TRAVELLING around emerging markets seeing clients, discussing policy with politicians and attending conferences is all very well, but sometimes it is necessary to get a reality check and see life on the ground. Often the former makes much more sense after having experienced the latter.
The recent World Economic Forum (WEF) in Cape Town was an opportunity to meet business leaders, policy makers and academics from across Africa, discuss the continent's challenges and opportunities and examine ideas for policy solutions.
But finding SA's "story", its outlook over the medium run, is very difficult. Policy can be volatile and SA's development agenda has changed with the political winds.
The common story for me is untapped potential. Ministers sometimes ask: "Why are you so negative on SA?" The answer is that I'm not. My view is more sad than negative. SA has many opportunities for investors. It is an attractive market with sound fiscal and monetary policy under Finance Minister Pravin Gordhan and Reserve Bank governor Gill Marcus. I am sad because it does not make the most of its opportunities.
According to our analysis, SA currently has a medium-run potential growth rate of about 3,75% given its current policy, investment and demographic mix. However, it could be as high as 5,5% if it chose a different policy mix of regional integration opening up faster-growing markets in the rest of sub- Saharan Africa, and more relaxed labour laws and regulations.
Why is this difference so important? It is because of SA's historical issues of inequality and poverty. A higher potential growth rate would make it much easier to make progress on these issues. Academic debates about development models become redundant when gross domestic product (GDP) per capita is growing so much faster. The key then is ensuring equitable access to such growth with the right basic skills and access to opportunities. According to our models, such a higher potential growth rate would reduce the time it should take for GDP per capita to double, from 26 years to just 16 years.
However, discussion of such remote concepts obscures the facts - and the simplicity of the issues. This was brought home to me in Nyanga township, which I visited after the WEF. Nomura's emerging markets business in London takes an active role in the EMpower charity, a global network of emerging markets professionals that supports a diverse range of local charities working in local communities in developing markets. One such charity is Ikamva Youth, an educational charity providing support, homework clubs, access to computers and mentoring to young people in townships across SA. Seeing the work being done on the ground has influenced my thinking on SA.
In Nyanga, Ikamva Youth is working in the heart of the community in a local library. An army of enthusiastic volunteers, many of whom went through the project themselves, and a close connection with local universities provide the drive behind the project, and the energy comes from the leaders. Visiting the project, I saw young people hungry to learn, help each other and take advantage of the services Ikamva offers them. Most interesting, though, was that at its heart the work Ikamva is doing and the difference it makes is very simple - it is about providing a spark of hope, a path of opportunity and role models to look up to, all triggering aspiration.
The most basic tragedy of the townships is not even high unemployment (about 60% in Nyanga) or the conditions - it is a lack of aspiration. The encouraging thing, which Ikamva Youth has shown, is that though role models and simply providing information (and implicit incentives) about what options are available for youngsters and what they can achieve in life by putting the effort in at school, this aspiration can be ignited, grades can be improved and lives can be enriched. Once aspiration has been sparked, a basic entrepreneurial spirit in those who live in the townships causes a multiplier effect and youngsters then want to work hard, giving up time after school to be part of the programme, and so have a larger part in driving their own destiny. Much of Ikamva's work relies on volunteers, who have been through the programme and then want to return to give something back.
I met Phillip and Thobela, two young people who had grown up in the township, been through the charity's programme at school, got good enough grades to go to university, and now volunteer with the charity and are going on to great things. As an economist, I was delighted to find a common understanding with Phillip, who is passionate about econometrics. He is doing well at university and looking to go on to, for want of a better word, a "normal job" using his interest in statistics for the government or a company. Thobela, who now sits on Ikamva's board, is passionate about chemistry. Getting into a good university allowed him to go on a study exchange to the US, and he now wants to become an academic teaching what he loves, a bug he has caught from his experience with the charity. Creating role models can become a virtuous cycle.
From my visit, I learnt many things. The issue of "untapped potential" is a much broader concept for SA than I first imagined. Government policy must be geared to providing the incentives and structure for personal aspiration of youngsters through mentoring and additional support in schools.
Young people need opportunities to better express their entrepreneurial spirit, and there is still a dearth of small and medium- sized enterprises (SME) in SA. Adjusting the tax system and making youth skills subsidies available to existing SME s or the self- employed to take on a young person from a township could be a simple and inexpensive way of achieving this. Such macro policies, including altering restrictive labour laws and becoming a more attractive destination for foreign direct investment, are essential to providing opportunities for young people.
I also wonder whether development could be achieved much faster by effective privatisation of education provision in certain areas to either charities such as Ikamva or to profit- making companies doing a similar thing.
Something the young people said has also left me puzzled. People in the townships seem to lack a ready supply of role models. Sportsmen and self-made black businessmen need to be pushed strongly into these communities to be role models. The risk is all too great that, instead, young people turn to a lifestyle of political cadre deployment and entitlement.
The revelation that having the information to make choices about one's future, having role models to look up to, and support to guide one up the ladder, make such a difference also answers a question that has long puzzled me about SA. Why, even given the relative availability of opportunities, is youth unemployment so high?
My story of SA remains one of unrealised potential, perhaps even more so now I've seen the great success that can be achieved through simple intervention at community level. Similarly, my lasting impression from the WEF is that government policy is still holding back potential growth and employment. However, the visit gave me hope, too. Over the longer term, small differences on the ground can accumulate and multiply and become self-perpetuating. The government needs to provide the incentives for this to happen, to get back to policy basics and then stand back and let the magic happen.
. Montalto is an emerging markets economist at Nomura International in London.