ECONOMY. Prof Ardnt Spandau: South African and German Economy Comparative Aspects

by Thokozani Nhlapo

The structure of the South African economy and German economy is vastly different, owing to the different histories of the two countries. South Africa has 4 major economic hubs, contributing about 82% of the total GDP. The economy is very centralized in nature resulting in very strong migration patterns of people moving from the less developed regions towards the economic hubs. These patterns put strain on the resources in your developed regions resulting in a myriad of socioeconomic problems such as overpopulation in the cities, rise in squatter camps, crimes etc. This rapid increase as a byproduct then impedes the government’s ability to deliver services.

Germany, in contrast, has a decentralized economy. It has 8 major hubs, with each hub having its own area of specialization of production and services. It derives its income from a wide range of services, making it less susceptible to overreliance on a singular sector or resource.

What I found interesting was the source of financing of companies. Germany has very low interest rates, thus making obtaining funding from banks very attractive. The stock exchange is highly regulated making listing companies very expensive. South Africa on the other hand has relatively high interest rates and an overly regulated banking sector thus making listing a much cheaper and more attractive option.

South Africa has very high import taxes making it very expensive to develop the manufacturing sector as it requires a huge capital investment and more often than not, they need to import the materials for making the production lines. This prevents the country from industrializing and morphing into an export led country, which has been historically been proven to be the most beneficial path to economic growth and prosperity. South Africa is a country heavily reliant on your primary sector, namely mining and agriculture, a move to manufacturing would significantly increase the country’s ability to create jobs and circulate the money within the country for longer. This would stabilize the currency, the government would be able to collect more taxes from the increased tax base and on paper be able to improve service delivery.

Prof Spandau mentioned that the only path for South Africa’s success would be for the regulatory environment to be much more lenient towards entrepreneurs, particularly small business. This would require relaxing of labour laws in particular but given the importance of trade unions in the country this would be very contested especially given the explorative nature of the country’s labour history.

South Africa would also need to review its relationship with small businesses. The contribution is small businesses (SB) is at unhealthy, low levels. It is imperative that SB’s receive added tax benefits, preferably waiving any company tax on SB’s in their first 3 years to as this is the most difficult period for them. This would enable SB’s to have increased cashflows and hopefully a positive Net Working Capital, it tremendously increase a company’s ability to survive.

I found the session very informative, it helped solidify some of my inclinations on the state of the South African economy and how it relates to other countries on a global scale. It also introduced some new ideas, which I had not yet encountered before. It a bonus that Prof Spandau had worked in South Africa in the past so his understanding of the economy wasn’t entirely academic and theoretical but also had a context and practicality.