Fixating on how the ANC has mixed frequent corruption with infrequent competence obscures our nation’s most formidable threat: the consequences of entrenching ultra-elevated youth unemployment.
The ANC’s electoral clout has relied on massive patronage - most of which is perfectly legal. This has been effective against the DA, but the MK and EFF are keen to ‘out-patronage’ the ANC.
The expectations following an ANC and EFF national tie-up would swiftly provoke harsh reactions that could easily snowball. The MKP is more toxic still.
Whereas our dysfunctional politics and economics have been reinforcing each other, they must now be aligned constructively. What makes this so elusive?
The ANC has had three decades to create a large and growing middle class. As the ANC prioritized redistribution at growth’s expense, dozens of emerging economies soared and almost all outperformed ours. Productivity received little attention as identity politics clashed with accusations of corruption amid pervasive incompetence.
Permanent marginalisation
Improving living standards requires raising productivity either through increasing employment or skills. We have the world’s highest youth unemployment; about half of our young adults face permanent marginalisation.
While the ANC’s favouring of dependency over employment is irreconcilable with sustaining middle-class growth, the impact was partially postponed through households and government relying excessively on expensive debt to fund consumption. High-volume commodity exports also postponed the day of reckoning.
BHP not wanting to buy De Beers highlights how disruptive technology and shifting sentiments threaten mining-dependent economies. Talk of ‘blood diamonds’ and ‘dirty coal’ helped to hasten the adoption of industrial diamonds and renewable energy sources. Meanwhile, high-growth countries have embraced global integration increasingly spurred by the rapid expansion of digital services and, more recently, artificial intelligence.
Despite per capita income having stagnated for more than a decade, the ANC’s economic stewardship placed increasing reliance on a shrinking middle class through localization policies. Today’s key performance indicator for rapid-growth countries has been their high proportion of young adults who compete internationally by adding value to exports.
The economic development advantages of carving out and mastering niches in global supply chains are extraordinary. That the ANC categorically rejects this era’s wide-volume up escalator explains our dangerously entrenched youth unemployment crisis and, thus, our brittle political landscape.
Investment-led growth
Many of our top business executives, not unreasonably, sought common ground with ANC leaders through mutually pursuing investment-led growth. However, this path was never going to spur adequate growth or nearly enough new jobs. Rather, it was well-intentioned false advertising.
By attending investment conferences, ANC elites should have grasped how ill-conceived their policies were. Commercially sensible policy pivots might then have followed. Instead, our political elites chose to expand grants, launch the NHI, and allow people to access their pensions sooner.
The reluctance of capital to flow to our shores is a symptom. The underlying constraint is a lack of customers with purchasing power. This traces to ANC anti-competitive policies leading to would-be workers becoming dependent upon state handouts.
Funding patronage to buy electoral support was never sustainable. That path was washed away by an anti-ANC flood on 29 May. As the EFF and MKP are all too willing to flamboyantly embrace patronage, the ANC must either invite tragic consequences by aligning with them or begin to wean itself off patronage policies.
DA leaders have grasped that all may be lost before 2029. Where they have been caught off-guard traces to their having been playing a long game. They now need a plan to rapidly create millions of commercially viable jobs.
Despite it being quite unlikely that a best-case political outcome would lead to SA’s growth trajectory tripling to three or four percent, such an achievement would be very good for investors, while few of our many millions of unemployed young adults would benefit. “Fixing our economy” as measured by capital market metrics is the easier and less threatening challenge.
A majority of our young adults are stranded, and many of them are in KZN, a province well-acquainted with political killings. President Ramaphosa described the July 2021 riots, which left hundreds dead alongside billions of rands in damage, as an insurrection.
Might MKP’s presumed support from Moscow provide the impetus necessary to block the party from running KZN? If so, the province’s service delivery and job creation will both need to surge.
Uniting
The Ramaphosa faction of the ANC would soon be sidelined if the party aligns with the EFF or MKP. Whereas his willingness to consistently put party interests ahead of national interests has backfired, an interesting argument for the ANC elites supporting Ramaphosa and rejecting the EFF and MKP is that only his faction is truly committed to uniting the ANC. Another odd consideration is that ANC elites have too much to lose to get into battles which favour the most ruthless.
The DA’s leaders are correct to conclude that if the ANC aligns with either the EFF or MK, our constitutional protections will crumble along with the economy long before 2029. Whereas the DA routinely takes a not-without-a-fight stance, Ramaphosa has favoured compromises. This suggests that in the short- to intermediate-term, the DA can work with and benefit the ANC in various ways.
It is completely wrong to think that the DA helping the ANC to help needy South Africans would be treasonous. Indulging such a rush-to-judge impulse ignores how SA’s democracy has evolved to accommodate coalitions. If there are legitimate elections in 2029, and the DA earns a promotion from 2nd to 1st, it will almost certainly still have to govern within a coalition.
Job Creation
A huge potential error is having job creation remain subordinated to increasing economic growth. The DA must sell the critical importance of having independent initiatives to pursue the two objectives separately.
The DA must push hard for high labour-absorbing export initiatives to enjoy long tax holidays and broad regulatory exemptions. We are entering the second quarter of the 21st century, and it has long been clear that this century’s high-unemployment countries must carve out niches in global supply chains.
The one common characteristic which will help us transition from a mining-reliant economy to a competitive value-adding exporter is the need for exploration. The market opportunity which led to Red Bull giving Austria wings was not spurred by government regulators; quite the opposite.
SA companies which make an impressive international splash, such as Investec, Discovery, or Nandos, employ few locals to support their international sales. Our patronage-inspired localization, labour and BEE policies unnecessarily lock our young adults out of the international labour market. While our economy gasps due to woefully insufficient purchasing power, the world’s wealthiest nations have too few young workers.
Hoping to ride the wave of a big resource win is no way to build a 21st-century economy. We, like successful emerging economies, must wade deeply into the wide rivers of affluent consumer markets. As with digital nomads, this need not be contingent on attracting capital flows into SA.
Stewardship
The ANC is not seen as a trustworthy counterpart, as its political and economic stewardship has been so reckless. As a consequence, Ramaphosa dare not trust Putin or Xi. Nor are Western business leaders keen to trust a government aligned with Hamas. The DA is vastly better positioned to build job corridors into supply chains serving Western markets.
Peter Thiel, the legendary technology investor, sees artificial intelligence (AI) threatening mathematically focused professionals while benefiting workers who interact well with people. AI will make it much easier for low-cost workers to routinely provide highly valued interactions. Sometimes geography will be important; other times it will be irrelevant.
Whereas the ANC isn’t able to rapidly upgrade its institutional capacity due to pervasive cadre deployment, the DA rightly prides itself on its impressive institutional capabilities. Yet the DA mustn’t make the classic mistake of turning a strength into a weakness. The DA and ANC must avoid the temptation of relying unnecessarily on service-level agreements.
Instead, there must be a clear upfront agreement to provide sweeping special dispensations for labour-intensive export initiatives. It is emblematic of how dysfunctional our political economics have become that this should not be difficult for the ANC to accept. There are no material concessions necessary. The beneficiaries of our labour and localization policies have been companies, workers, and governments of other countries.
The ANC has long been receptive to special economic zones (SEZs) which serve the interests and biases of their alliance partners, the unions, and SACP. Such arrangements were structured with little regard for how demanding global commerce has become.
All successful nations have adapted to the demands and opportunities that today’s global economy presents. The DA must cut a deal where the ANC unambiguously agrees to stop blocking enterprising South Africans.
The world’s purchasing power is still largely concentrated in the West, while most underutilised human capital is clustered in Africa. Economic forces will eventually integrate massive numbers of young Africans into the global economy. The next two weeks will determine how soon that happens and whether SA leads or follows.
@shawnhagedorn, shawn-hagedorn.com
