December 3, 2022

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Nothing is impossible

South Africa is at another crossroads

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South Africa is yet again at a crossroads. This means South Africans must make a major decision regarding their future.

At the last crossroads in 1994, South Africans had hoped for a bright future that democracy would bring about. Large numbers flocked to the polls and 62.65% of them voted for the African National Congress (ANC). Ten years later an even larger number, 69.7%, voted for the ANC to bring about the promised land South Africans had fought for during 300 years of struggle.

South Africans have now reached another crossroads – brought about by the failure of the ANC government that South Africans had placed so much faith in to deliver on its promise of a better life for all.

ANC government failure and the cost to South Africa

Twenty years ago, South Africa was the largest economy in Africa by far. It had the most developed and diversified manufacturing sector; it had the largest railway network on the continent and one of the largest in the world; it was the largest producer of electricity in Africa; it had the largest port in Africa, Durban.

By 2019, a year before the Covid-19 virus struck, South Africa under ANC government had gone into steep decline. Misguided economic policies led to employment collapse; for example, in the footwear sector, where employment fell from 27 882 in 1995 to a mere 12 035 in 2002. Today, South Africa has the highest unemployment rate in the world and not surprisingly 27% of children under five are stunted as a result of extensive malnutrition.

South Africa was overtaken by Nigeria in 2013 as the leading economy in Africa. It was later also overtaken by Egypt in 2020.

Its manufacturing sector had shrunk from 20% of gross domestic product (GDP) in 1994 to 13% of GDP in 2021; South Africa’s railway network was ravaged by mismanagement and lack of maintenance so that most of the country’s freight moved on road; the state-owned electricity company became a byword for incompetence.

The Port of Durban and other South African ports, according to a 2021 study by the World Bank, were among the least efficient ports in Africa and the world. South African ports were ranked as follows: Ngqura 363, Durban 364 and Cape Town 365 out of 370 ports worldwide. The highest ranked African port was Djibouti, which is ranked number 19.

The failure of the ANC government was not restricted to economic failures, it extended to the critical area of human security. In 1990 South Africa had one of the most developed militaries. It could field a well-trained and well-equipped army of half a million soldiers. It had highly developed military industries that had grown notwithstanding international sanctions.

Today the South African army has been described as a welfare agency rather than a warfare agency.

Its army of 81 500 (66 500 active, 15 000 reserve) is ill-equipped, unhealthy, aged, and unfit. Most of its active service personnel are above the age of 40, and so are their fighting vehicles. The defence budget has collapsed from 2.6% of GDP in 1994 to 0.93% of GDP in 2019/2020.

The equipment procured for the air force and navy in the early 2000s is all but inoperative due to lack of spare parts and lack of qualified personnel to maintain and operate it, according to Lindy Heinecken, author of South Africa’s Post-Apartheid Military: Lost in Transition and Transformation. Less than a third of the 37 Oryx helicopters are operational; only five of the 26 Gripen fighter jets are operational; and only five Hawk trainers out of 24 are operational. Only one of the four navy frigates is in service.

Anyone can walk across South Africa’s borders and do practically as they wish once inside the country. Foreign poachers kill hundreds of rhinos every year. Importers of heroin and other drug merchants have a free run of the country.

When the orgy of looting, violence, and destruction of commercial property and infrastructure in July 2021 erupted in the provinces of Gauteng and KwaZulu-Natal, the ANC government was paralysed and did not know what to do.

It issued an order to the police in Durban and Pietermaritzburg to do nothing. The police and the army made cameo appearances at riot scenes.

In a period of eight days when the two provinces were engulfed in riots more than 340 people were killed in the mayhem, many trampled to death during the looting, others killed by vigilante groups and private security companies, some burnt in the fires that destroyed malls and distribution centres. According to insurance company Allianz Global Corporate & Speciality, property worth US$1.7 billion was destroyed.

The July 2021 riots that followed the arrest of former president Jacob Zuma confirmed what many people had suspected for a while – that South Africa is ruled by a failed government that is not capable of providing security to life and limb of citizens, is not capable of protecting the country’s assets, and has lost control of the country’s borders.

Allianz estimates that social upheavals are here to stay.

In the increasingly unstable world that South Africa is also part of, a failed government adds to the dangers the country faces.

“Incidents of social unrest are unlikely to abate any time soon given the aftershocks of Covid-19, the cost-of-living crisis and the ideological shifts that continue to divide societies around the world,” writes Allianz. “Business needs to be alert to any suspicious indicators and designate clear pathways for de-escalation and response which anticipate and avert the potential for personnel to be injured, and or, damage to business and personal property.”

This is very good advice, but business on its own cannot provide the security that is the responsibility of government to provide. The message should therefore be clear to the country: a government that is not capable of providing security to the nation must be replaced democratically by one that can.

Key indicators of ANC government failure are in the areas of security, international relations, and economic policy. These three are a crucial measure for government performance because they cannot be outsourced.

We have seen above how the government has failed to provide security; it has fared no better in international relations.

ANC government’s floundering foreign policy

In 1990 South Africa was a giant in Africa. It had one of the largest armies on the continent, with a sophisticated industrial military complex. In 1994, after years of apartheid, it emerged as a credible democracy with a leader, Nelson Mandela, who after many decades of prosecution by the apartheid regime, was preaching reconciliation and nation building.

For several years, Africa and the world adored South Africa and looked forward to it becoming Africa’s lodestar. As we have seen, since Mandela, South Africa has fretted away whatever strengths it had. Today South Africa has been described as Africa’s lost leader.

According to James Hamill, in his book Africa’s Lost Leader; South Africa’s Continental Role Since Apartheid, South Africa has failed to meet the conditions of a leader in Africa.

Hamill says the following were the conditions that South Africa needed to meet to become a leader in Africa: “The country would have had to view itself as a hegemon and be prepared to assert a strong claim to African leadership; acquire sufficient material power to make its hegemonic aspirations credible, as well as the ability to translate that power into concrete policy outcomes; and convince other African states to accept its leadership as beneficial for the entire region.

“The country would also have to demonstrate strong ideational appeal within the region, allowing it to build coalitions that promote core norms and values; and help stabilise the continent through the provision of public goods, particularly economic development, and mechanisms to maintain security and order.”

Under the ANC government South Africa has failed miserably to meet any of the above conditions of leadership.

It is largely because of the strengths and sophistication of the country’s private sector and academia that the world still invites the South African government to sit in its high councils.

Why ANC economic policies failed

Contradictions between African nationalism and business

The main contradiction in the South African political economy is the struggle between the backward-looking African nationalism of the ANC, which tries to right past wrongs through which it benefits, and the country’s forward-looking private business which operates on the premise that investment made today will yield profit in the future.

African nationalists want to be paid now by business for pain suffered in the past while business wants to invest its money now so it can make a profit in the future.

In this clash of the elephants, it is the grass, in other words, the ordinary people that suffer.

Nationalism is an ideology of the elite that is driven by a deep sense of grievance for being excluded by a politically dominant group or groups – in our case by British colonialists and later Afrikaner nationalists – from enjoying the political, social, and economic benefits in a given society. Prior to 1994 when the ANC gained control of state power, the African nationalist elite was excluded from political power, and it was also excluded from owning property. To fight against these exclusions the African nationalist elite mobilised other aggrieved social groups into a social and political movement to fight for inclusion.

African nationalist elite comprised African, coloured and Indian professionals, traders, intelligentsia, and leaders of faith-based organisations. The African nationalist elite mobilised the mass of the urban and rural working class, peasants, youth, and students to join it in the fight against exclusion from enjoying the fruits created primarily by British colonialism in the 19th and early 20th Centuries.

It is often forgotten that the South African economy was not created by Afrikaner or African nationalists. The South African economy – whose backbone remains the exploitation of the country’s vast mineral resources through cheap, largely migrant, black labour – was created by the British during the last quarter of the 19th Century when they established the country’s vast mining industry.

Since the British relinquished political control of South Africa in 1910, South African governance has been dominated by nationalism – first Afrikaner nationalism, which ruled between 1910 and 1994, and now by African nationalism which has ruled South Africa since 1994.

African nationalist agenda 

Top of the list for African nationalism in 1994 was the democratisation of the political system.

Democratisation of the country’s political system was used to eliminate all forms of racial discrimination against Africans, coloureds and Indians. Democratisation opened access to employment opportunities for all races in the public sector. It compelled the state to provide education, healthcare and other social services that had disproportionately been supplied to whites only.

The state was also used to address the pent-up consumption demands of the African elite and its allies that had been suppressed for more than a century since the inception of the mining industry.

Since the African elite had been excluded from property ownership for centuries, protection of property rights was very low on its list of priorities.

The African elite was not opposed to capitalism, a point Nelson Mandela made repeatedly. He said it was only opposed to the exclusion of Africans, coloureds, and Indians from becoming capitalists.

Another point Mandela stressed was that nationalisation as envisaged in the Freedom Charter was not intended to create a socialist economy but to achieve the opposite. He said its intention was to open the economy to all South Africans by breaking up the stranglehold over economic opportunities by white-controlled cartels and oligopolies.

Also low on the list of priorities of the African nationalist elite was the profitability of the country’s businesses.

Democratisation thus created different challenges in the relationship between business and African nationalism. There had been conflicts been business and Afrikaner nationalism, but these were not as threatening since Afrikaner nationalist elite were property owners and therefore had common interests with business. Differences between business and African nationalism were more threatening to business because business felt politically marginalised. Democracy concentrated political power in the hands of the black majority that business itself had been party to exploiting.

Democracy in South Africa, far from creating a business environment of certainty and stability, left business feeling exposed to potential asset seizure and onerous taxes by the all-powerful but propertyless African nationalist elite that ruled practically with no credible opposition.

Before long, the fears of business were confirmed by rising corruption among the African governing elite and gross mismanagement, especially at local government level and of state-owned enterprises that provided electric power, and mismanagement of state-controlled rail and air transport as well as other social and economic infrastructure needed by business to operate, such as broadband, public broadcasting and the post office.

Democracy also came at other direct costs to business. The new African nationalist rulers used the state to satisfy pent-up black consumption by augmenting the size of public sector employment as well as its remuneration.

The size of the public service thus ballooned, its remuneration growing exponentially, overtaking private sector remuneration in many categories.

According to the Organisation for Economic Co-operation and Development (OECD), a Paris-based think tank of developed countries, compensation for general government employees in South Africa, at more than 14% of GDP in 2015, was the highest in the world. Other countries at similar level of development as South Africa paid their public employee 5-7% of GDP.

Compensation of general government employees, 2015

Source: IMF, Government Finance Statistics

This huge consumption-driven expenditure was made possible by the new African nationalist elite using its political power to tax business and the managerial and professional classes and by growing public debt as well as the creation of credit.

Vast resources were therefore transferred from production in the real economy to consumption by households and by the state, leading to a great increase of household consumption as a proportion of GDP. This reallocation of resources to consumption resulted in stagnation of gross fixed capital formation in the economy, which was at standstill since the late 1970s. This hobbled the growth of the economy, resulting in among other things ageing capital equipment across the economy.

There were however a few years when there was significant economic growth, for example from 2004 to 2008, but much of this was driven more by an increase in commodity prices than by renewed confidence in South Africa.

The political changes of the last 28 years have overall impacted negatively on the economy leading to stagnation and deindustrialisation. The side effects of this are many – we do not need to go into them here. It is sufficient to say that among the many consequences are capital flight, the emigration of skilled people, and levels of crime especially murder that approximate those of countries at war.

Nationalism and South Africa’s economic development

South Africa is the most unequal country in the world. It has some of the highest unemployment rates in the world. This is the legacy of 110 years of African and Afrikaner elite rule. Why should the regime of inequality and unemployment change if African nationalist rule continues for many more years?

The following diagram shows us the structure of the stunted society nationalism built in South Africa.

There is nothing like it anywhere else in the world.

Social structure of South Africa, 2014

Source: Statistics SA

The elite is made up of people in the public and private sectors who earn more than R60 000 a month and number 105 000; the middle class earn between R11 500 and 60 000 a month and number 2 310 000; blue collar workers earn less than R11 500 and number 9 005 000; underclass and unemployed earn undetermined amount and number 11 756 000; independent professional and NGOs number 432 000.

The use of the state by South Africa’s two elites during the last hundred or so years achieved one very important outcome: it constrained the ability of the economy to develop to its full potential.

The insatiable demand for cheap black labour by the Afrikaner elite and their allies and partners in the mining sector – while enabling a certain amount of economic development to take place especially in agriculture, mining, urban and rural infrastructure – hobbled the broader and deeper development of South Africa by constraining the development of the country’s human capital. Job reservation and many misguided education policies condemned South Africa to relatively lower skill levels of development such as extractive industries, assembly, construction, public sector administration, and trade.

As a result of its human capital development inhibiting policies, the South African economy lacks the complexity of the newer economies of the Asian Tigers.

South Africa has therefore come to increasingly depend on the Asian Tigers for capital goods, telecommunication equipment, computers, transport equipment, consumer electronics, white goods, and many other manufactured products.

It is therefore no accident that South Africa in its relationship with South Korea, a recent newcomer to industrialisation, is an importer and consumer of Korea’s sophisticated manufactured products while South Africa supplies Korea with unprocessed or semi-refined mineral products.

The African elite freed the labour market and facilitated negotiations between management and labour in the normal operations of firms, however it continued to hobble the economic development of the country by diverting much of the economic surplus through the tax system, from investment to consumption, especially consumption by the African elite and middle class, in an attempt to equalise their consumption to that of the white middle class and upper middle class.

The state’s public education policies under the rule of the African elite continued to undermine the development of the country’s human capital by experiments such as outcome-based education and the lowering and manipulation of pass rates.

Most importantly, the African elite disincentivises entrepreneurship among blacks with policies of black economic empowerment and affirmative action. Not surprisingly there are hardly any new significant companies being created in South Africa.

South Africa today has rightly been described (by the late economist and writer Professor Sampie Terreblanche) as an enclave economy that primarily services the consumption needs of its relatively small black and white middle class and upper class while a large part of the population is locked into unemployment, underemployment, poverty, and underdevelopment in rural and urban areas due to low investment levels in the economy as a percentage of GDP.

There is therefore no reason to presume that the ANC government would do things differently if it continued to rule for another 28 years or even for 50 years.

Comparison of GDP, South Korea and South Africa (US$bn)

Source: Kerry Baldwin, Letsema Consulting

South Africa’s top exports to South Korea are ores, slag and ash; iron and steel; pearls, precious stones, metals and coins; and mineral fuels, oils and distillation products.

Top imports into South Africa from South Korea are machinery, nuclear reactors, boilers; vehicles other than railway and tramway; electrical and electronic equipment; and plastics.

A new charter for consolidated democracy and economic development

For South Africa to break out of this nationalist paradigm and industrialise and modernise its society a number of things must happen:

  1. Electoral reforms to introduce mixed constituency and proportional representation at national and provisional levels.
  2. Its education, health care, transport and electric power supply systems must be overhauled and redesigned.
  3. Its public services, including traditional leaders’ sector, must be reconfigured to serve the people.
  4. Its economic relations with its Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (Comesa) neighbours must be renegotiated and restructured.
  5. Its trade and investment relations with non-African partners must also be renegotiated.
  6. The economy must be restructured to be more investment driven rather than consumption and finance driven, and black economic empowerment’s demands on foreign investors should be phased out.
  7. Business development plan to grow employment and phase out export of mineral ores.
  8. Introduce national service for 18-year-olds of both sexes.

Moeletsi Mbeki

Moeletsi Mbeki is deputy chair of the South African Institute of International affairs, an independent think tank based at Wits University in Johannesburg.

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South Africa is yet again at a crossroads. This means South Africans must make a major decision regarding their future.

At the last crossroads in 1994, South Africans had hoped for a bright future that democracy would bring about. Large numbers flocked to the polls and 62.65% of them voted for the African National Congress (ANC). Ten years later an even larger number, 69.7%, voted for the ANC to bring about the promised land South Africans had fought for during 300 years of struggle.

South Africans have now reached another crossroads – brought about by the failure of the ANC government that South Africans had placed so much faith in to deliver on its promise of a better life for all.

ANC government failure and the cost to South Africa

Twenty years ago, South Africa was the largest economy in Africa by far. It had the most developed and diversified manufacturing sector; it had the largest railway network on the continent and one of the largest in the world; it was the largest producer of electricity in Africa; it had the largest port in Africa, Durban.

By 2019, a year before the Covid-19 virus struck, South Africa under ANC government had gone into steep decline. Misguided economic policies led to employment collapse; for example, in the footwear sector, where employment fell from 27 882 in 1995 to a mere 12 035 in 2002. Today, South Africa has the highest unemployment rate in the world and not surprisingly 27% of children under five are stunted as a result of extensive malnutrition.

South Africa was overtaken by Nigeria in 2013 as the leading economy in Africa. It was later also overtaken by Egypt in 2020.

Its manufacturing sector had shrunk from 20% of gross domestic product (GDP) in 1994 to 13% of GDP in 2021; South Africa’s railway network was ravaged by mismanagement and lack of maintenance so that most of the country’s freight moved on road; the state-owned electricity company became a byword for incompetence.

The Port of Durban and other South African ports, according to a 2021 study by the World Bank, were among the least efficient ports in Africa and the world. South African ports were ranked as follows: Ngqura 363, Durban 364 and Cape Town 365 out of 370 ports worldwide. The highest ranked African port was Djibouti, which is ranked number 19.

The failure of the ANC government was not restricted to economic failures, it extended to the critical area of human security. In 1990 South Africa had one of the most developed militaries. It could field a well-trained and well-equipped army of half a million soldiers. It had highly developed military industries that had grown notwithstanding international sanctions.

Today the South African army has been described as a welfare agency rather than a warfare agency.

Its army of 81 500 (66 500 active, 15 000 reserve) is ill-equipped, unhealthy, aged, and unfit. Most of its active service personnel are above the age of 40, and so are their fighting vehicles. The defence budget has collapsed from 2.6% of GDP in 1994 to 0.93% of GDP in 2019/2020.

The equipment procured for the air force and navy in the early 2000s is all but inoperative due to lack of spare parts and lack of qualified personnel to maintain and operate it, according to Lindy Heinecken, author of South Africa’s Post-Apartheid Military: Lost in Transition and Transformation. Less than a third of the 37 Oryx helicopters are operational; only five of the 26 Gripen fighter jets are operational; and only five Hawk trainers out of 24 are operational. Only one of the four navy frigates is in service.

Anyone can walk across South Africa’s borders and do practically as they wish once inside the country. Foreign poachers kill hundreds of rhinos every year. Importers of heroin and other drug merchants have a free run of the country.

When the orgy of looting, violence, and destruction of commercial property and infrastructure in July 2021 erupted in the provinces of Gauteng and KwaZulu-Natal, the ANC government was paralysed and did not know what to do.

It issued an order to the police in Durban and Pietermaritzburg to do nothing. The police and the army made cameo appearances at riot scenes.

In a period of eight days when the two provinces were engulfed in riots more than 340 people were killed in the mayhem, many trampled to death during the looting, others killed by vigilante groups and private security companies, some burnt in the fires that destroyed malls and distribution centres. According to insurance company Allianz Global Corporate & Speciality, property worth US$1.7 billion was destroyed.

The July 2021 riots that followed the arrest of former president Jacob Zuma confirmed what many people had suspected for a while – that South Africa is ruled by a failed government that is not capable of providing security to life and limb of citizens, is not capable of protecting the country’s assets, and has lost control of the country’s borders.

Allianz estimates that social upheavals are here to stay.

In the increasingly unstable world that South Africa is also part of, a failed government adds to the dangers the country faces.

“Incidents of social unrest are unlikely to abate any time soon given the aftershocks of Covid-19, the cost-of-living crisis and the ideological shifts that continue to divide societies around the world,” writes Allianz. “Business needs to be alert to any suspicious indicators and designate clear pathways for de-escalation and response which anticipate and avert the potential for personnel to be injured, and or, damage to business and personal property.”

This is very good advice, but business on its own cannot provide the security that is the responsibility of government to provide. The message should therefore be clear to the country: a government that is not capable of providing security to the nation must be replaced democratically by one that can.

Key indicators of ANC government failure are in the areas of security, international relations, and economic policy. These three are a crucial measure for government performance because they cannot be outsourced.

We have seen above how the government has failed to provide security; it has fared no better in international relations.

ANC government’s floundering foreign policy

In 1990 South Africa was a giant in Africa. It had one of the largest armies on the continent, with a sophisticated industrial military complex. In 1994, after years of apartheid, it emerged as a credible democracy with a leader, Nelson Mandela, who after many decades of prosecution by the apartheid regime, was preaching reconciliation and nation building.

For several years, Africa and the world adored South Africa and looked forward to it becoming Africa’s lodestar. As we have seen, since Mandela, South Africa has fretted away whatever strengths it had. Today South Africa has been described as Africa’s lost leader.

According to James Hamill, in his book Africa’s Lost Leader; South Africa’s Continental Role Since Apartheid, South Africa has failed to meet the conditions of a leader in Africa.

Hamill says the following were the conditions that South Africa needed to meet to become a leader in Africa: “The country would have had to view itself as a hegemon and be prepared to assert a strong claim to African leadership; acquire sufficient material power to make its hegemonic aspirations credible, as well as the ability to translate that power into concrete policy outcomes; and convince other African states to accept its leadership as beneficial for the entire region.

“The country would also have to demonstrate strong ideational appeal within the region, allowing it to build coalitions that promote core norms and values; and help stabilise the continent through the provision of public goods, particularly economic development, and mechanisms to maintain security and order.”

Under the ANC government South Africa has failed miserably to meet any of the above conditions of leadership.

It is largely because of the strengths and sophistication of the country’s private sector and academia that the world still invites the South African government to sit in its high councils.

Why ANC economic policies failed

Contradictions between African nationalism and business

The main contradiction in the South African political economy is the struggle between the backward-looking African nationalism of the ANC, which tries to right past wrongs through which it benefits, and the country’s forward-looking private business which operates on the premise that investment made today will yield profit in the future.

African nationalists want to be paid now by business for pain suffered in the past while business wants to invest its money now so it can make a profit in the future.

In this clash of the elephants, it is the grass, in other words, the ordinary people that suffer.

Nationalism is an ideology of the elite that is driven by a deep sense of grievance for being excluded by a politically dominant group or groups – in our case by British colonialists and later Afrikaner nationalists – from enjoying the political, social, and economic benefits in a given society. Prior to 1994 when the ANC gained control of state power, the African nationalist elite was excluded from political power, and it was also excluded from owning property. To fight against these exclusions the African nationalist elite mobilised other aggrieved social groups into a social and political movement to fight for inclusion.

African nationalist elite comprised African, coloured and Indian professionals, traders, intelligentsia, and leaders of faith-based organisations. The African nationalist elite mobilised the mass of the urban and rural working class, peasants, youth, and students to join it in the fight against exclusion from enjoying the fruits created primarily by British colonialism in the 19th and early 20th Centuries.

It is often forgotten that the South African economy was not created by Afrikaner or African nationalists. The South African economy – whose backbone remains the exploitation of the country’s vast mineral resources through cheap, largely migrant, black labour – was created by the British during the last quarter of the 19th Century when they established the country’s vast mining industry.

Since the British relinquished political control of South Africa in 1910, South African governance has been dominated by nationalism – first Afrikaner nationalism, which ruled between 1910 and 1994, and now by African nationalism which has ruled South Africa since 1994.

African nationalist agenda 

Top of the list for African nationalism in 1994 was the democratisation of the political system.

Democratisation of the country’s political system was used to eliminate all forms of racial discrimination against Africans, coloureds and Indians. Democratisation opened access to employment opportunities for all races in the public sector. It compelled the state to provide education, healthcare and other social services that had disproportionately been supplied to whites only.

The state was also used to address the pent-up consumption demands of the African elite and its allies that had been suppressed for more than a century since the inception of the mining industry.

Since the African elite had been excluded from property ownership for centuries, protection of property rights was very low on its list of priorities.

The African elite was not opposed to capitalism, a point Nelson Mandela made repeatedly. He said it was only opposed to the exclusion of Africans, coloureds, and Indians from becoming capitalists.

Another point Mandela stressed was that nationalisation as envisaged in the Freedom Charter was not intended to create a socialist economy but to achieve the opposite. He said its intention was to open the economy to all South Africans by breaking up the stranglehold over economic opportunities by white-controlled cartels and oligopolies.

Also low on the list of priorities of the African nationalist elite was the profitability of the country’s businesses.

Democratisation thus created different challenges in the relationship between business and African nationalism. There had been conflicts been business and Afrikaner nationalism, but these were not as threatening since Afrikaner nationalist elite were property owners and therefore had common interests with business. Differences between business and African nationalism were more threatening to business because business felt politically marginalised. Democracy concentrated political power in the hands of the black majority that business itself had been party to exploiting.

Democracy in South Africa, far from creating a business environment of certainty and stability, left business feeling exposed to potential asset seizure and onerous taxes by the all-powerful but propertyless African nationalist elite that ruled practically with no credible opposition.

Before long, the fears of business were confirmed by rising corruption among the African governing elite and gross mismanagement, especially at local government level and of state-owned enterprises that provided electric power, and mismanagement of state-controlled rail and air transport as well as other social and economic infrastructure needed by business to operate, such as broadband, public broadcasting and the post office.

Democracy also came at other direct costs to business. The new African nationalist rulers used the state to satisfy pent-up black consumption by augmenting the size of public sector employment as well as its remuneration.

The size of the public service thus ballooned, its remuneration growing exponentially, overtaking private sector remuneration in many categories.

According to the Organisation for Economic Co-operation and Development (OECD), a Paris-based think tank of developed countries, compensation for general government employees in South Africa, at more than 14% of GDP in 2015, was the highest in the world. Other countries at similar level of development as South Africa paid their public employee 5-7% of GDP.

Compensation of general government employees, 2015

Source: IMF, Government Finance Statistics

This huge consumption-driven expenditure was made possible by the new African nationalist elite using its political power to tax business and the managerial and professional classes and by growing public debt as well as the creation of credit.

Vast resources were therefore transferred from production in the real economy to consumption by households and by the state, leading to a great increase of household consumption as a proportion of GDP. This reallocation of resources to consumption resulted in stagnation of gross fixed capital formation in the economy, which was at standstill since the late 1970s. This hobbled the growth of the economy, resulting in among other things ageing capital equipment across the economy.

There were however a few years when there was significant economic growth, for example from 2004 to 2008, but much of this was driven more by an increase in commodity prices than by renewed confidence in South Africa.

The political changes of the last 28 years have overall impacted negatively on the economy leading to stagnation and deindustrialisation. The side effects of this are many – we do not need to go into them here. It is sufficient to say that among the many consequences are capital flight, the emigration of skilled people, and levels of crime especially murder that approximate those of countries at war.

Nationalism and South Africa’s economic development

South Africa is the most unequal country in the world. It has some of the highest unemployment rates in the world. This is the legacy of 110 years of African and Afrikaner elite rule. Why should the regime of inequality and unemployment change if African nationalist rule continues for many more years?

The following diagram shows us the structure of the stunted society nationalism built in South Africa.

There is nothing like it anywhere else in the world.

Social structure of South Africa, 2014

Source: Statistics SA

The elite is made up of people in the public and private sectors who earn more than R60 000 a month and number 105 000; the middle class earn between R11 500 and 60 000 a month and number 2 310 000; blue collar workers earn less than R11 500 and number 9 005 000; underclass and unemployed earn undetermined amount and number 11 756 000; independent professional and NGOs number 432 000.

The use of the state by South Africa’s two elites during the last hundred or so years achieved one very important outcome: it constrained the ability of the economy to develop to its full potential.

The insatiable demand for cheap black labour by the Afrikaner elite and their allies and partners in the mining sector – while enabling a certain amount of economic development to take place especially in agriculture, mining, urban and rural infrastructure – hobbled the broader and deeper development of South Africa by constraining the development of the country’s human capital. Job reservation and many misguided education policies condemned South Africa to relatively lower skill levels of development such as extractive industries, assembly, construction, public sector administration, and trade.

As a result of its human capital development inhibiting policies, the South African economy lacks the complexity of the newer economies of the Asian Tigers.

South Africa has therefore come to increasingly depend on the Asian Tigers for capital goods, telecommunication equipment, computers, transport equipment, consumer electronics, white goods, and many other manufactured products.

It is therefore no accident that South Africa in its relationship with South Korea, a recent newcomer to industrialisation, is an importer and consumer of Korea’s sophisticated manufactured products while South Africa supplies Korea with unprocessed or semi-refined mineral products.

The African elite freed the labour market and facilitated negotiations between management and labour in the normal operations of firms, however it continued to hobble the economic development of the country by diverting much of the economic surplus through the tax system, from investment to consumption, especially consumption by the African elite and middle class, in an attempt to equalise their consumption to that of the white middle class and upper middle class.

The state’s public education policies under the rule of the African elite continued to undermine the development of the country’s human capital by experiments such as outcome-based education and the lowering and manipulation of pass rates.

Most importantly, the African elite disincentivises entrepreneurship among blacks with policies of black economic empowerment and affirmative action. Not surprisingly there are hardly any new significant companies being created in South Africa.

South Africa today has rightly been described (by the late economist and writer Professor Sampie Terreblanche) as an enclave economy that primarily services the consumption needs of its relatively small black and white middle class and upper class while a large part of the population is locked into unemployment, underemployment, poverty, and underdevelopment in rural and urban areas due to low investment levels in the economy as a percentage of GDP.

There is therefore no reason to presume that the ANC government would do things differently if it continued to rule for another 28 years or even for 50 years.

Comparison of GDP, South Korea and South Africa (US$bn)

Source: Kerry Baldwin, Letsema Consulting

South Africa’s top exports to South Korea are ores, slag and ash; iron and steel; pearls, precious stones, metals and coins; and mineral fuels, oils and distillation products.

Top imports into South Africa from South Korea are machinery, nuclear reactors, boilers; vehicles other than railway and tramway; electrical and electronic equipment; and plastics.

A new charter for consolidated democracy and economic development

For South Africa to break out of this nationalist paradigm and industrialise and modernise its society a number of things must happen:

  1. Electoral reforms to introduce mixed constituency and proportional representation at national and provisional levels.
  2. Its education, health care, transport and electric power supply systems must be overhauled and redesigned.
  3. Its public services, including traditional leaders’ sector, must be reconfigured to serve the people.
  4. Its economic relations with its Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (Comesa) neighbours must be renegotiated and restructured.
  5. Its trade and investment relations with non-African partners must also be renegotiated.
  6. The economy must be restructured to be more investment driven rather than consumption and finance driven, and black economic empowerment’s demands on foreign investors should be phased out.
  7. Business development plan to grow employment and phase out export of mineral ores.
  8. Introduce national service for 18-year-olds of both sexes.

Moeletsi Mbeki

Moeletsi Mbeki is deputy chair of the South African Institute of International affairs, an independent think tank based at Wits University in Johannesburg.

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