China’s challenging the world order presents profound risks and opportunities for South Africa.
Our policies must blend a realistic worldview with fluency in 21st century economic development basics. Our political elites are strangers to both.
China’s world-changing economic success reflects their prioritising: value-added exporting; competitiveness; importing – and developing locally – skills and knowledge; eradicating poverty through building a productive middle class; and a healthy savings rate. Our policy-makers favour redistribution as a growth substitute.
No one better understands how misguided our policies and practices are than China’s leaders. That country’s corruption challenges are substantial yet it benefits greatly from long having a merit-focused culture which invented civil service examinations many hundreds of years ago.
Until their communist government suddenly embraced capitalism in the late 1970s, over 80% of Chinese had always been extremely poor, versus less than one percent today. It will also take decades to reduce our unemployment and poverty to normal levels. Yet progress is on hold, pending policy pivots.
The ANC’s lack of a merit-centred culture traces to its patchy transition from a liberation movement to a governing party. This is amplified by its policy-makers’ outdated belief that South Africa is an inherently wealthy country. Many former colonies are now top-performing economies pursuing next-wave possibilities, whereas our leadership is fixated on the past, and on extraction – from the ground and from others.
The ANC’s worldview reflects its being a collection of critics. Nearly everyone likes to travel, but for those whose embrace of foreign cultures is a fault-finding journey, seeing opportunities gives way to a deepening of biases. Whereas openness is central to keeping up, the ANC’s culture routinely elevates criticising above learning. Perpetuating this attitude at universities thwarts knowledge-hungry neurons.
Conversely, China’s pivot has been so successful that it now seeks to challenge the global order which was so supportive of its – and that region’s – stellar rise. What is being termed a new cold war is ratcheting up intensely with no resolution in sight. This presents an opportunity to reposition South Africa globally and regionally. This is unlikely, but doable.
Growth strategy
It was obvious 15 years ago that China would have to develop a new growth strategy. As the world’s number one manufacturer and exporter, taking market share from other countries would become progressively more difficult. Yet the compact between the Chinese government and its people has been that their lack of political representation would be offset by ongoing rapid growth.
The 2008 financial crisis was interpreted in Beijing as confirmation of their governing structure’s superiority to liberal democracy. Like most authoritarian governments, China’s leadership abhors turmoil. When a new leader needed to be chosen in early 2013, Xi Jinping prevailed by advocating using China’s manufacturing prowess and its highly centralised control to exploit vulnerabilities inherent to an open global trading system.
Recognition of Xi’s threatening democracies and the global trading system has been ratcheting higher. Last month’s meeting of G7 foreign ministers revealed much displeasure with China. Criticisms routinely focus on human rights violations and serious commercial aggressions.
Media outlets in Asia and beyond are now rife with speculation, spurred by rising military activity, that China might soon invade Taiwan. Taiwan is a small island devoid of natural resources. It is, however, highly strategic to the global economy as a top producer of semiconductors.
Most governments in other regions have become at least reasonably effective. In contrast, Africa is home to many countries which combine the key ingredients of ineffective governance: reliance on commodity exports; modest education outcomes; and limited integration within the global economy.
Borrowing money in a foreign currency to develop production capacity of a commodity creates dangerous exposures to volatile shifts in commodity prices, along with currency and interest rate shifts. Agricultural exporters also suffer from unreliable weather. Being centrally managed, and the top destination for raw materials, a more enlightened China could be a wonderful development partner for poor countries reliant on exporting one or two commodities.
Can benefit tremendously
Poor countries with modest savings can benefit tremendously from off-take agreements whereby investors are paid back based on production formulas. Such investments in poor countries should blend principles of multilateral lending with supply-chain-focused investing.
China has sought to out-manoeuvre Western lenders by offering African governments funding free of demands for better governance. There was always much potential for this to backfire economically. Viewed against a cold war backdrop, China’s African engagement strategy now looks geopolitically imprudent.
There is unlikely to ever be more potential for South Africa to provide regional leadership. Yet a very different mindset is required.