SA Needs Aggressive Economic Growth Plan !!!

SA GDP Growth Rate.

The graphic above shows South Africa’s GDP growth rate over a five-year period between 2011 and 2015 and in my opinion there is something disturbing about the picture that emerges.

First, what is disturbing about the picture regarding South Africa’s GDP growth is that the magnitude of the rate of growth has been historically small with the highest rate being 3,3% in 2011. Secondly, what is disturbing about South Africa’s GDP growth rate is that the rate of growth has actually been declining. Both these factors point towards an economy that is performing very poorly and further evidence of South Africa’s poor GDP performance is the historically high unemployment rate. According to StatsSA, South Africa’s unemployment rate as at the third quarter of 2016, was at 27,1%. Compare this to an unemployment rate of 4% for China, 5.6% for Russia, 9% for Brazil and 8.4% for India for year 2015, this is according to the CIA World Fact Book.

In its statement to commemorate the 105-year anniversary of its founding, the African National Congress (ANC), South Africa’s ruling party, projects that South Africa’s GDP will grow by 2,9% in 2017. In my opinion, a developing country like South Africa should be growing consistently at a rate of at least 5% on an annual basis and the 2.9% projected by the ANC indicates just how dire the South African economic situation is. In order achieve a higher rate of economic growth of at least 5%, the ANC government needs to implement a very imaginative and ambitious long-term economic growth plan. Indeed, there is nothing wrong with the details contained in the National Development Plan (NDP), what is required is an aggressive execution of the NDP in order to ensure that economic growth comes soon rather than later.

Antonio Fatas and Ilian Mihov (2009) argue that there are four key mechanisms which governments can employ in order to drive economic growth and they refer to these as the 4I’s of economic growth. The first I is for Innovation, the second I is for Initial Conditions, third is for Investment and the fourth and last I is for Institutions. This article will focus on Investment.

INVESTMENT AS A MEANS TO DRIVE ECONOMIC GROWTH 

Fatas and Mihov argue that countries which experience high economic growth - as expressed by GDP growth rate - tend to invest an equivalent of 25% or more of their GDP. The scholars indicate that investment comes in many forms and includes investment in new technology (in order to increase a country’s overall productivity), investment in human capital (specifically to produce a highly skilled labour force that will produce high-value products or services products) and investment in fixed infrastructure (to enable economic activity). Fatas and Mihov point out that a country like China, which has been consistently growing at a rate higher than 5% per annum over the past few decades, has been investing an equivalent of 40% of its GDP in fixed infrastructure over the past few decades. According to the CIA Fact Book, China’s investment in fixed infrastructure in 2015 was estimated at 

Fixed Capital Investment: BRICS Comparison

43.4% of GDP. The Graph above shows a comparison of fixed capital investment as a percentage of GDP for the BRICS countries. South Africa has the second lowest investment figure, just head of Brazil but behind India and Russia with China significantly ahead of all the BRICS countries. The ANC government certainly needs to invest more in fixed infrastructure if South Africa’s economy is to grow at a higher rate than has been the case on the recent years and below is a discussion of some of the areas in which investment could be made.

Transportation Infrastructure

According to the CIA World Fact Book, South Africa has total road network  of approximately 747,000 kilometers, yet only 21% of this is paved this means there are 588,000 kilometers of unpaved (gravel) roads across the whole country. The ANC government should therefore invest in the paving of more of South Africa’s roads in order to improve the movement of people, goods and different forms of cargo. Furthermore, the ANC government should invest in converting more of our national highways into dual carriage ways in a single direction, especially along busy routes to help separate passenger vehicles traffic from heavy vehicles which carry goods and other forms of cargo.

Renewable Energy Infrastructure

South Africa is blessed with sunshine all year round and according to the national Departmentof Energy, the country experiences 220 Watts per square meter of solar radiation every 24 hours on an annual basis. This compares to 150 Watts per square meter for the USA and 100 Watts per square meter for parts of Europe. In my opinion, South Africa’s government ought to be investing more in infrastructure aimed at harnessing this abundant solar energy to generate power for some parts of the country, especially the small towns that are scattered across the country. The ANC government must however be commended for facilitating the building of wind farms in parts of the Eastern and West Capes, but more wind generation capacity needs to be installed in order to reduce dependence of energy generated from coal-powered stations.

Water Infrastructure

South Africa has many dams of different sizes and some of these are nearing their end of life, such as the Vaal Dam which was built in 1939. On the basis of the capacity of water they can hold, the biggest dam of them all in South Africa is the Gariep Dam, which is situated on the border of the Free State and Eastern Cape Provinces. The Gareip Dam has a capacity of 5,3 million mega litres, this is almost double the capacity of the Vaal Dam which is 2,6 million mega litres. Compare this to the capacity of the world’s largest hydro electricity dam, the Three Gorges Dam in China, which has a capacity of 39.9 million mega litres. The Gariep Dam plays two key roles, the first being to serve as a reservoir of water and the second being to generate hydro electricity by harnessing the power of the very water that is stored in the dam. The Gariep Dam is therefore a very strategic asset for South Africa. This dam was commissioned in 1971 which makes it almost 46 years old. Given that the lifespan of a dam can vary between 50 and 100 years, the Gariep Dam is either almost at the end of its lifespan or is half-way there. Regardless of whether the Gariep Dam has a lifespan of 50 or 100 years, it is quiet obvious that South Africa needs to urgently work on a plan to either revitalise the Gariep Dam and thereby extend its lifespan or build another strategic dam with the same functions and capacity as the Gariep Dam, if not better the Gariep Dam. As South Africa’s population continues to grow demand for water and electricity is going to continue to increase and in my opinion government needs to keep the supply of both water and electricity far ahead of current and future expected demand.

Investment in infrastructure tends to have an immediate benefit of creating direct jobs when the infrastructure is being put in place and then once the infrastructure is in place the benefits to the economy tend to be much broader and are sustained over long periods of time. Investment infrastructure is therefore a critical element in speeding up the rate of South Africa’s economic growth.

Our Politicians must show willingness to create effective government