What is the Current growth path of Emerging Markets?

Emerging Markets: Growth resilience or hitting a low growth trap

There are several successful countries institutions of emerging markets, which promoted economic growth.   First is the rule of law, which contains securing contracts and protecting citizens in terms of marketing, contracts as well as business.  It is also close related to protection of law, which is the green paper on land reform.  A stable, reliable and functional government achieved by certain countries. A contributed is also made when the active investment in the country’s citizens by improving education and health.   Macroeconomic stability was achieved, which for example delivers low inflation.  The final contribution to economic growth is the investment in the infrastructure of a country.  It is mostly demanded by the private sector, since they are experiencing difficulty to supply their products.

In the 1990s Brazil attained macroeconomic stability and better inflation rates.  It was done through investing a large amount of revenue in the country’s education, which decreased poverty by 55 per cent.  This supports the argument that economic growth is about skilled people and production and not the redistribution of income.  In 2009 India introduced institutions to support economic growth, since the country was about to reach the “Hindu growth rate” of 3.5 per cent again. This low annual growth rate resulted from the decrease in the investment of education.  There was a large amount of drop out of schools across the country.  It was also caused by the large decrease in the country’s FDI.  China used its surplus capital to invest in expensive projects in Africa instead of investing the country itself.  This is an unstable investment, because there a lot of risks involved.  The country is also weak in property rights.  Both contribute to the fact that China’s growth rate is slowing down.  Therefore the Chinese model has to change and strive toward rules of excellence.

Over the years South Africa has introduced several models to promote economic growth.   The NDP model was presented, which was a socialist approach.  However, this model was not accepted by the international world.  After introducing the GEAR model, the country achieved more macroeconomic stability.  The latest model is known as the new growth path model, which focuses on the government.  It acts as a growth agent.  This is an important model, since the country is facing several institution failures.  These problems consists the necessity to constantly on an annual bass bail out SABC, the majority of municipalities not being up to standard, ESKOM is struggling to deliver enough electricity and the South African airlines failing to provide safe and secure services.  The government wants to extend redistribution of income; there is already the redistribution to 15 million South African citizens.  This is going to be ineffective, since economic growth is generated by production as well as technology. The ANC government is unsuccessful in educational performance.  Among certain countries, South Africa is the worst in primary education, which causes a spill-over effect to high school and so on.  Since the government introduced political elites such BEE, affirmative action etc.  The redistribution of resources in favour of these political elites contributed to the increase in the country’s inequality.  None of these institutions generate any for per cent rise in South Africa economic growth.

China Political and Market pressure towards a new growth paradigm

The worldwide economy is growing at a slower rate.  The large scale of industrialization in China gave rise to their current economic growth. They grew fast by their infrastructure network, government spending, sectorial changes, rapid capital accumulation low labour cost, which made it cheaper to export and their financial service supply chain.  The reason for the country’s export orientation is that it is difficult to do business in China, which is an underlying constraint.  However, there are indications that show the country’s growth is slowing down.  China ‘s electricity in production decreased as well as the country’s imports, which means less raw material are used for production.  There is evidence that a property boom is taking place in China, which is a bubble that could possible lead to a crisis.  This one of the country’s threats, which contributes to social instability.

China is completely over investing in infrastructure for example wind electricity.  The windmills are not even the right condition, since it is not connected correctly.  The low birth rates in China due to the one-child policy led to relatively few young adults and relatively many older persons at an earlier state of development than happened in the West and in other developing countries.  China’s young adult population is falling rapidly.  This becoming a serious problem and they must end the policy before it is too late.  In order to adjust they can implement a new consumption-based growth model, which will increase the income of citizens.  The China’s 2030 report states that reform is required in areas such as land, labour, energy, competiveness, banking and capital markets.  The developmental state approach focus on economic growth, thus it will be a good idea if China would use it.  One strategy is the regional competiveness, known as regionally decentralized authoritarianism, which will increase economic growth.  The country’s growth depends on power of leadership, strength of bureaucratic and military vested interests. China will continue to lead global growth but at a lower rate.  Economic inclusive and political systems will make provision for future growth.  This means that South Africa is going to gain more investors.

Political Economy and growth disappointment in SA

Since 1994 the average South African growth rate has been about 3.2 per cent annually.  The uncertainty over the nationalisation policy of the ANC is partly the reason for the downgrading of the country on Frasier Institute’s annual survey of mining-investment attractiveness.  Another contributor of poor economic performance is the delays in implementing needed infrastructure spending and fast increase in infrastructure costs.  The good news is that the country still has the best infrastructure in Africa.  The country has skill shortage, strict labour market and educational system and the rise in corruption.  Poverty, inequality, and unemployment are SA’s main challenges.

The responses to growth disappointment are in the form of several programmes for example the latest policies NGP and NDP.  If a certain combination of economic policies is implemented, it might become a constraint, which makes it difficult to achieve reform goals.  Currently there is a ‘tug-of-war’ in the ANC-Cosatu-SACP alliance over what the economic policy should be, resulting in more confusion and uncertainty.  People are becoming more aware of institutional failure in the country.  Particular in smaller towns local governments are unable to deliver services, due to loss of skills, experience and institutional memory shortage, many vacancies in senior positions and high level of corruption.  South Africa is failing in its development strategy, thus a ‘delivery state’ should rather be considered.  This approach includes more use of public-private sector partnerships.  The economic costs of the continued ANC/Cosatu/SAPC alliances are increasing.  In being unable to project coherent and coordinated policy directions is increasing cost in terms of employment, growth and delivery.  The ANC’s elective conference in Mangaung must make a decision whether the South African economy can free itself from ceiling to which the “centre of gravity” in the ANC/Cosatu/SAPC alliances is rising, limiting the country’s economic performance.

Service delivery failure and flirting with new Developmental Models by political Elites in SA

Over the past decade there have been a number of protests, which is part of a broader political instability.  In South Africa the local government as well as political instability is very high.  There are three main dynamics strong ideology or Polokwane resolution, weak government or regime and social economic challenges.  South Africa has a five year open window of opportunity to make the right decision.  It is uncertain whether the country is going to benefit from the opportunity or not. The patterns for political instability are low levels of institutionalization, the culture of violence, neo-patrimonial tendencies, election dynamics as well as social economic problems and challenges.  It is necessary to look at the developmental state not in terms of theory.  This approach must be implemented in a suitable political environment.

T. van Niekerk

Boomerangs621

 

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