SA needs a new strategy to drive growth and jobs

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JEREMY MAGGS: South Africa’s unemployment crisis has become so entrenched that we risk accepting it as a permanent feature of our economy. Now listen to this figure, more than 12 million South Africans now without work when discouraged job seekers are included, while roughly two-thirds of the population live in varying degrees of poverty. Now the New South Institute is launching a new series, it’s called Can We Build Shared Prosperity in South Africa? It examines, as I understand it, the difficult choices needed to reverse this trajectory.

Alan Hirsch, who heads the institute’s Migration Governance Reform in Africa programme, is leading the initiative. Alan, welcome to you. Is the country’s unemployment crisis then fundamentally a failure of policy, or have we simply built an economy that was never designed to absorb the majority of its people?

ALAN HIRSCH: Well, it’s the combination of two, I guess. But it’s also, I think, a result of just poor governance, not necessarily that the policies are bad, but the levels of corruption, the levels of political instability and a set of rules, perhaps, that are more suited to a first-world economy than a developing economy. We haven’t allowed people to take advantage of opportunities to create jobs, create businesses.

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JEREMY MAGGS: I wonder if that poor governance then, that you refer to, has simply become too entrenched within the political economy of South Africa, and it’s going to be very difficult to move the needle.

ALAN HIRSCH: Well, I think with the government of national unity (GNU), with the Madlanga Commission… I was just reading about the Home Affairs Department, has already prosecuted 98 people for corruption. I think there is a shift, how quickly that shift will happen and how effectively it will happen across the entire economy is another matter, because obviously there’s a lot of problems at the municipal level. But for the national government, things seem to be improving and, and perhaps in some of the provincial governments.

JEREMY MAGGS: Let’s focus on policymaking itself, though. You’ve been involved in economic policymaking for decades. If you look back, Alan, where did we perhaps make the most consequential wrong turn? Was there anything that policymakers failed to anticipate?

ALAN HIRSCH: Well, we kind of anticipated the possibility of the global financial crisis. But I don’t think that after the global financial crisis, we realised how long the effects would be and how long it would take for us to get going again. So we spent a lot of money in the period after 2008, hoping that this is a relatively short-term turnaround.

Got into debt, got into trouble, and then obviously we had issues with corruption in the [Jacob] Zuma government with the more or less collapse of many of our infrastructural services, which compounded those fiscal problems. Then when we were trying to recover, we had to bail out Transnet, we had to bail out Eskom. We had Covid and a series of setbacks that made things very difficult. But I think the critical mistakes were made in the period after the global financial crisis and with the Zuma government.

JEREMY MAGGS: We have though pursued fiscal discipline, inflation targeting, industrial policy, social protection. And yet, as I referenced in my introduction, mass unemployment does persist. Do you think, Alan, the problem is with the individual policies or the absence of a coherent development strategy? And we can then get on to your series about shared prosperity stemming from that.

ALAN HIRSCH: I think that the macroeconomic policies are bearing fruit. I think we now have a stable currency. We now have increasing confidence in South Africa. So I think we now have an opportunity to actually move into a new gear. We also have the relative success of the early phases of Operation Vulindlela with Eskom in particular, with Transnet to some extent, and in some of its other interventions. I think we really are ready to look forward and to see what the possibilities are.

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JEREMY MAGGS: As we look forward, your new series then asks whether we can build shared prosperity. So, Alan Hirsch, what are you hoping to challenge in the prevailing economic consensus? What would constitute a meaningful outcome from this work?

ALAN HIRSCH: Well, I think you’re right to say that there isn’t a very clear overall view of where growth and jobs are going to come from. I think we’ve been operating in a kind of stabilisation mode – let’s get things sorted again. Now we have to think about how we are going to grow and create jobs effectively.

The first step has to be to accelerate formal sector growth, and I think that there are steps being taken in this direction, but we can go a lot further. The second step, although they can be taken in parallel, is to significantly improve the environment for what is now called the informal sector, for very small businesses in townships, in cities, even in the rural areas where there are opportunities for businesses to grow, which are being restricted at the moment in various ways.

The third element we think is going to be how do we take advantage of the opportunities posed by the current revolution in information and communication technologies to empower, especially the middle segment of our economy, the precarious small businesses, sole entrepreneurs, people who have the possibility of growing but don’t have the tools to do it.

We think that if we put those three strategies together, we can focus on both growth and jobs. Without growth, jobs are going to be really hard. But if growth happens, we have to focus on jobs as well, because just growth alone isn’t going to create enough jobs.

JEREMY MAGGS: To your last point, you argue for developing a productive middle. Is there any institutional financial market failure that has prevented these smaller enterprises from growing into businesses that employ significant numbers of people? Because my sense is, if you get that part of the equation right, it will certainly exponentially improve growth.

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ALAN HIRSCH: Yeah, I think there’s a lot more we can do. I think we’re beginning to see what’s possible with companies like Yoco, iKhokha, which was bought by Nedbank and Capitec, all offering portable payment systems, which makes a huge difference to the possibilities for those firms. You have things like the Takealot Personal Shoppers programme in the townships, where individuals act as sort of relays for a broader community in terms of shopping…

I think that there are solutions emerging. I think that we as South Africans are very imaginative. I think Yoco was an example of a fantastic innovation that was critically important and now has led to other developments. So I think, yes, there have been gaps, but those gaps can be filled.

JEREMY MAGGS: And just finally, on a broader canvas maybe, given our fiscal constraints and also limited or challenged state capacity, do we need perhaps a few tightly focused interventions over another national growth plan?

ALAN HIRSCH: Well, I think we do need to be focused quite narrowly. But I do think also in the context of a state which is not very strong, we have to make sure that we encourage entrepreneurship, we encourage individuals and small companies to innovate, and we also find partnerships. We have to we have to build much more trust and partnerships between the private sector and the state in order to achieve those objectives.

JEREMY MAGGS: Alan Hirsch, thank you very much indeed, from the New South Institute, heading the institute’s Migration Governance Reform in Africa programme. Appreciate your time.

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