Trading with poor neighbours will not yield the lucrative benefits of selling to wealth clusters around the globe
Tucked between the lines of articles about tariffs is a reminder that the global economy has been subtly, yet profoundly, reconfigured. That this is underappreciated is evident from hopes being expressed of having African consumers help fuel SA’s growth.
International trade has pummelled global poverty — but at the cost of narrowing options for the remaining high-poverty areas. Not so long ago, isolated villagers could make durable goods, such as furniture, while others produced food and clothes. Career prospects were meagre but so were barriers to employment. Then industrialisation, followed by globalisation, provided high-trajectory upliftment paths by increasing productivity to the point that small teams today can rarely compete with mass-produced imported goods.
As industrialisation provoked urbanisation and then globalisation, high-poverty areas must now either add value to goods and services destined for high-income markets or contend with persistent poverty. Just as it became impossible for isolated rural communities to keep up a century ago, poverty alleviation is now tied to global trade. What is even less well appreciated, but central to why tariffs have become so potent, is how global growth is primarily fuelled by a few clusters of massive purchasing power.
For most countries, significant trade deficits rather quickly become unsustainable. Conversely, the US has been able to consistently run huge trade deficits as the dollar is the world’s premier reserve currency. Many countries have sustained high growth by aggressively exporting to the US while accumulating US treasury securities to help immunise their economies against shocks and recessions. This has been central to the Asian growth miracle.
Sanctions under apartheid precluded SA from copying the Asian export model. After 1994, excessive prioritisation of redistribution hobbled growth, and corruption then crippled it. This, along with antiquated anticolonial sentiments, thwarted adequate support for value-added exporting to wealthy Western nations.
Africa’s potential as a target market is overstated. Its population is more than 15% of the world’s and very young, and its share of global GDP is less than 3%. While several of the world’s fastest-growing economies are in Africa, this is also misleading as their per capita incomes aren’t on track to reach the global average this century.
More to the point, Africa has less than 1% of the world’s discretionary income. From both a self-interested and moral perspective, SA should target wealthy consumer markets while integrating with neighbouring economies in pursuit of regional stability.
It is tempting to consider how post-1994 policies could have pivoted firmly towards creating a gateway between the continent and the world. If so, SA and its neighbours might now be benefiting from many supply chains diversifying away from China. Yet such hindsight must not distract from embracing the far larger opportunities that are now emerging.
These points are not abstract; they are as simple as engaging new possibilities while targeting prospective customers with significant purchasing power. SA doesn’t have the domestic purchasing power to curb its extreme volumes of unemployment and poverty. Nor is selling to poor neighbouring nations a workable option.
Poverty has been plunging across the globally integrated parts of the world while expanding in SA and across sub-Saharan Africa. Pursuing greater African integration cannot noticeably boost growth unless it is accompanied by much greater global integration.
The least difficult way to sell into affluent markets is to carve out niches in global supply chains. New technologies induce new opportunities. As the World Bank’s recent African Pulse publication highlights, the unfolding digital economy can sharply increase per capita incomes across the region. Digital access to distant consumers can unlock commercial opportunities even for remote rural villages.
How exactly will this create jobs? As SA’s policymakers cannot envisage a detailed response, they instead embrace the outdated industrial fantasies of their political minders. Rather they should humbly resist pressure to identify innovations which can add fresh value to evolving global supply chains.
Such 21st-century creativity flows unpredictably from waves of mostly young entrepreneurs. Unfortunately, SA’s policies channel such vital energies towards taking market share in traditional sectors from well-resourced incumbents amid a stagnant domestic economy.
Even the ultraclever, richly resourced young brains at Google or Apple do not fret about what apps will be built to play on the devices their software powers. Instead they evolve new forms of infrastructure connecting entrepreneurs with deep-pocketed, distant consumers.
Policymakers in many countries, including a couple in this region, have woken up to the importance of providing such hard and soft infrastructure for their young people to engage the world. SA must similarly pivot to face bright prospects.