Guest blog by Yolanda Smit, LEG’23
Your problems are never what you think your problems are, and neither are your solutions. PDIA is helpful for problem identification and identifying the binding constraint but also as part of finding solutions. A key takeaway is that your problem is never what you think your problem is, and the solutions that may work are never the solutions you think of first. Being an interactive process where learning by doing happens gives the policy process a different feel – and creates a need for a different type of organisation – high bandwidth organisations
When we are thinking about economic complexity, it is not only the current complexity but also how to diversify to add to economic complexity that is important. The impact of adding complexity takes time, and the fact that the process is exponential can either be encouraging or, if you have a low number of letters, very discouraging.
Going through an interactive process like this, identifying the key stakeholders and having the authority to act is only a starting point. Being able to fail in a way that does not hinder the legitimacy and support for the process should be part of planning and managing this process.
One of the most concerning revelations is that South Africa’s economic complexity has declined (down 14 positions in the last decade). It would seem as if South Africa might be an example of losing KnowHow. Since 2009, the composition of exports has remained relatively the same, focused on mineral and agricultural commodities, with only the category “other” showing a sharp decline between 2011 and 2015. Only 6 new products were added to South Africa’s complexity in the last 15 years. The product space for South Africa is focused on a few products and lies very much at the periphery of the product tree.
This links to the declining total factor productivity we have seen in South Africa. South Africa’s growth is limited by structural challenges related to the ability to combine capital and labour in a dynamic and integrated manner that would drive sustainable long-run growth. This is reflected by the economy’s low and falling potential growth, led by a decline in total factor productivity (TFP). Low potential growth limits the scope for economic stimulation without risking macroeconomic imbalances. In the South African context, potential growth has remained below 2% since 2013 and has fallen below 1% over the past three years.
The medium-term growth outlook reflects the structural nature of South Africa’s growth constraints. Growth was 2% in 2022 and is projected to average 1.4% over the medium term. These outcomes cannot keep up with population growth nor materially address structurally high unemployment rates. These low growth projections reflect the fragility of the economic recovery and the crippling impacts that structural constraints – like inadequate and unstable electricity supply – have on the economy. These constraints also exacerbate the economy’s vulnerability to external shocks.
However, in South Africa, the political economy constrains our ability to address binding constraints. Through the course, the problem-driven iterative adaption approach to complex economic issues helps engage stakeholders, both to get authority to create energy to identify and implement solutions and, more specifically, to source authority to act more directly. The importance of building relationships with stakeholders has been a key change to my approach to the work I am doing.
Lastly, although the importance of setting measurable progress targets has always been accepted, this has been highlighted as key to keeping focus and energy. For my growth challenge, I have been able to convene a small internal Treasury workgroup of interested individuals only now. We have been using the PDIA toolkit and identified two possible interventions we want to pursue in education. This is far from where I started and assumed the process would lead. The pivot was due to the process highlighting a possible different binding constraint not always top of mind for an economist and using the process to temper what is possible.
This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. 72 Participants successfully completed this 10-week online course in May 2023. These are their learning journey stories.