ANC’s legacy, a democracy extinguished?

When important people are old or very sick, newspapers don’t wait for them to die to start writing their obituaries. 

This month’s voting could be our last legitimate national election. The terminal decline could be accelerating by this time next month. When reading an obituary, we want to know the cause of death. 

If our experiment with democracy is ending, should we attribute that to political or economic decisions? Would it be reasonable to assert that SA’s geography, demography or history undermined our democratic prospects? Might the prime cause be better attributed to constitutional flaws, specific events or individuals?

While political decisions are prime suspects, had our economic failures been less severe, our experiment with democracy would be more durable. Perhaps with more time a more robust and accountable political dispensation would evolve. 

If our democracy dies, of course the lead suspect will be the ANC. There is a strong case to be made that their commitment to democracy has long been as dodgy as their economic stewardship. 

The core problem with blaming the ANC, however, is that they could have been ousted by voters. Yet flawed electorates are the norm among democracies.

If, finding their national support has shrivelled and become heavily reliant upon the rural poor, would ANC leaders want our democracy to survive? A poor electoral outcome on 29 May would focus their attention on the consequences of the party being ousted from the Union Buildings in 2029. The risks of many current ANC officeholders facing criminal prosecutions would certainly weigh on their thinking. EFF and MK leaders will no doubt argue that this is what awaits the ANC if they form a coalition government with the DA. 

Patronage

If our democracy dies, another top contender for the cause of death will be patronage. Had much of the ANC’s enduring electoral support not been ‘purchased’ with state resources, the party’s ability to evolve would not have been paralysed. BEE, cadre deployment, Eskom, Transnet, localisation, unemployment, etc all trace to the ANC’s efforts to create a massive patronage network. 

Yet blaming patronage raises at least two connected challenges. First, if patronage was destroying our political system, then purging it should be sufficient to achieve a functioning democracy. Such a catharsis would be very helpful yet woefully insufficient. 

Second, the electoral appeal of sub-subsistence grants would have been greatly diluted if one or more parties had developed a workable plan to rapidly pummel unemployment. Instead, and despite its dreadful performance, the ANC has maintained its electoral hegemony. There is, therefore, a strong case to be made that our democracy is dying for lack of a robust economic plan.

New political dispensation

The prevailing thinking is that we need a new political dispensation to fix our economy and that only through sustaining high economic growth can we, eventually, surge job creation. Not only is this not the only way to rapidly accelerate job creation, it isn’t even a realistic option. 

Making it viable would require, beyond having a centrist-leaning national coalition government, that our economy be fundamentally restructured. Yet the types of sweeping changes required aren’t under consideration - our national dialogue doesn’t even address why they are required. 

The ANC’s patronage-inspired structure favours commodity exporting, localisation, BEE and grants. We allow such biases to frame our economic debates rather than tying such discussions around the models common to high growth economies.

Our best attempt at a compromise has been to defer to business leaders seeking common ground with the ANC by pursuing investment-led growth. This began as a mutually beneficial team building sort of effort which helped pave the way for big business providing some much-needed input in key economic areas. But if the ANC aligns with the EFF or MK, promises at international investment conferences will be met with abundant cynicism.

The core challenges reside at the base layer. Our economy, as it is currently conceived, can’t achieve anything resembling full employment. Investment-led growth would be a major plus but it can’t unleash adequate employment gains. Rather, our having the world’s most entrenched youth unemployment crisis creates a multi-decades drag on growth. 

Domestic consumption

Despite our middle class becoming ever more vulnerable, we predicate our employment gains on investment-led growth fueling increases in domestic consumption. This reflects our prospects being restrained by localisation policies, which further trace to the ANC’s anti-western and anti-competitive biases reinforcing its penchant for patronage.

Because our low-growth economy is badly managed and we desperately need capital, our cost of capital is high - even compared to other non-investment grade sovereign borrowers. We have a low-savings economy reliant on domestic consumption and commodity-led exporting. Meanwhile, huge portions of our middle-class and lower-income households are constrained by heavy debt-servicing requirements.

This backdrop is irreconcilable with meaningfully mitigating extreme youth unemployment through investment-led growth. Our employment and growth goals must be pursued separately. Focusing on workable solutions reveals that the two goals are only loosely interlaced.

Today’s high-growth emerging economies have substantial percentages of their school leavers adding value to exports destined for affluent markets by achieving global competitiveness at small niches which are then steadily expanded. This model, which the ANC steadfastly rejects, has ballooned the world’s formal employment while tumbling global poverty. Like a family with an embarrassing secret, we don’t discuss how our economy’s structure rejects this era’s economic development up escalator.

Nor do we confront why conditioning our economic growth on expanding domestic demand has become futile. Today’s high flying nations abandoned this model because it is so hard to execute successfully while the sustainable growth rates are modest. Our staying the course - without thoroughly debating key options and their consequences - has devastated our prospects as reflected by half of our twentysomethings being locked-into permanent marginalisation. 

Real rates

Our debt-to-GDP ratio isn’t awful but the risk premium demanded by investors to fund our savings shortfall is. The real rates of interest - the nominal rate less inflation - paid by our government and households are prohibitive. This is expressed by ultra-elevated unemployment and stagnant per capita income. 

Even if we weren’t caught in a debt trap, continuing to pursue domestic-led growth would still be a terrible idea. Post-1994 inward investment flows have predominantly funded government debt; index-matching JSE investing; or businesses selling to either SA consumers or politically manipulated sectors, such as vehicle manufacturing. While SA’s extraction opportunities had traditionally attracted substantial investment flows, regulatory issues have become off-putting.

Localisation policies have been imprudently indulged to the point that there can be no credible investment theses for funding commercial initiatives to create large-scale employment if the customers being targeted are South African. This small pond of consumers has been hectically overfished. Meanwhile, ANC policies undermine the competitiveness of SA companies who might otherwise target consumers in affluent countries.  

The ANC has damaged the economy while devastating job creation. Yet, after the elections, the ANC will still run the national government. They will prioritise growth to fund government and much patronage - including grants. There will be tremendous resistance to policy shifts that would spur a rapid expansion of sustainable jobs as the ANC’s patronage is girded by localisation and anti-business, anti-competitiveness policies.

As our economic growth continues to lag population growth, nearly stagnant domestic spending deters companies from expanding payrolls. Meanwhile, international prospects for young digital workers are rapidly evolving in response to AI possibilities. Many jobs can be done remotely yet we are ignoring how profoundly relevant this could be to SA’s future.

Overcoming educational deficiencies

Few of SA’s school leavers will find jobs through national government programmes. Listening to recently-hired friends and organisers of small, creatively-envisaged job fairs can be far more effective. However, whether the companies are domestic or international, whether the jobs are freelance or permanent, the consumers being served should be in affluent countries. 

Today’s many highly affluent countries tend to mix abundant purchasing power with a growing shortage of young workers. Global employment growth is dominated by services and many of those jobs are digital. They can be done remotely. Meanwhile, AI can overcome many educational deficiencies - while creating opportunities for young, naturally interactive people. 

Job hunting can be aided in many ways, large and small, but placing reliance on our national government is imprudent. Conversely, digitally focused job-creation efforts by the Western Cape and the City of Cape Town should encourage every other provincial and city governments. Geography and size are of little relevance. Individual schools and learners can develop new employment channels wherever they are. Every new job is an important step forward and successful employment channels can be replicated.

If our democracy dies, it will be because it has failed the next generation spectacularly. But, whether it does or not, the ANC’s ultimate vulnerability is workable solutions to our youth unemployment crisis - and these can come from any corner.