Infrastructure will not necessarily guarantee economic transformation: Spending significant resources on infrastructure will not necessarily lead to economic growth that is underpinned by economic transformation
In recent his state of the nation speech, President Zuma spoke about the massive infrastructure spend that the government will be embarking on. The question we need to ask is: does infrastructure spend lead to economic growth and transformation?
A number of studies have been done internationally and it has been widely settled that infrastructure spend does lead to economic growth, eventually. However, for this growth to be achievable, other things must happen in order to increase the probability of infrastructure expenditure to make a sustainable impact on any economy.
One thing that is evident is that the infrastructure spend that South Africa undertook for the 2010 World Cup created temporary jobs but has not led to any significant changes to this economy. Money was made but for whom?
In his talk on the causes of economic growth in China, MIT and Fudan University professor Yasheng Huang, an authority on how to get ahead in emerging economies, talks about how infrastructure development in not necessarily a cause of economic growth but is rather result of a growing economy.
In other words, infrastructure is not an input to growth but a symptom of a growing economy. To prove this point, he demonstrates a very stimulating example of India and China where it turns out that, in the early 90's despite India having more infrastructure, its economic growth was still behind that of China.
He then goes on top contend that the growth of China is simply due to the development of human capital and the critical role played by private entrepreneurs and SMME's. Added to the above a country must have high levels of savings, a skilled and flexible labor force and a work ethic.
Indeed in this country, there is a need to advance our infrastructure in order to make it attractive for foreign investors and also to increase the probability of economic activity in outlying rural areas for example that do not have access to markets. However we must note that this economy is currently not performing at its optimum levels mainly because of our human capital deficiencies and not because of inadequate infrastructure development.
The management of resources in the public sector must be in place before we pour billions into public expenditure. One just has to look at the massive waste by provincial governments due to corruption and greed and the inefficiencies of local authorities such as the billing in Johannesburg City that hamper the smooth operations of commerce.
Do not get me wrong, basic infrastructure services are required to ameliorate the life conditions of the masses. Here I agree with Helen Zille's views that: "it is however crucial that the provision of infrastructure at the local level is significantly enhanced because this is where the majority of our people, rich and poor, experience the value of the infrastructure in their daily lives. It is only when people have reliable water, sanitation, electricity and transport that they are able to function adequately in a modern economy. If they have none or inadequate supply of these services, they have much less time available to study or work and economic production suffers"
However we ought to be very careful because an increase in GDP will not necessarily result in economic transformation but, more often than not, it is bound to increase the economic power of monopolies leading to further economic disparities than intended.
In my opinion our priorities must be to spend as much as we can as a country on developing our human capital base and public management capability because it is more advantageous to us than to build five lane highways, skyscrapers and schools when we do not have competent teachers to occupy these schools.
There seems to be a fundamental misunderstanding that a more modern looking economy spells economic prosperity. Africa's economy resides not in the first economy or the modern sector of the economy but more in the informal and traditional sectors where the majority resides. Any economic policy must surely seek enable them to participate in commerce by investing in education, access to capital and management skills.
If I were president I would focus more on spending billions on human capital development first and resulting from that would be the increase in skilled labor, a fundamental prerequisite for economic development. In addition entrepreneurship should be our national culture and we need to increase access to capital for the development of new ideas, products and services as in China, while making it easy for individuals; especially those in the i9nformal and traditional sectors, to start a new business particularly in the manufacturing sector.
Unless we address this, I am afraid that the billons being spent on infrastructure will once again find themselves on the income statements of those monopolies that operate in the infrastructure development industry.
I would therefore tend to agree with Professor Yasheng Huang and in my opinion, he rightly argues that whether we have a democracy or not, it is human capital development and entrepreneurship that will determine the competitive advantage of nations especially in the 21st century.
You can listen to him on http://www.ted.com/talks/yasheng_huang.html
Vince Musewe is an economist and you may contact him on [email protected]
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