Johannesburg, 28 Feb 2005
While we have seen some volatility in the rand as of late, in general, over the course of the last two years the rand has enjoyed either a phase of gradual strengthening or considerable stability. Indeed, beyond the USD, looking at the rand exchange rate with other currencies, the stability it has exhibited has been quite remarkable. A far cry from the previous decade, and indeed it looks set to stay this way for some time yet.
During the same period domestic interest rates have decreased substantially; the magnitude of which representing a sizeable windfall for most and provided an invaluable kick start for the South African economy. Yes we may see further decreases (as I have frequently discussed in this column) but they will certainly not be of the "windfall" magnitude of old; and they are certainly not going to have the same dramatic effect.
Similarly there is not going to be any drastic change in long-term monetary or fiscal policy; both portfolios are in very capable hands and the policy direction of neither is going to change substantially any time soon.
Finally, the South African political environment is now relatively settled; policy is well defined and relatively investor-friendly and bar some unforeseen events such as concerns surrounding property rights; things are not going to change substantially in the short- to medium-term.
In summary, it is highly unlikely that we are going to see any further substantial positive "once off" occurrences and it is doubtful whether we will see further substantial benefits from any large FX movements or a significant drop in interest rates. Where therefore is any superior economic growth going to come from?
As we all recognise, the US economy is the envy of the world, and while China is rapidly catching up, the US remains the dominant global juggernaut. While many factors have contributed to its dominance, the role of productivity growth cannot be underestimated. Throughout the 70s and 80s productivity growth was in the region of 1.5% per annum. This meant that for every hour worked, from one year to the next, this work hour would produce 1.5% more output. This number, whilst not remarkable, is certainly something enviable. However it is the growth in productivity since the mid 90s that is truly outstanding. It has averaged nearly 3%; or in other words, according to Newsweek magazine, "America produces twice as much per hour worked as it had in the previous quarter century". This outstanding performance has largely been attributed to corporate America`s investment in technology. And it is productivity growth that corporate SA needs to focus on.
Yet it is not investment in technology (a consistent level of which is now a necessity), which SA must focus on to achieve productivity growth; investment must be focused on its most plentiful resource; its people. The South African political establishment standing alongside corporate SA needs to collectively make the decision to invest substantially for the long-term in this resource. This is done by making a concerted drive at upgrading the education of people comprehensively, both prior to entering the workforce, and then once in the workforce, by continuing the educational process.
The Irish economy is a wonderful example of the potential success of this policy. In the late 1960s, faced with an economy with tremendously high unemployment, little industry and no natural resources, a small group of politicians decided that for Ireland to succeed it must make the most of its most plentiful, or some would argue its only resource; its people. These same politicians then set about creating an educational system which is without doubt one of the finest in the world. Initially primarily focused on the educational system prior to entering the working environment, it was expanded to include work place education and adult education in the late 70s and early 80s. The success of this policy is without doubt one of the main factors leading to Ireland becoming the third wealthiest country per capita in the world; having been the "poor man" of Europe as recently as the 80s.
South African politicians have taken many bold and decisive decisions over the course of the last decade, not least of which is the comprehensive infrastructural development programme announced late last year. A similarly bold decision needs to be made concerning educational policy, and needs to be made soon. Corporate SA must also take some bold decisions and invest in more workplace educational programmes. The benefits of such brave moves will be indisputable and will lead to superior productivity growth. With this productivity growth will come high economic growth and low inflation. And with this, a myriad of other benefits such as more jobs, a more stable social environment. And with all these, lower crime.
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