Ramaphosa on where South Africa is heading right now

While the economy expanded by 4.9% in 2021, the impact of the pandemic continues to be felt throughout the economy and society – and we know that there is ‘a yawning gap’ between where we are and where we need to be, says president Cyril Ramaphosa.

Speaking at a University of Johannesburg event on Wednesday (6 April), the president said that economic theory predicts that developing economies will converge towards the performance of richer countries. However, he noted that this ‘convergence’ has so far eluded South Africa and other developing countries.

“In the case of our own country, the past decades have brought periods of divergence. In 1970, GDP per head in South Africa stood at just over half that of the average G7 level, at 53%.

“By the end of the 1980s, South Africa’s relative GDP per head had shrunk to a third of the G7 average and by 1994 it was closer to a quarter.”

Although there were periods of improvement towards 2009, the ratio fell back to 26% by 2018, Ramaphosa said. By contrast, China clocked in at 2% of the G7 average in 1970 and surged to a third by 2018.

“We have to ask ourselves: why are we falling behind? The democratic government has developed inclusive policies and arrested this trend of divergence. But there is consensus that far more is required.

“With an economy stuck in low gear, battered institutions and declining productivity, an important strand of economic policymaking over the past four years has been on fixing the fundamentals of the economy.”

Reforms

A key part of the government’s reform programme is the paper published by National Treasury in 2018, which looked at inefficiencies in the economy, particularly those plaguing network industries, Ramaphosa said.

The paper identified the various ways in which structural constraints raised the cost of doing business and the cost of living, and proposed a reform agenda to address these constraints, he said.

“In practical terms, this reform agenda is an important pillar of the Economic Reconstruction and Recovery Plan, and has found expression in Operation Vulindlela.”

Ramaphosa said that some of the ongoing reforms included:

• Early successes include opening up the space for private sector energy generation accompanied by measures to create a competitive market structure in the electricity supply industry.

• Pro-competitive measures are also being implemented in ports and freight rail.

• The digital sector will receive a boost with the resolution of long-delayed processes of licensing of high demand spectrum and digital migration of broadcasting.

• In addition to reliable electricity supply, economic development is also intimately bound with access to water.

• To unleash the energy of the private sector, especially the small and informal segments where the majority of jobs are created, we have created a Red Tape Reduction team in the Presidency to remove regulatory impediments to entry and growth.

“The socio-economic texture of the South Africa of today is a product of a commodity-exporting economy with a small emissions-intensive manufacturing sector – although the service sector has gained prominence over time.

“This economy is also highly concentrated and economic activity is clustered in a few, mostly urban, centres,” Ramaphosa said.

He added that key sectors of the economy are dominated by a small number of players, as work by the Competition Commission, including its recently released study on concentration, has shown.

“We have to face the trade-offs and sacrifices that are required for a decisive break with poor outcomes in our labour market and in the economy. This is the time to move beyond platitudes toward a clear set of commitments underpinned by concerted resource mobilisation by all parties.

“We trust that the analytical work produced by this intellectual community will guide and enrich this effort.”

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