Toward a more realistic NDP - start with education and jobs

It is an unpopular comparison, but these are the two most significant factors that contributed to the successful development of the more populous Asian tiger economies, South Korea and Taiwan¹.

The NDP goal for the South African economy of 120% growth in real per capita GDP (RPG) by 2030 (4.5% per year) requires annual growth three times higher than the preceding 18 years. Starting from a lower RPG base, South Korea and Taiwan grew by an average of 5.9%² and 5.4%³ per year for the first 18 years of their development programs respectively from 1962 and 1953. Once they reached South Africa’s 1994 level of RPG ($4,520), they both accelerated their growth spurt to the impressive average of 6.3% per year for 18 years from 1981 and 1978 respectively.

Many factors that enabled the startling growth of these two economies, including significant land redistribution programmes, have either been absent or impossible in South Africa since 1994. Both South Korea and Taiwan used import substitution to promote labour-intensive industries locally. Despite market protection and subsidies having been used by almost every rich nation to develop their industries⁴, they have kicked away the ladder for developing countries. The large-scale scheme of high tariffs and quotas on imports combined with subsidisation of local producers and manufacturers - usually through cheap loans - is explicitly outlawed today by the WTO⁵.

Strict unemployment in South Africa is historically low at 24.7%. As a measure of economic activity, however, it is more illuminating to consider the change in the labour absorption rate, the number of employed compared to the number of working-age people. In 1995, it stood at 39%⁶ while today it stands at just 42% (14.0 million out of 33.5 million)⁷. The positive news is that 4.5 million jobs have been added, but the growing working-age population means that some 19.4 million are either discouraged to look for work or economically inactive. By 2030, the NDP goal is for an absorption rate of 61%, an additional 9.8 million jobs.

If South Africa limits its ambition to the NDP claim that we can compete only in the manufacture of niche products then there is little hope of such a large increase in employment. Without creating damaging international trade disputes, clearly full import substitution is not an option, but we should stretch the rules of the WTO to the limit to simulate the scheme. In the league of trade dispute respondents, South Africa has been complained about only four times since 1995, lagging far behind Brazil (14), India (22) and China (31)⁸. Robust and effective economic management requires occasionally falling foul of trade rules.

Incentives should be put in place for the purchase of specific labour-intensive and domestically-manufactured products to create a market for infant industries. Companies contributing at all levels to the manufacture of these products must be better supported under current schemes with simpler and quicker applications for subsidised loans and equipment purchase. The capacity of the Industrial Development Corporation and the Department of Trade and Industry will need to be ratcheted up to keep pace with demand.

Companies that benefit from subsidies under this scheme must prove their ability to export in order to ensure their efficiency. This was key to the success of import substitution in the Asian economies where companies were constantly assessed by their ability to export in order to qualify for continued subsidies⁹.

Typically, Taiwan established large business parks where firms could set up with excellent infrastructure¹⁰. Such parks as well as skill training facilities are urgently needed in or near townships where unemployment is highest in South Africa. The scheme should also include projects to boost rural employment in small-scale agriculture, as highlighted in the NDP, with more dispersed infrastructure and skills training projects as well as land tenure reform.

Concern about a race to the bottom over wages in an export-led economy is misplaced in South Africa; the unions would assert their political strength to resist it. With the scale of economic inactivity and the absence of unemployment grants, the unemployed would be better off earning the minimum wage. As education and training improve the skills of the population over time, so wages would rise with absorption of labour into more highly-skilled and technological industries.

On the quality of overall education, South Korea and Taiwan appear consistently in the top half of the World Economic Forum’s international ranking while South Africa is currently third from bottom¹¹. On the quality of math and science education, the two Asian nations currently rank in the top twenty while South Africa is rock bottom (148 out of 148).

Having achieved near universal enrolment in South Africa for grades one to seven, the Department of Basic Education (DBE) has failed to deliver quality education in previously black schools¹². The improving matric pass rate of 73.9% in 2012 masks the results of the DBE’s own 2012 Annual National Assessment for grade nine, the last year of compulsory schooling. Students averaged test scores of 43% for home language, 35% for first additional language and a miserable 13% for mathematics¹³.

The NDP’s plan for improving the quality of primary and secondary education starts with schemes to address the health issues of pregnant mothers as well as the health of their children and school readiness programs to age five. Cognisant of the overreach of unions, it highlights that expertise should be the only criterion of appointment and promotion of teachers, principals and school administrators in government. However, driving through basic concessions such as competency tests for remaining in the profession and out-of-term training for under-performing teachers and principals will require strong political will but is nonetheless essential.

While the initiative is less specific in the revised 2012 document, the original plan suggested assembling a task force of between 5,000 and 6,000 education professionals, drawn broadly from retired teachers and principals from better performing schools as well as government departments, researchers, specialists in financial management, engineering and consulting. Each under-performing school would be assigned a team of three to five to assess the issues, develop a plan to address them and then oversee turning them around. A national initiative of this nature is clearly urgent. Even with such a large task force, it would take up to six years to get round to the 20,000 public schools that are under-performing.

The press has been full of criticism about the prospect of piecemeal implementation of the NDP. We should not neglect the health system, crime, broader land ownership, corruption and the other key areas of the NDP. However, phase one must focus on the education crisis and creating the environment for labour-intensive industries to flourish. This will start to dismantle the trap of poverty and, through a larger tax take, increase government’s budgetary capacity to deal with the other challenges.

Belling has worked in finance for the last eight years. He studied math at UCT and real estate investment in London. He spent 13 years in London and returned to South Africa last December. You can follow him on Twitter @ayalbelling.