TRADE

Connecting the two E’s

From left: Prof Piet Naudé (USB), Rhoda Kadalie (Impumelelo Innovations Awards Trust), Prof André Roux (USB) and Martin Butler (USB)
Speakers at seminar.JPG

In his previous designation as director of the Institute for Futures Research (IFR) at the University of Stellenbosch Business School (USB) prof André Roux were cautious about making predictions about the future.

When asked what the future looks like, he would famously respond: “What kind of future would you like?”

In his continuing role as Economics Professor at the USB the highly regarded author of Everyone’s Guide to the South African Economy, also attempts to leave his students and audiences with some good news.

However, in the run-up to the recent seminar ‘SA2016: What lies on the horizon?’, co-hosted by the USB and IFR, he was facing a dilemma. “There is little good news,” he said in an interview. “Even with the best will in the world one is going to struggle to point to a highlight.”

The fundamental basic argument he put forward about South Africa’s economic outlook in 2016 was that the country would have to deal with lots of negative external factors. Added to that was the question of how the country was going to deal with some of its poorly handled internal factors.

This combination translates into short-term policy stress for the broader economy and for households, he warned.

What has gone wrong? After all, South Africa survived the 2008/09 global financial crisis. Roux explains that back then former Finance Minister Trevor Manuel brought the deficit down and Government debt was low, the state could therefore respond quickly and Government could incur more debt.

Today, the country does not have all that room; the space for policy manoeuvring has been severely limited. “The nation is living beyond its means,” states Roux.

Saying this, the finger is pointing at Government and households: both are heavily indebted, which makes the country even more heavily reliant on foreign sources of savings.

This situation has turned South Africa into a “capital hungry” country. Before one can hope for foreign investment, though, one needs to consider the questions generally asked by investors. These are whether capital is “well-rewarded” in South Africa---and whether capital is “well-treated” in the country. A third question could be added, depending on (or irrespective of) South Africa’s response: “Does other investment destinations not offer better deals?”

The 2016 economic outlook for South Africa would require stricter fiscal policy, says Roux. One shouldn’t have expectations of job creations---and there remains the real possibility of a recession, warned Roux. “It may not be a recession in the technical sense of the word, but the chances are good that economic growth will be slower than the population growth, which means average incomes could decline.”

This, in turn, will lead to consumers attempting to draw down their debt which will result in sluggish consumer expenditure growth.

Towards the conclusion of his presentation, Roux also referred to the cloud hanging gloomily over the South African economy. “That is the reality of a possible downgrading by international grading agencies to junk status”. Against this background there were three questions he asked the audience to think about:

·      Do we have the ability to compete in a crisis-prone global economy?

·      Will we be able to generate sufficient appropriate skills?

·      Will we be able to exploit the demographic dividend?

It is, perhaps, in the latter question that the biggest reason for optimism is locked up. Roux shared the following statistics regarding South Africa’s working age population as a share of the entire population:

In 2014, the figure was 65%, which translates into 1.8 working adults for every young and old dependent compared to a projected figure in the year 2045 of 68%, which means 2.1 working adults for every young and old dependent.

Said Roux, wearing both his hat as an economist and futurist: “South Africa’s demographic window of opportunity has opened and will remain intact for another 50 years.”

There is, however, an important prerequisite to optimally benefit from this window of opportunity. It is contained in the second question Roux put to his audience: “Will South Africa be able to generate sufficient appropriate skills?”

Roux’s views link well with that of his colleague, USB Director Prof Piet Naudé, who spoke about the South African education system.

In his presentation, Naudé suggested seven recommendations to fix the South African education system.

Foremost among these were his recommendation for a “two stream” high school system. This would entail changing the current system to steer students in two streams from grade eight: one stream focussing strongly on academics; the other stream focussing on skills training in vocation, agriculture, nursing, for example.

Arguing that only between 15% and 17% of learners pass matric with university exemption, Naudé pointed out that it would be best to allow only the really academically gifted learners to progress to university.

The rest should be accommodated in the “vocational” stream, but in accordance with the needs of the country’s economy. That would mean that the majority of learners would be steered in the direction of skills training.

“In a country like Germany, one of the biggest economies of the West, this is done with great success,” he said. “Over there schools as we know them in SA are in the minority. Here we just need to realise that attending a vocational school is no social shame.”

This new approach can lead to more post-matrics finding employment or creating their own through the skills acquired since grade eight, Naudé believes. Considering that the job market is annually flooded with unskilled post-matrics, he asked: “Of what benefit is matric anyway nowadays for school leavers?”

A further recommendation requires an equally drastic change in the post-school education system. This entails decreasing the number of universities in the country, currently standing at 25, and increasing the 50 so-called FET colleges, or further education and training colleges, to at least 200.

That is not to say that FET students cannot ultimately end up at university, but it would be as part of what Naudé refers to as “a lifelong learning route which would take them to an FET college, attending bridging courses, moving to first year studies at university---and eventually ending up with a PhD degree”.

This takes us to another of his recommendations, namely calling on Government to invest more money in research and development (R&D), the one area where South Africa, according to Naudé, is significantly well-positioned to become world leaders and achieve global recognition. However, the spending on R&D has decreased to less than 1% of the gross national product, compared to international spending of at least 2,5%.

Opportunities abound in areas such as nanotechnology, astronomy, indigenous knowledge systems, biotechnology and sustainable energy, said Naudé. He has no doubt---despite the state of the economy---that there won’t be any budget constraints to invest in his seven recommendations to fix the education system.

This will, conversely, benefit the country in ensuring that South Africa’s workforce acquire the necessary skills to assist in growing the economy and exploiting the “demographic window of opportunity” that Roux refers to.

Regrettably, Naudé does not believe that “sustainable energy” exist within Government to do the right thing; even if money is no issue, he told the audience, the leadership and political will are lacking.

Heindrich Wyngaard

 

IMG_2660.JPG Prof Andre Roux COLLAGE.JPG Prof Piet Naude COLLAGE.JPG
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