Shawn Hagedorn writes at a minimum, new value-added exporting initiatives should receive special dispensations from anti-competitive regulations
5 November 2024
President Ramaphosa is calling for a new “national dialogue” that addresses critical challenges and develops collaboration among diverse stakeholder groups. In pursuit of a shared vision, extensive public participation will be encouraged while drawing on historical precedents like the Congress of the People and CODESA talks.
If this were about identifying solutions, rather than performative politics, he would include outsiders who would challenge assumptions about South Africa’s capacity to independently remedy its economy.
Most rapidly growing countries have a high portion of their young adults adding value to exports destined for affluent consumers. Instead, as ANC policies are incompatible with competing internationally, they have entrenched the world’s most severe youth unemployment crisis.
The ANC’s messaging and policies purport to counter inequality and this provides political cover for the growth-zapping patronage which suffocates our economy. As commodity exporting has been milked to the point of alienating international mining houses, most of the ANC’s patronage derives from burdening consumers through BEE and localisation policies. As a consequence, our per capita income peaked long ago.
Illumination
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Time is unkind to delusions.
It is understandable that big business and the ANC sought to advance their collective interests by pursuing investment-led growth. This might have provoked sweeping pivots toward pro-growth policies; but it didn’t.
The lights are staying on but ideas that can meaningfully mitigate our youth unemployment crisis are not being illuminated. Savvy investors, along with number-crunchers at Treasury, will associate our weak pace of fixed investment with the flat long-term trajectory of our consumer spending power. Our core growth impediment, lack of access to sufficient consumer spending, will remain in place until we link our job creation to the enormous spending of affluent consumers in distant markets. Supportive policy reforms are easy to justify but they remain absent from our national discussions.
Fifteen years of per capita income stagnation foreshadowed our obscenely pervasive youth unemployment. Excessive indebtedness amid rampant unemployment now precludes meaningful increases in household incomes through spurring domestic spending. Accelerating the liquidation of pension assets isn’t a plan.
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A well-informed national dialogue would acknowledge that most twentysomething South Africans will always be poor - and that there are no magical paths where investment flows repair economically battered households. Might Ramaphosa instead suggest that there have been no policy shifts for lack of a potent plan and that therefore our meagre growth rate is everyone’s fault?
Solving
Many hundreds of millions of people in countries that had low savings and inadequate domestic consumer spending now enjoy genuine prosperity as they were hired by employers that carved out specialised niches in international supply chains. Such employment has provided the most formidable and fast-paced upliftment escalator the world has ever known. A well informed national dialogue would recognise that BEE type regulations preclude our young adults from such upliftment paths and that this is starkly reminiscent of blacks being denied “market access” - selling to whites - under apartheid.
As BEE policies dissuade value-adding exporters from creating production centres in South Africa, localisation policies make our growth prospects dependent on growing per capita income. Yet most of our school leavers are on track to join the many millions who have been locked-into lifelong poverty.
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Attending many investment jamborees might have persuaded ANC elites to adopt the policies common to high-flying countries which sustain rapid growth through value-added exporting. Instead, they favour commodity exporting. Amid an intensely integrated global economy fueled by innovative disruptions, commodity exporting is profoundly anti-development. Most of today’s poor countries are commodity exporters run by patronage-reliant governments.
In most countries, a few years of excessive unemployment will provoke policy shifts sufficient for idled young adults to eventually achieve productive, prosperous lives. Few modern governments have ever faced a youth unemployment crisis half as severe as ours.
Researchers versus visionaries
One group of outsiders that could knowledgeably inform our national dialogue are the trio of economists who were recently awarded Nobel Prizes for showing how colonial-era decisions still influence post-colonial governments. Their work demonstrated how “extractive” post-colonial governments often served the interests of elites at the expense of ordinary citizens. As South Africa’s top global rankings in unemployment, inequality and rape trace to extractive policies and practices, those economists aren’t likely to be asked to contribute to our upcoming national dialogue.
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What about top global business leaders? While it seems unlikely that our president explored job creation ideas when he recently met with Elon Musk, we should consider our challenges from the perspectives of top global innovators. Imagine if Musk, Jeff Bezos and Mark Zuckerberg participated in our national dialogue while competing against our business and political leaders to expand job creation for our school leavers.
Ramaphosa’s investment-led growth initiative hopes to raise over two trillion rand in investments over the next five years. While those three business giants didn’t begin by managing large budgets, the companies they started are valued at nearly fifty times that amount. So let’s say that they can only invest one-fiftieth as much Ramaphosa hopes to raise. How might those three, with almost no reliance on capital flows, create more new jobs than all of our domestic leaders?
We can confidently surmise that they would freshly re-envisage this region’s place in today’s rapidly shifting world. As lead actors in developing cloud based computing and satellite based communications, we can presume that they wouldn’t associate employing South Africans with subjecting large volumes of capital to the vagaries of this country’s politics. Nor would they employ South Africans to serve our domestic consumers who are mostly poor or wallowing in debt.
Affluent countries have contracting populations at a time when disruptive innovations very much favour new entrants to the labour market and digital pathways. This region’s glut of young workers is comparable to the Middle East’s oil glut. The Middle East was remarkably poor prior to innovators discovering how to surge productivity by extracting and employing that region’s abundant assets.
As the ANC’s reliance on patronage triggers isolationist policies that block our young adults from becoming highly productive through integrating within global supply chains, the only options for meaningfully reducing our ultra-elevated unemployment are to reverse those policies or grow our domestic spending capacity. If Middle Eastern governments had followed an ANC-styled playbook, they would have refused to export oil and instead sought, foolishly, to grow their local economies sufficiently to consume it domestically.
Musk, Bezos and Zuckerberg were not guided by an obsession with wealth; they pursued visions supported by well-grounded situational awareness. The ANC was distracted long ago by its globally bestowed status as elite social justice advocates. Commercial and development sensibilities elude them and they have framed a national dialogue devoid of vision.
Ramaphosa’s preferred new “national dialogue” would showcase his party’s ability to shape public opinion around social justice narratives. We should rather unpack our failures and opportunities to inform much needed policy shifts. At a minimum, new value-added exporting initiatives should receive special dispensations from anti-competitive regulations.