SA’s deepest economic woes such as entrenched unemployment cannot be remedied without a broad policy reset
President Xi Jinping wants to pivot China’s economy to favour domestic-led growth but recent data suggests it is unworkable. For similar reasons, our deepest economic woes can’t be remedied without a broad policy reset.
Countries avoid ultra-elevated youth unemployment as it is so resistant to solutions and socially destabilising. China’s is ruffled by youth unemployment now exceeding 20%. Ours is three times higher.
We should be tracking both the number of young adults who add value to exports and those that are long-term unemployed. Unlike in China, most of SA’s unemployed youths have been jobless for at least five years. Few of China’s 25-year-olds are headed towards permanent marginalisation and this traces to their prowess at value-added exporting.
As SA’s medium-term economic growth is expected to lag population growth, our job market will remain nasty. “Never-been-employed” young adults amid a sea of “never-been-employed” young adults become rebellious.
China’s rising youth unemployment — despite a shrinking workforce — reflects greater reliance on domestic consumption. Similarly, “localisation” policies explain our atrocious youth unemployment being perilously entrenched.
We are in desperate need of steadily improving household balance sheets alongside rising worker productivity. Our government’s policies spurn such virtuous cycle fundamentals whereas in China they have flourished.
Eventually, growth can become more reliant on domestic consumption. This, however, requires that worker productivity and household savings continue increasing while investment returns compound.
In about 1990, Japan’s stock market and property bubbles both burst at levels considerably higher than current ones. China’s property market is similarly vulnerable due to a shrinking population that is less affluent and ageing faster than Japan’s.
Remains indifferent
Most SA households save little while the trajectory of our worker productivity reflects obscenely elevated youth unemployment — with dismal education outcomes providing a further drag. Even if we somehow achieve, say, five years of 5% growth, unemployment among twentysomethings would remain ultra elevated, threatening stability.
The ANC remains indifferent to the dire effects of borrowing costs for the government and households compounding at prohibitively high rates despite more than a decade of stagnant per capita income — while declining workforce participation undermines productivity.
As both harbour much racial inequality, the ANC leaders may be tempted to see SA’s economy as a smaller version of America’s. Yet the US economy reflects many generations of rising worker productivity amid high workforce participation leading to much wealth and reasonable education outcomes.
The US’s sub-prime crisis persuaded China’s leaders that they were better at wealth management. But families generally accumulate wealth by borrowing aggressively to purchase a home. The US approach may seem “cowboy-ish” to stability-obsessed policymakers in Beijing, but US stock indices and housing prices quickly recovered from their sharp 2008-ish dips.
As our economic discourse fixates on inequities amid public sector corruption and incompetencies, we ignore the basics and therefore lack a plan to avoid half of the next generation becoming economic zombies. We must acknowledge that relying on domestic consumption to spur sustainable growth is unworkable.
Stranded assets
Domestic consumption seems stuck under 40% of GDP in China compared with almost 70% in the US. As SA’s percentage prematurely rivals the US’s, if we were to swiftly abolish public sector corruption and incompetence, GDP and employment would enjoy modest, one-off boosts. As in Asia, the conditions necessary to sustain meaningful progress will remain absent until SA has an abundance of workers adding value within global supply chains.
Most of our young adults risk becoming stranded assets. As the proceeds service debt and fund imports, our commodity exports sedate a needed sense of urgency while stoking misplaced hopes. If commodity export earnings surged, the impact on employment would be meagre. Rather, the sub-subsistence grants that many millions rely on would be nudged higher.
Pre-1994 SA was hostile towards trickle-down economics. Now, investment-led growth can benefit large companies but our economy is still among the world’s worst at creating inclusive growth. Most of our high income earners are now black yet we remain number one at income inequality. This, with having the world’s most severe youth unemployment crisis, reflects how the ANC’s mix of localisation and redistribution policies entrench enormous poverty. Their patronage-styled version of trickle-down benefits is sub-subsistence grants.