USA, Britain, France, Germany, and Italy. Imagine what a visit to SA by US President Barack Obama would do to the SA’s standing among nations. The reality is that it is the leading countries of the world which attract a significant share of global FDI and indeed it is this high level of FDI which makes these countries belong to a class of leading nations.

SA Reserve Bank Building, Pretoria.

Create Incentives for Capital Investment

Being in the company of leading nations on its own is not enough, if FDI levels are to increase significantly SA must create substantive investment incentives. SA has one of the best financial services industry in the world and this is a critical pre-condition the attacrction of substantial FDI. The single biggest change which the SA government could bring about is that of introducing some form of tax incentives on capital investment made by both local and foreign companies, perhaps targeting certain sectors e.g. manufacturing of hi-tec products. Most major foreign companies which have offices in SA, especially as this relates to the technology sector, merely have sales, marketing and consulting presence while the core products sold by these companies into SA are imported as finished products. SA ought to focus on hosting factories to serve as a hub, if not for global production at least for regional, African production not only for hi-tec products but a range of products.

Our Politicians must show willingness to create effective government!!