Shawn Hagedorn says there is nothing inherently sustainable about mega construction projects which are politically motivated

President Ramaphosa declared last month, “We have a clear intention to turn our country into a construction site, as roads, bridges, houses, schools, hospitals and clinics are built, as broadband fibre is laid and as new power lines are installed.” A “clear intention” implies that Ramaphosa knows how to make his construction site dream viable.

Construction site imagery builds on Ramaphosa’s longstanding investment-led growth themes which have been broadly supported by big business and the DA – though investor enthusiasm remained subdued. As SA adjusts to a coalition style of government, both investors and voters will want to understand the business case and proposed benefits of government-hatched growth initiatives.

Pre-election surveys identified jobs as voters’ top concern. Making SA a construction site would create a lot of jobs – at least initially. But there is nothing inherently sustainable about mega construction projects which are politically motivated. Rather, they can only flourish as a consequence of broad and robust commercial growth. China’s extraordinary build out of infrastructure and fixed assets was made sustainable by that country becoming the world’s largest exporter of manufactured goods. Excessive construction has subsequently created a drag on China’s growth.

Exporting

The World Bank recently released a 233 page report advocating for SA to achieve its potential through exporting. Such a path could sustain high volume increases in employment on terms attractive to investors.

SA’s horrific unemployment reflects our consumers being tapped out. Exhausted domestic spending capacity is exacerbated by ultra-elevated unemployment and vice versa. Per capita income has stagnated since 2010 while excessive indebtedness further constrains buying power. There is nothing sustainable about seeking to remedy this through dipping into retirement savings to fund current consumption. 

We can only maintain strong growth through steadily increasing value-added exports. Exporting raw materials rarely promotes broad development – notwithstanding the 1970s and ‘80s seeming to inspire such beliefs. Most of today’s commodity dependent nations are afflicted with much patronage entrenching poverty. Our 1990s political transition should have provoked a pivot to value-added exporting but the ANC morphed from being a liberation movement into a disparate organisation united by patronage. 

Sharply increasing our commodity exports would produce encouraging GDP growth data but the multiplier effect would be meagre. SA’s household incomes are devastated by low workforce participation alongside  ‘balance sheet recession’ effects. They are overwhelmed by low net-worth alongside high debt service payments. Sharply increasing commodity export revenues would create a modest number of jobs while funding many grant payments. The overall impact on development would be negligible.

New leadership envisaged

A development model relevant to SA that inspires construction site images has been depicted by Dubai’s evolving skyline. The Middle East had long been seen as a risky region dependent on exporting hydrocarbons. Then, particularly in the early 1990s, new leadership envisaged Dubai’s geography from an international perspective and saw a trading hub.

Correspondingly, we see our unemployed school leavers as a liability whereas they are central to our achieving a vibrant economy. We have a glut of young workers at a time when many countries, particularly the affluent ones, have a shortage. Services dominate global job creation and an increasing portion of those can be done by digital nomads. 

Why do South Africans migrate to Dubai to perform digital jobs for companies headquartered in Asia or Europe? Constructing today’s Dubai necessitated legislation creating free trade zones and the attracting of many financial services and business process operations. 

Our obscene unemployment traces to anti-business policies reflecting ANC biases. Given the party’s liberation movement roots and its alliances with unions and the SACP, ANC leaders are loath to prioritise increasing productivity or competing internationally. A related issue is that the party’s electoral strategy relies heavily on creating dependencies. Thus, ANC policies deter investors while relying on grants to redress the unemployment, poverty and inequality which follows from resisting this era’s high volume development path, integrating into global supply chains through investing in workers’ ability to add value.

Major trends threaten commodity dependent nations. Globalisation has become central to economic growth as it increases worker productivity through specialisation while expanding the purchasing capacity of lower-income nations. Green policies are unkind to oil and coal exporters, among others. Digitisation in a services dominated global economy further challenges the patronage-driven politics of many commodity exporters. 

Heydays

The ruling elites of commodity exporting nations had been well positioned to make their citizens dependent on them. The ANC could also exploit historical injustices and identity politics to justify extensive patronage. But the commodity exporting heydays were in the 1980s. Most commodity dependent nations have subsequently underperformed and many have underperformed spectacularly. Countries today need to have a substantial portion of their young workers adding value in global supply chains. This is doubly relevant for commodity exporters with high youth unemployment.

SA has the world’s most entrenched youth unemployment crisis because ANC policies are incompatible with the World Bank’s argument that we must pursue export-led growth. The ANC’s preferred path would be to maintain its anti global integration policies known as localisation while increasing commodity exports. This could then provide the fiscal space to increase grants until they are closer to a subsistence level – which would do little to reduce unemployment.

Ramaphosa has not been able to sway the ANC toward a commercially robust heading. Will this prove easier within a coalition structure? The DA has internationally showcased Cape Town to great effect. The party’s expertise can help to advance SA’s global integration by competing effectively against the likes of Dubai. 

Along with favouring construction site imagery, the ANC also likes to promote special economic zones. SEZ structures can be combined with Dubai-like construction site inspiration to adopt the World Bank’s well-reasoned insights about exporting. We should have SEZ-styled free trade zones providing special dispensations from anti-competitive regulations for value-adding exporters anywhere in SA.

This would signal a very clear intention to develop commercially robust growth paths.