Investing in productive capacity - the strategy for securing economic growth -
The history of humankind reveals that only two events stem population growth on a scale of any note : famine and disease epidemics. Other natural disasters, such as earthquakes, volcanoes, flooding etc, and warfare have an impact but to a far smaller extent. Global population growth continues at between 1 and 1.5% per annum, with many southern hemisphere nations reporting averages at between 2 and 3%. The population statistics of those northern hemisphere nations with negative growth rates are quickly smoothed out. Our region is ‘bursting at the seams’ !
The population of the southern Cape, the region from Nature’s Valley in the east to Still Bay in the west is growing at 6% per annum. Apart from growth from births, 60 families per month are moving into our region. These new residents are moving here from overseas (many returning expats), immigrants from Asia and Africa, internal immigrants from the northern and eastern provinces of South Africa, and retirees seeking affordable and safe residency with access to basic services of a good standard. At current growth trends, our region’s population will reach 500 000 by 2020. Are we able to handle this growth ?
The capacity of supply to satisfy demand, together with growth in productive infrastructure, is what secures sustainable growth in the region. This is the hurdle facing the southern Cape right now. In the early phases of economic growth, where local supply is able to satisfy the ever-increasing demand, steady price inflation and improved margins are experienced. However, what are the consequences where the ability of local supply to satisfy demand begins to flag and fail ? If left unchecked, growth is stemmed, local unemployment begins to spike with the associated consequences, and economic growth is stunted or retarded. This final stage in the cycle typically takes place over a period of 18 to 36 months and begins with the dramatic escalation in the price of commodities being supplied, for example timber, cement, steel and bricks. How do we avoid this scenario ?
To date, capital investment in our region has been applied to five principle sectors : property development (especially commercial and residential), agriculture, the retail sector, services, and leisure (including entertainment and sport). The reasons for these choices of investment are not difficult to understand – relatively quick returns, almost immediate uptake of supply, limited need for market-making, ready supply of commodities required for these projects, the low risk profile of these sectors – with the exception of leisure, as most often these are purpose-built investments. The challenge is that these investments are mostly short-term (6-18 months), project-driven, and, with the exception of non-mechanised agriculture, do not require the long-term engagement of labour. Industrial development is what is most needed, and yet virtually totally absent in our region.
High-lighted by its absence in the southern Cape is investment in industry, both medium and heavy. I trust we are not waiting for the Chinese to build our factories, power plants, steel fabrication industries, processing plants and manufacturing sites, as has taken place in many African countries ? Are we so bogged down in the quagmire of political effluent, legislative red-tape, and the general malaise of ineptitude, that we are failing to read the signs of opportunity ? People do not need to be encouraged to spend money on consumption, and if investors are to continue to be rewarded by the economy of the southern Cape, the shift in focus must be towards investment in industrial production and development.
This note outlines what I refer to as the predominant consumption-based approach to economic growth, which unfortunately always leads to a dead-end, as without secure and sustainable sources of inflation-bearing income, consumers soon run out of income to ‘keep the show on the road’. With increased taxation being the only source for the filling of the state coffers, we need to be aware that spending by government at whatever level, is never sustainable, efficient, productive or a stimulus for economic growth. Private sector needs to fulfil its natural role and step up to the plate of investment in industry for the southern Cape. Visit www.southerncapecorridor.co.za for further insights on economic growth and investment opportunities in the southern Cape.
pjm
October 2017
082 330 7184
info@southerncapecorridor.co.za