There are no realistic scenarios in which our domestic economy can sustain adequate employment growth.
It seems reasonable to presume that the way to increase jobs is to grow the economy. Yet low economic growth has merely amplified the deeper causes which explain South Africa having the world’s most severe − and perhaps most deeply entrenched − unemployment crisis.
The shortest path to uplift the majority of South Africans who are poor into a sustainable middle-class existence begins with commercially integrating many of our school leavers into the global economy. The bar for creating many digital jobs for our teenagers is plunging due to technological advances and Western demographics. The number of such jobs that can be created is not limited by the size of our economy and nor is it dependent on capital mobilisation.
Our unlikely 1990s political transition was impressive yet prospects for most of South Africa’s school leavers today are dire as our economy is structured in opposition to how 21st century economies prosper. Global growth today follows from upping productivity through partnering and competing internationally. The ANC emphatically rejected that path.
Commodity-dependent
Services dominate global growth whereas, according to the UN’s trade and development agency, “approximately 85% of the world’s least developed countries are classified as commodity-dependent, meaning that over 60% of their merchandise export revenue comes from commodities. In contrast, only about 13% of advanced economies fall into this category.”
The “resource curse” reflects such countries having highly volatile, yet generally overvalued, currencies. This undermines their attractiveness as production centres for value-added exporting, which is today’s primary development catalyst.
The deeper problem is that resource endowments tempt ruling elites to decouple their economic interests from those of their common citizens. Commodity exporting can fund legitimate government activities and much rent-seeking without needing to increase workforce productivity. In democratic countries, electoral accountability can then be subverted by creating a large patronage network. The lower the workforce productivity, for lack of opportunities, skills and jobs, the easier it is to create dependencies on government succour directed by ruling elites.
From its earliest days in government, it was understood that the former liberation movement had a political mandate to direct considerable redistribution. Yet many worried that ANC mismanagement would lead to high inflation and the rand crumbling or a sovereign debt credit crisis. No one anticipated rampant patronage inspiring a transition from sanctions to localisation − while globalisation and innovation waves would trigger extraordinary global upliftment through boosting productivity and employment. No one foresaw that post-apartheid South Africa would pursue isolation, thus triggering an unemployment crisis which is vastly more difficult to remedy than hyper inflation or a debt crisis.
Adding value
China sustained extraordinary growth over four decades through adding value to exports. Basic skills were employed − and then expanded upon − by serving the seemingly insatiable demand of Western consumers with their profound purchasing power. As India has demonstrated, whether the value is being added to services or manufactured goods is incidental. What is critical from a development perspective is that the consumer market being served has deep pockets. Also, upliftment and productivity benefits greatly from carving out niches, particularly as new products and services keep rapidly emerging.
The economic transition South Africa has needed to make is from excessive reliance on exporting commodities to identifying niches and developing the skills to be internationally competitive in those niches. The portion of our twentysomethings that adds value to exports is remarkably low − aside from those in the highly government-distorted automotive manufacturing sector. The Chinese started with toys and expanded greatly from there. More recently they have targeted solar panels and electric cars.
The good news is that waves of disruptive innovations continually provide opportunities to carve out new niches. Also, South Africa’s core asset is a glut of young labour at a time when most affluent countries are afflicted by a dearth of young workers.
Entrepreneurs are absolutely key to expanding jobs in South Africa, but this won’t happen if they continue to focus on domestic consumers. The ANC has recklessly overburdened our local consumers, taxpayers and investors − among their few remaining targets are pensions and property rights.
It is as if we are fishing in an overfished pond and looking to entrepreneurs to design ever finer-mesh nets to harvest ever younger fish − despite knowing there will be few jobs for the next generation of would-be fishermen. Entrepreneurs are powerless to expand our economy because the majority of our younger adults are poor, unemployed or both while most of those who are a bit better off routinely struggle to service excessive, and often excessively expensive, debt. Our top entrepreneurs displace lesser entrepreneurs and sometimes large competitors but there isn’t enough domestic spending power for them to flourish.
Even after sustaining extremely rapid growth over four decades, China’s domestic economy cannot generate sufficient demand to achieve anything resembling full employment. China remains highly dependent on value-added exporting to maintain growth momentum.
Investment-led growth
Promoting investment-led growth has been a well-reasoned campaign by business leaders to find common purpose with the ANC. They have used it to lobby for pro-business, pro-growth policies. While such efforts are helpful, they won’t generate many jobs unless the investments are supporting value-added exports. Such initiatives are rare here as the regulatory environment undermines our competitiveness. Access to capital would steadily improve if South Africa was successfully integrating into global supply chains.
Investors have spurned South Africa due to the ANC’s anti-business, anti-Western policies along with the resulting economic stagnation. This has raised our cost of capital while further undermining our appeal as a production centre for value-added exporting. Even resource-extraction companies have been dissuaded from doing business in South Africa.
The GNU, which is mostly an ANC-DA coalition government, was not widely anticipated but it is off to an encouraging, though somewhat clumsy, start. We now need a workable growth strategy, yet we haven’t adequately dissected why our economy has underperformed so horrendously.
As it tempts large-scale chaos, other countries go to great lengths to avoid anything resembling our level of entrenched unemployment. While it is in the interest of both parties to rapidly grow jobs, it seems that ANC leaders are struggling to fathom just how destructive their embrace of patronage alongside anti-Western positions has been.
Special dispensations
The DA should take a pragmatic line and advocate for special dispensations from anti-competitive regulations for all, and particularly for new, value-adding export initiatives. This can be packaged using the ANC’s preference for special economic zones (SEZs), but there should be no geographic requirements for South African exporters with special economic zeal.
We have such extreme unemployment because the ANC’s patronage-motivated policies resulted in overfishing in the small pond which is South Africa’s domestic economy while ignoring how exporting raw materials and importing finished products means that we are exporting jobs. Our new political dispensation must remove obstacles to entrepreneurs identifying value-adding export opportunities of all shapes and sizes.