Little surprise as VW raises concerns about SA’s economic climate

Amid concerns of a business case for South Africa waning, leading to threats of disinvestment by foreign investors, economic and political experts yesterday said the collapse of state capacity was at the core of the country’s weak economic performance.

Volkswagen recently raised concerns about SA’s unstable economic infrastructural climate, drawing strong reaction.

VW’s concern resonates with the recent Harvard study

North-West University economics professor Raymond Parsons said: “VW’s concern that the business case for SA is waning, resonates with the recent Harvard study authored by Ricardo Hausmann saying it is the collapse of state capacity that is the main cause of SA’s weak economic performance.

“The need to strengthen state capacity has also been often acknowledged by President Cyril Ramaphosa.

“If SA is to remain a preferred investment destination and globally competitive, it needs to maintain a business-friendly environment.

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“The good news is that most of the solutions to the country’s immediate regulatory, energy and logistics problems lie hidden in plain sight.

“To boost investor confidence, SA must not only urgently implement structural economic reforms, but also mobilise the private sector on a much bigger scale in actioning the solutions.

“Eskom and Transnet are two major examples of where the private sector can make a big difference to outcomes.

“Higher, job-rich growth in SA, depends heavily on a constructive and confidence-enhancing collaboration between the public and private sectors to build a bigger, stronger and better economy.

“SA’s growth rates have been too low for too long.

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“The Sarb’s (Reserve Bank) slightly improved GDP (gross domestic product) growth forecasts of 0.8%, 1.2% and 1.3% for 2023, 2024 and 2025 respectively are generally agreed to be inadequate to meet SA’s socioeconomic challenges.”

Economy faced ‘supply side constraints’

Independent political analyst Sandile Swana said the economy faced “supply side constraints.”

“We cannot resolve our problems by tinkering with interest rates,” he said.

“We need to make sure network industries are functioning in a competitive fashion – meaning Eskom must provide affordable and reliable electricity…

“Just by sorting out Eskom, you are talking about adding a two percent industry growth rate per year.

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“You can add another four percent by ensuring railways are fully restored – growing up to 10% if goods and passenger trains are where they are needed.”

‘More disinvestment in the wake of the investment strike in manufacturing’

SA Federation of Trade Unions (Saftu) spokesperson Trevor Shaku said: “Foreign direct investment leaving the country … means more disinvestment in the wake of the investment strike in manufacturing.

“This will accelerate the deindustrialisation that started in the 1980s and early ’90s, leading to a declining share of manufacturing employment.

“It is understandable for any company to want to ditch the SA market due to power cuts and railway delays.

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“The fact that the process of manufacturing has become heavily mechanised and capital-intensive means it requires the constant provision of electricity.

“The problems at Transnet … have led to a massive increase in costs for businesses.

“In the final analysis, the capitalism is a totality and each piece of its supply chain cannot be interrupted.

“Saftu differs with complaints on input costs.

“However, we are not surprised that they seek to suppress wages.

“For business enterprises, low wages guarantee they will pocket a larger surplus and therefore an even larger profit.”