LEADERSHIP

Threats to SA's business future

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Leadership at all levels of South Africa is needed to address four key social and economic problems.

Education, Health Care, Unemployment, and Income Inequality Are Biggest Threats to Republic’s Future. South Africa Ranks in Bottom 10 % of Countries in Translating Wealth to Well-Being, According to BCG

South Africa needs leadership at all levels to better translate its national wealth into the well-being of its citizens, with the most urgent need in four critical areas: education, health care, unemployment, and income inequality. There are solutions at hand and opportunities for the taking, but they require sustained effort from leaders in both the public and private sectors if the nation is to make material progress, argues a report by The Boston Consulting Group (BCG). The report, titled Four Priorities Requiring Leadership for South Africa’s Future, was recently released.

South Africa needs to reignite sustained economic growth, which has slowed in recent years, but equally important is translating growth into the broader well-being of its people. South Africa ranks 138th of 149 countries in translating wealth to the well-being of its citizens, according to BCG’s proprietary Sustainable Economic Development Assessment (SEDA) methodology, which measures how effectively a nation converts wealth into well-being along ten socioeconomic dimensions. By comparing a nation with peer groups of countries of size and economic and social characteristics, the SEDA analysis exposes reasons for lagging performance and highlights dimensions where high-impact solutions can lead to outsize improvement in overall standing.

In South Africa’s case, two of the most critical areas for improvement requiring both near-term attention and longer-term solutions are education and health care. Although the factors afflicting education in South Africa are serious and systemic, the experience of peer nations shows that significant improvement is possible, including in the near term, and that targeted policies make a difference. Previous efforts at reform focused on such issues as infrastructure, enrollment, and access, but other long-standing problem areas demand priority attention now. They include teacher quality, teaching basic skills, reducing dropout rates, and establishing an effective vocational-training alternative for young people.

A big part of the solution, says Adam Ikdal, a BCG senior partner and a coauthor of the report, is achieving a “mind-set shift” with respect to education. “South Africans need to recalibrate their appreciation for the value of education and combine that newfound respect with a corresponding show of appreciation for teachers,” he says.

“This will happen only with leadership—from both government officials and role models in other areas of society. Leaders need to start a drumbeat of recognition for the critical role that educators play. At the same time, this has to be balanced with local leadership at schools, including a focus on accountability for teachers’ performance, which will improve educational quality.”

In regard to health care, addressing South Africa’s low rate of life expectancy requires continuing the government’s HIV/AIDS prevention and treatment initiative. These efforts have reduced HIV incidence since 1999 by more than 50 % and stabilized overall prevalence.

Child mortality, another challenge to be addressed, is largely a matter of better hygiene and a more aggressive approach to immunization. South Africa has the lowest immunization rate for measles and diphtheria among all of its peer countries.

Two other entrenched problems that require long-term attention are systemic unemployment and income inequality. Unemployment and education are inextricably linked. The national unemployment rate of 25 percent has not budged in recent years; the unemployment rate among university graduates is only 2 to 5 %.

Constraints on small business, which provide more than half of all jobs, and the rigidity of the labor market hinder employment growth. Rigid rules that limit employer flexibility with respect to hiring, firing, and wages are exacerbated by low labor productivity and frequent unrest.

Despite strong improvements in standards of living, South Africa continues to suffer from severe income inequality. Some 31 million South Africans—almost 60 percent of the population—live in the marginalized class. More than 17 million South Africans are supported by welfare, which takes up almost a third of all money paid in income tax. This is a necessary safety net, at least in the near term, given that discontinuing welfare, or substantially reducing the amount paid out, would cause another 3.3 million or more households to fall into poverty.

The report states that a key long-term goal for South Africa must be to vastly reduce the role that welfare plays. In the near term, however, South Africa can take steps to make the welfare system more efficient and to use it to support long-term goals. Most significantly, welfare payments should be made conditional and tied to broader social and economic goals, such as incentivizing education, skill acquisition, and regular health checkups and testing.

“There is plenty of reason for hope,” Ikdal says. “South Africa has significant strengths. The government’s National Development Program 2030 is on the right track, addressing many of the most important issues with practical solutions. But the sense of urgency needs to be heightened. A concerted program of execution is essential. In many instances, this will mean putting the greater good ahead of individual or institutional interests. Those engaged in ‘public service’ must put the public first without exception. Business and labor leaders have their own constituencies to answer to, but they should also remember that a rising economic tide lifts all boats.”

 

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