Professor André Roux – “SOUTH AFRICA AND MAURITIUS SHOULD JOIN FORCES”

South Africa and Mauritius are two major economies in sub-Saharan Africa. Strengthening of economic cooperation would be mutually beneficial to both countries, says the Professor of Economics and Futures Thinking at University of Stellenbosch Business School.

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BUSINESS MAGAZINE. As the world celebrates Nelson Mandela’s 100th year’s birthday, what can we say about his contribution to the socio-economic development of South Africa?

Nelson Mandela’s vision, set of values and messages of hope transcend national boundaries. Like Gandhi and Martin Luther King, he is a constant reminder that every single member of the human race is created equal and is entitled to a healthy dignifi ed life, free of the shackles of oppression and bias, while granting the same respect to one another. This message is a timely reminder to South Africans that the country sadly runs the risk of losing our hard-fought battle for freedom to the scourge of corruption and the erosion of constitutional principles and the rule of law which are non-negotiable foundations of a working democracy.

BUSINESS MAGAZINE. Following on the heels of scandal-ridden administration of President Zuma, a lot is expected from Ramaphosa who must strive to contain social inequalities, create jobs and bring economic prosperity. Can these goals be achieved by the end of his mandate?

With the best will in the world, one person and half a year cannot undo a decade of mismanagement and the warped allocation of scarce resources. A political and leadership revolution is still playing out. And for now, President Ramaphosa’s major challenge is to keep the ruling ANC together and record a convincing victory at next year’s election. Assuming success in this, he will then feasibly have 10 years to ignite a renaissance; to heralding in a “new normal.” Radical transformation is required to escape from the seductive allure of credit-driven spending; and to revamp labour market arrangements, and the education system, both of which are displaying signs of partial dysfunctionality.

At this crucial juncture of South Africa’s post-apartheid era, President Ramaphosa is arguably the only person with the ability and will to introduce and implement a plausible turnaround strategy. However, there is no quick fi x that will yield immediate tangible results. 

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BUSINESS MAGAZINE. Political uncertainty is referred as one of the main causes for South Africa’s mitigated performances in global rankings. What are the prospects for 2018? 

The positive news is that the broad macro-economic environment is less confi ning than this time last year. The world economy is benefi ting from a synchronised cyclical recovery in the USA, Europe and Asia, on the back of, amongst other factors, accelerated trade and investment, improved confi dence, and the dissipation of the shock induced by the commodity price collapse. Closer to home, infl ationary concerns have eased, while the exchange rate of the rand has, unlike last year, not gone into a freefall.

The not so good news is that, while economic growth this year is expected to be a bit fi rmer than last year, it will hardly be enough to swell the tax base suffi ciently to cope with the demands being placed on the fi scus. In fact, the budget defi cit remains unsustainably high, while household balance sheets are being squeezed by high fuel prices, still high interest rates, and the fi rst increase in the VAT rate in more than 20 years. Ultimately, there can be little doubt that – directly or indirectly – consumers are bearing the brunt of the fi scal profl igacy and political largesse that has prevailed for the best part of a decade. In the circumstances, unemployment is likely to remain at 25% or more in 2018. In this regard, the issue of productivity needs to be highlighted. When all is said and done, productivity growth lies at the heart of economic growth and development. However, productivity growth in South Africa is sluggish, to say the least, for reasons that are well chronicled. These include low effi ciencies in the use of labour and capital; a variety of challenges (including regulatory and fi nancial barriers) that prevent businesses from maximizing their potential; and a low competitive base. Indeed, the entire labour market-employment-education nexus requires a radical transformation.

BUSINESS MAGAZINE. Are South Africans agreeable to Ramaphosa’s implementation of land expropriation proceedings without compensation?

In light of the country’s troubled history and the systematic suppression of the rights of so many South Africans, it is virtually impossible to refl ect upon the issue of land reform in a dispassionate fashion. The key issue now is the mechanism to be used to transfer ownership of land to emerging black farmers. If land and property are simply taken from the current owners without any form of compensation, who is then liable for the outstanding debt incurred to acquire and develop that property? On the other hand, land grabs are likely to be interpreted as an erosion of property rights, thereby deterring much-needed fi xed investment. As it is, the state of fl ux that has now emerged with regard to the future policy stance is already proving to be contentious for investors. Another issue that arises is the extent to which the transfer of commercial land to relatively inexperienced (new) owners threaten the security of food supply – especially given the uncertain and often negative weather conditions? It should also be mentioned that the debate is not confined to agricultural property. 

BUSINESS MAGAZINE. Mauritius fares well in global rankings whether with regards to competitiveness, good governance or ease of doing business. Is the country becoming one of the top performing economies in Africa?

Competitiveness is defined by the World Economic Forum (WEF) as the ‘set of institutions, policies and factors that determine the level of productivity of an economy. The WEF measured 36 African countries in the latest Competitiveness Index. After gaining moderate ground between 2011 and 2015, Africa’s competitiveness standing has since regressed slightly. Only four countries (Ethiopia, Senegal, Tanzania, and Uganda) have managed to improve their performance for five consecutive years since 2010.

The decline of late in Africa’s overall competitiveness resonates with subdued economic growth rates (an estimated 1.4% in 2016), and with investment rates that are at their lowest levels in 10 years. Only one African country (Mauritius) ranks among the 50 most competitive in the world, while only seven are ranked 90th or better. Moreover, 18 of the 20 least competitive countries measured are in Africa. 

Nigeria, which has the largest economy in Africa, is ranked 125th overall, and 27th in Africa – slightly worse than Zimbabwe.

Reasons for Africa’s competitiveness slide include the following: double-digit infl ation rates, institutional and fi nancial market effi ciency decline, as well as increase in the government debt to GDP ratio in sub-Saharan Africa from 31.5% to 42.5% in the wake of slower international growth and suppressed commodity prices.

As mentioned earlier, Mauritius is the top performing African country, followed by Rwanda, which has relegated South Africa to third place. Mauritius’ ranking is on par with that of India (40th), Portugal (42nd), and Italy (43rd).

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BUSINESS MAGAZINE. What are the main obstacles to the economic growth of Mauritius, South Africa and Rwanda?

Mauritius outperforms Rwanda and South Africa in respect of infrastructure, the macro-economic environment, health and primary education, higher education, and goods market effi - ciency. Rwanda performs best in the categories of institutions, labour market effi ciency and fi nancial market development. 

South Africa outranks the other two in the areas of technological readiness, market size, business sophistication and innovation. The competitiveness of both Mauritius and Rwanda is compromised by a poor showing in respect of market size, while Rwanda’s performances in higher education, and technological readiness are amongst the 40 worst in the world. 

The three biggest obstacles in Mauritius and Rwanda did not change in the two years. An inadequately educated workforce is of major concern in both of these countries. The biggest obstacle in Mauritius is deemed to be an ineffi cient government bureaucracy, while in Rwanda it is access to fi nancing.

For South Africa, however, the agenda has clearly changed. Until last year, the biggest obstacles were typically linked to labour force and bureaucracy defi ciencies, while government instability was virtually irrelevant as an obstacle. For 2017/18, the three biggest obstacles are corruption, crime and theft, and government instability. One of the major enduring messages for African countries is that institutions matter a lot. With few exceptions, the prosperity of a country is closely correlated with its institutional quality. Moreover, collaboration between the public and private sectors is a crucial co-creator of productivity growth; in the absence of strong institutions, however, the collaboration between the public and private sectors may become dysfunctional, with both sectors colluding in the pursuit of personal gain at the expense of consumers and taxpayers.

However, as countries such as Mauritius and Rwanda have shown over the last decade, getting the basic rights (e.g., education, health, and infrastructure), underpinned by institutional capacity, enhances global competitiveness.

BUSINESS MAGAZINE. How can South Africa and Mauritius strengthen their bilateral and multilateral cooperation?

Cooperation and collaboration between any African states should be welcomed. In South Africa and Mauritius, we have respectively the second largest economy in sub-Saharan Africa and the most competitive. It would, therefore, make little sense to become rivals, but rather to join forces in promoting the region’s attractiveness by serving as a conduit for investment, tourism, and the like. Both countries should see themselves as “gateways” into Africa. The two countries can collaborate in tourism, retail and wholesale, manufacturing and fi nance.

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