“The time has come” the Walrus said …

“The time has come,” the Walrus said, “To talk of many things”

South Africa ranks at 73 in the world for Gross Domestic Product (I.L.O.) which places us in the top 38% of the world. Not a bad placement, but boy, are we falling behind fast! Consider that our projected GDP for 2018 is $43 590, whilst Luxembourg (Ranked at 1) has a GDP of $224 334. That is just a shade more than five times South Africa’s. The top ten countries in the world average $152 327, which is more than triple South Africa.

It is not the absolute numbers that are the real concern, but rather the growth in the numbers that demonstrate how South Africa’s growth has been shackled – from 2010 to 2017 our GDP per capita only grew by $28 per annum (0.6% in 7 years).  Consider that Luxembourg grew their GDP by $15 090 in the same period, or 538 times our growth. The top 10 countries increased their GDP by just over $10 000, a growth of 357 times South Africa’s growth.? Another startling player in the world arena was Ireland who shot up from number 11 to number 3 in the world – their increase in G.D.P. over the period was more than our entire GDP.

But many people would argue that our cost of living is so much smaller than high GDP countries but on the other side of the coin it means that our currency has consistently devalued against hard currencies over the same period. Let us use the cost of a Big Mac to illustrate the point. The dollar cost of a Big Mac has actually declined in South Africa (since 2010) where in America it has increased by 42%, where a Big Mac purchased in the USA would cost you R150. So what does this mean? This means that our currency has been devalued considerably over the period. If this was not the case we would have a more realistic exchange rate of around three or four rand to the dollar, borne out by the above index, yet we sit at around fourteen to one. What is it in the world that promotes growth and a strong economy? It appears that the common denominator the world has proven is that a Free Market works. Using Tanzania versus Hong Kong as an example: Hong Kong has an annual GDP of $163Bn with 6.5 million people and 402 square miles whilst. Tanzania, with 29.5 million people (4,5 times) and 342,100 square miles (850 times), produces $18.9Bn (one eighth of Hong Kong). The primary reason for this is that Tanzania has systematically impoverished itself with disastrous economic policies and a myriad of regulations that hamstring any opportunity for growth. Hong Kong has managed to hold on to the notion of a Free Market despite the ever present specter of their Chinese masters.

So what does a Free Market require?
In no particular order:

• Hard Work
• Education
• Responsibility
• Property Rights
• Rule of Law
• Democratic Government

Let’s take a look at where South Africa stacks up on these measures:

• Hard Work or productivity – Our GDP has barely increased since 2010
• Education – Whilst education has been made available to more of the population to date, we struggle with pass rates and high quality education
• Responsibility – State capture has set South Africa backwards because of corruption and poor oversight
• Property Rights – Whilst the concept of land appropriation without compensation is so admirable to address wealth inequality, it has a negative international investment outcome
• Rule of Law – South Africa’s high crime statistics and corruption up to and including white collar crimes do not currently give confidence in this regard
• Democratic Government – Our democracy has certainly come a long way and continues to be tested.

A Democratic Government should serve the interests of all citizens. Governments that encourage free markets are infinitely more successful than governments that seek to regulate and stifle. We should laud success instead of preventing its progress through overt legislation and regulation

 Conclusion

So what is the ultimate outcome of a shackled growth environment?

 

It all shows up ultimately in a huge income inequality that is real and is poisonous. There have been numerous studies that describe worsening income inequality being directly linked to an increase in social woes. Be it drug addiction, homicide rates, obesity, conflict or any other social ill you care to name, the higher the inequality the worse the outcome. South Africa has one of the highest inequality indexes on the planet (as measured by the Gini coefficient Source: www.21century.co.za).

 

Let us for a moment consider some proactive free market examples that could free some of these shackles. We could promote wealth creation by providing tax incentives for things like Employee Share Option Plans (inclusive plans) instead of  raising the VAT rate … which clearly further impoverishes the very people that are bearing the brunt. South Africans need to take a long hard look at stifling regulatory policies and look anew at loosening the shackles and allowing growth to abound. The crux of the issue is less Government, less regulation and just giving people of South Africa the freedom to excel. 

 

“The time has come” the Walrus said.

Written by:

Ian McGorian,
Executive Director
[email protected]