Binning the “failed state” label

20 December 2022

Thabo Mbeki used to highlight our country’s inequities by comparing SA to a two-story house. The subsequent declines are not captured by updating his metaphor to a dilapidated two-story house.

The “failed state” label is an internationally recognised category with murky, yet broadly accepted, criteria. However, as decapacitated as many aspects of our public sector and economy have become, the situation here is still far different from what Somalians have long endured. 

Designating SA as an emerging economy or upper-middle income nation is also misleading. Our per capita income peaked over a decade ago and, as the labour force is expected to outpace economic growth indefinitely, there is no rebound in sight. Most of our young adults don’t even earn a subsistence-level living. 

GDP ignores natural resource depletion

Capital market metrics and descriptors also fall short. If we consider that GDP calculations ignore how extraction activities deplete natural resource deposits, it becomes even harder to maintain the fiction that our economy, in the aggregate, creates wealth. Nor is it sensible to track our debt-to-GDP trajectory while ignoring how our long-term cost of capital exceeds our long-term growth trajectory. 

That is, we have long become accustomed to consuming seed corn. According to Collins Dictionary, “Seed corn is money that businesses spend at the beginning of a project in the hope that it will eventually produce profits.”

Capital markets rarely focus on high youth unemployment rates as this is usually a temporary symptom of low growth not an entrenched cause. Nor are capital market analysts well-equipped to interpret political biases dismissive of globally determined economic success factors. 

Djibouti

Only Djibouti, a deeply troubled country of barely a million people, has a youth unemployment rate higher than ours. SA is exceptionally unique - in a reckless way - as we accept that our youth unemployment rate will remain ultra elevated. 

Neither two nor ten years of moderately high inflation necessarily inflicts dangerous lasting damage. Both scenarios are manageable, as are the lingering effects of two years of high youth unemployment. Conversely, maintaining ultra elevated youth unemployment for ten years will wreak economic devastation of a type and magnitude which exceeds known solutions. 

One quite plausible scenario is a credit crisis, triggered by, among other things, a trough in commodity prices, leading to an IMF assisted restructuring plan and much financial repression. Many government and consumer loans would be written down with investors taking hard knocks - particularly bank shareholders. But there would still be a massive hole in the economy reflecting years of most young adults being sidelined. Flaccid growth and productivity would perilously fray constitutional protections.

When coping drowns aspirations

A young adult who, two years after leaving school has never been employed, is still highly trainable. Those amid a cohort where a majority remain unemployed ten years after leaving school will develop coping mechanisms which drown aspirations - while their aptitude for developing skills ratchet ever lower.

A poorly maintained container ship, in the mid-Atlantic, taking on water from a hole in the hull might therefore seem like an apt metaphor. Instead, we should visualise a twin-hulled sailboat that has capsized within our coastal waters.

As our export focus is not on adding value but on commodities more likely to be loaded onto bulk cargo ships, an ocean going container ship can’t portray our economy. A capsized catamaran sailboat better depicts our divided society with shared vulnerabilities. Submerged sails can symbolise our frustrated potential to harness power while reducing reliance on fossil fuels. Having capsized within our own coastal waters is a reminder of how we have long resisted this era’s emphasis on sustaining growth through global integration.

Few countries could imagine achieving our ultra-elevated level of youth unemployment. We have become inured to it while accepting the ANC’s framing the crisis as a tradeoff between a moral obligation to provide subsistence payments versus the need for fiscal rectitude. That none of our leaders propose adequate solutions amounts to our being dead in the water. Like most of our young adults, we lack a workable plan and this has enfeebled motivation.

Abundant blame traces to our dysfunctional politics supporting a dysfunctional government, yet this does not excuse our national dialogue having long adhered to fundamental misconceptions around 21st century economic development basics. In seeking to understand how we arrived where we are today, we should scrutinise how such misconceptions compounded to the point of our believing that sustaining obscene levels of youth unemployment is viable.

Lastly, a capsized catamaran is an apt metaphor as it highlights how we can’t rescue ourselves - but we can meaningfully assist and we are worth rescuing. Within a generation about 40% of the world’s young children will be in Africa. This, along with how services and digitalisation have become complimentary cornerstones to global growth, explains why market forces will ensure that the least globally integrated continent becomes far less of an outlier. Early indications suggest that this continent’s public and private sector leaders could be by-passed as school leavers carve out niches within international teams amid freshly envisaged offerings. 

Our shining moment on the international stage celebrated a political transition. This seems to have entrenched a mindset that our future prospects hinge upon remarkable political feats. But, as our political dysfunction now feeds on itself, millions of would-be voters are economically submerged. They rightly recognise that none of the political parties offer plans that can meaningfully upgrade their tragically meagre life prospects. 

Our response to rising concerns of becoming a failed state, should be a much better appreciation of why intense global integration is necessary to sustain high growth. Only through harnessing global market forces can we achieve adequate forward propulsion.