It is important however to note that grants are not sustainable without a growing economy
Dr Eddie Mahembe
South Africa (SA) was recently in the international news for bad reasons. The first was the 3rd wave of the COVID-19 pandemic which has infected a total of 2.47 million and caused the death of more than 70 000 people.
The second was the so called ‘South Africa Unrest’, which started on the evening of 9 July in KwaZulu-Natal (KZN) and spread to the province of Gauteng on the evening of 11 July 2021.
The unrest, characterized by violence and looting, led to the destruction of key infrastructure, closure of businesses and death of more than 300 people.
To fully comprehend the magnitude and possible impact of the unrest to the South African and regional economies, one has to appreciate the following facts.
Firstly, KZN and Gauteng contribute around half of the country’s gross domestic product (GDP). Secondly, the port of Durban in KZN is a strategic trade gateway to most southern African countries and handles around 70% of SA’s imports.
Thirdly, the riots disrupted supply chains, industrial output, and the demand for manufactured goods. Lastly, many economists are estimating that the cost to the destruction could be around 50 billion rand (US$3.43 billion).
In this article, which is a follow up to the first one published by the Digital Sunday Express on the 18th of July, I will attempt to share my thoughts on how SA should take the lessons from the unrest and begin to address the fundamental causes in a sustainable way.
Causes of the South African Unrest
In my preceding article, I emphasised that it is important to correctly diagnose the root cause of a problem if appropriate solutions have to be found.
Wrong diagnosis may lead to inaction or inappropriate action. I also highlighted that though the unrest could have been triggered by the arrest of former South African president Jacob Zuma and hijacked by some criminal elements; extreme poverty, widening inequality and youth unemployment could be the underlying factors behind the unrest.
The SA Presidency confirmed this analysis in a tweet dated 23 July 2021, saying “the violence and destruction of the last two weeks has provided the starkest reminder of what is at stake. It has exposed several of the social and economic fault lines in our society and underlined the urgent need to decisively address poverty, inequality and unemployment”.
It is important to also note that the challenges we are trying to address and the suggested solutions not unique to South Africa. Below are my suggested policy recommendations, in point form, starting with the most immediate into long term.
Restoration of order and maintenance of rule of law
Law and order provide the framework for stability, proper functioning of society and sustainable development. Through its judiciary, SA have stood for the principle of equality before the law.
Economists would know that crime increases the cost of doing business and deters investment and that persons and property should be protected for development to take place.
SA has one of the most developed and extensive social protection system in Africa. In response to Covid-19 pandemic and the recent unrest, respectively: the Government introduced Social Relief Distress Grant which provide a monthly payment of R350 until the end of March 2022 and is contributing R400 million towards assisting with the immediate needs of affected communities.
It is important however to note that grants are not sustainable without a growing economy.
Support business, entrepreneurship and SMMEs
COVID-19 has led to massive business closure and job losses. Many developing countries has come up with huge business rescue packages.
The World Bank and International Monetary Fund (IMF) have also came up with global facilities to boost global liquidity, aimed at helping vulnerable countries struggling to cope with impact of COVID-19.
The SA Government has also committed to working with large business to determine their contribution to the support of small, medium and micro-sized businesses (SMMEs), job creation and eradication of hunger and poverty.
Reform the basic education sector
Emphasising the importance of education, former President Nelson Mandela is quoted saying: “no country can really develop unless it’s citizens are educated” and “education is the most powerful weapon you can use to change the world”.
SA needs to transform the education system, with special focus on STEM (Science, Technology, Engineering and Mathematics) subjects.
Pursue inclusive growth path
There is an urgent need to come out of the mentality of previous development theories such as socialism, communism, neoliberalism, capitalism, etc.
We need a new thinking, coming from the understanding that: (i) economic growth, poverty and inequality are linked, (ii) inequality and poverty are detrimental to growth, and (iii) to achieve strong economic growth that is inclusive and sustainable, a country requires: a) a capable and delivery oriented state, and b) policies to guide private sector decisions, because the public and private sectors jointly determine the growth and distribution of income.
Author: Dr Eddie Mahembe is a Development Economist. He holds a PhD in (Development) Economics, MCom in Economics, BCom Honours in Econometrics and BSc. Honours in Economics. He can be reached on Email: firstname.lastname@example.org and/or WhatsApp +27 60 532 8754.
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