I cannot understand how most people disengage when you start talking economics. Particularly macroeconomics – economics which has to do with studying the globe and the nature of the human condition in contemporary time can be interesting. The need to assess the globe and understand the other factors that affect the global economy, specifically politics, can be fascinating — mouthwatering even. The thing with economics is that if you study the rise and fall or decline into the mediocrity of nations since the invention of the steam engine, the technology which delivered to the world the first industrial revolution; you realise that economics is as much guess work as it is a science. For developing and frontier economies specifically, the trajectory of their future is almost foretold by understanding their past.
Simply: other nations have been here before, and we can learn from them.
South Africa is in a rather invidious position: it is a low-to-no-growth economy, with an almost 2.3% population CAGR, a scrapyard public education system that does little to prepare poor (almost exclusively black) youth for the new world of work, is locked in its oligopolistic economic structure with most industry hoisting high entry barriers thus discouraging innovation or entrepreneurship and a bloated inefficient public administration system. All these combine to stall development, thwart enterprising dynamics and feed the greedy monster of the well capitalised, often institutionalised mediocrity.
Data analysis reveals that in the decade between 1998 and 2007, South Africa was able to achieve a healthy level of economic growth. What is hidden in these numbers is the reason for that growth. For the black majority of the population this growth was jobless. With a 6% growth in foreign direct investments in 2006 the country also hoped to see job creation increase but it was not the case as the unemployment rate remained above 20% at this time.
So, it’s clear that investments, foreign direct investment in particular often does not translate to job creation for the masses.
The academic constructs of economics are often far removed from the daily realities of our lives. It is therefore that I ask that you allow me some latitude to demonstrate through my personal experiences how economics has impacted my life as an ordinary citizen.
I come from a small township on the outskirts of the East Rand called Wattville. The township enjoyed a high employment rate in the 80s and 90s. As we ushered in the new dispensation, the township showed a slow but certain stalling of growth, employment opportunities, and social cohesion.
This growth was stalled in part, albeit not exclusively by the private sector which held over R725Billion in cash deposits for the financial year of 2016 alone. Driven in the mainly by a lack of confidence in the South Africa we ought to be building. Even though business is investing they are not creating industrially competitive businesses in South Africa. Industrial competitive business refers to the prioritization of technology as a means to compete which drives value adding business activities and its capital base is for long term investments at low cost.
The stalling techniques undermining the growth story of South Africa are two-fold; medium-term, managed risk and long-term, high risk. In this case it is the medium term, managed risk technique whereby business diversifies incomes and invests into debt driven growth.
South African companies firstly diversified by investing into previously un-tapped European countries and then rest of Africa. The second means was to invest into debt driven growth driving consumption levels up.
Now what these businesses did not do was to take the long-term high risk investment route which is building new capacity; factories, infrastructure and skills development. We know this from just looking at the number of SETAs that exist in South Africa; agencies that government rewards to upskills and develop people. So, if there were no direct incentivizing schemes for such capacity, business would not be a willing participant.
Again, I ask for your indulgence as a reader because it’s important that you see economics in your reality as it unfolds.
Wattville was completely circled by factories. A thriving industrial complex that housed companies like Kwikot which makes geysers and Mintex Don. These factories, steel companies like Frankwen Forge, drove demand for labour, which drove up wage rates and as a result people could provide for their families. Production, not consumption, fueled the quality of life and the families of the townships.
Since 1999 there has not been a single new factory built in and around Wattville. Frankly, I don’t think that any new factories have been built in Benoni as a town. What has come up instead are malls. Plenty of malls. Lakeside Mall, Northmead Mall, East Rand Mall, Daveyton Mall, Brakpan Mall, to name a few. So, youth today hope to get a job at Truworths packing clothes after customers have tried them on. They are not getting artisan training or hoping to acquire technical, skills driven, well-paying jobs in factories.
In many ways, Wattville captures the essence of the South African economic program since 1994:
1. In the Eastern Cape, the liberation of the SA economy driven by former President Thabo Mbeki led to the wholesale destruction of the textile sector, the decline of jobs and the growth of joblessness and hopelessness;
2. In Mpumalanga, the lack of political leadership and inflexible state funding institutions have denied the province the simple low-hanging fruit of beneficiation in the coal sector. For the record, I looked up when was the first time a South African president mentioned “beneficiation” in a speech. It was President Nelson Mandela in 1995. So, we have been talking about value-chain economic modeling for the past two decades. Two decades! So it’s yet another case of all talk, no action and therefore no results!
3. In Gauteng, we have taken townships and the once thriving township economies of the late 80s and 90s, and rather than integrate these small often subsistence businesses; we opened those markets up to large and listed corporates that have since built marginal last-leg retail businesses that have decimated the local trader. The multiplier is frankly frightening. In 2009, it was estimated that each time Shoprite opened a store in the township, almost nine local general dealers would either close or significantly downsize their businesses.
A simple calculation: Each of the 9 business supports one family. Each family has on average 5 members. Therefore, for every new large retailer that enters the area 45 people are excluded from the economic system.
4. In the Western Cape, no significant or earnest steps have been taken to bring the desperately poor, largely coloured and black African communities into the mainstream of the economy. These communities – in the main – continue to be providers of cheap and often brokered labour that fuels the accumulation of wealth through profits by the purveyors of capital.
5. The largely rural economy of the Northern Province remains that, largely rural, largely without locally beneficiated produce and largely untransformed.
Aggregate all these, and those that remain untold, and you must ask how was the economy growing in the latter parts of the 90s and the early parts of this new century if we have not taken to downstream extraction or manufacturing growth at any large a scale?
Answer: growth in the South Africa economy has been predominantly consumption fueled.
Thus, we have lost our competitive advantage in the production of goods. Malls have replaced factories. Car dealerships have replaced assembly lines. Plush office blocks have replaced the fog of textile, steel and coal industries that were once ubiquitous.
I have recently been studying the work of Professor Terrence Tse and his research to understand the decline of the Greek economy. Before the sharp decline and now recession of the Greek economy, Greece posted above average GDP growth numbers for close on a decade.
From the graph above its impossible to not acknowledge the high growth numbers Greece posted for a decade. Likewise, if you look at the growth story of South Africa, however, this story is quickly overshadowed by the same issues that were once pulling Greece down.
Even though the South African economy might not yet be dwindling, but if we do not change our ways soon, we run the risk of crashing. We must therefore highlight key lessons for South Africa to learn from Greece, who was once the powerhouse of the EU block.
a. Corruption levels
Since 2012, South Africa has only been ranked one notch higher than Greece on the Corruption Perception Index. This ranking is informed by the frequency of corruption cases in both the public and private sector. The perception of gross corruption within Government has left the people with a deep sense of distrust. The feeling that the law does not apply to the rich and highly placed is rife amongst the common man as the country is faced with new revelations of corruption on an almost daily basis. Since corruption played a major role in the downfall of Greece, we need to take caution to curb this endemic before the citizens fall into the same pattern as government and general lawlessness prevails in South Africa.
b. Managing government debt
Fact: No country can reduce their national debt by incurring more debt!
So, Greece managed to keep their debt ration to GDP below 170%, but this clearly was not enough. To manage our ever-increasing debt, we need to curb fruitless and wasteful expenditure. We should not be finding more inventive and creative ways to incur additional debt from the World Bank & IMF. After Greece’s austerity measures were put in place, they still needed to be bailed out by the EU. Whilst here in SA our tax increases have come dressed as revenue generation vehicles, and luxury goods taxes are being touted as health initiatives, we must ask ourselves if these are sustainable measures to boost government coffers and thereby defer an economic crisis.
c. Credit fuelled consumption
Even though we have shown some growth in South Africa post-1994, we have not been able to create a steady and sustainable increase in the job market. In addition, we do not exist in an environment that is conducive to the creation of wealth. We are instead driven by a culture of consumerism as a mechanism to demonstrate accomplishment as opposed to building real wealth through building the economy.
Another point to be made is that our economic complexity graphs clearly show that our imports far exceed our exports. Simply: Import poverty; export wealth.
Another remarkable comparison between of SA and Greece is that the majority of the population works in the services sector. The CIA “FactBook” (2010) sectorized the South African employment market contributing to GDP growth into three major sectors; agriculture 9%, industry 26% and services 65%. Similarly, Greece in 2010 also had 65% of their population working in the services sector. Not much has changed for South Africa’s GDP composition by sector, specifically the service sector, which has grown by a mere 3.5%. Greece on the other hand has managed to grow their services sector by a healthy 15.9%.
It is interesting to note that even through a time of great economic turmoil, Greece managed to increase the numbers of skilled workers within the service sector, whilst South Africa, in arguably better circumstances has not been able to do the same. One could suggest that government policies alone cannot fix this problem.
d. High unemployment and low productivity
With unemployment figures of 27.7% for the third quarter of this year, we can yet again draw a parallel to Greece who found themselves in a similar position during the second half of 2013. This high level of unemployment is fuelled by the disengagement between labour and education. Hence, we are producing a high number of graduates who lack practical and employable skills.
Greece and South Africa today exemplify the tragic consequence of political warfare which appeals to voters but economically pushing the country beyond its capacity to care for the ordinary South Africa. In South Africa, the time has come for all citizens to actively contribute and adhere to the warning signals to prevent Africa’s Greece.
The saga of Greece’s downfall played itself out between 2009 to 2015 for the world to see and learn from. They are still dealing with the aftermath of their economic implosion. The road to recovery is long, even after having been bailed out by the EU.
We have the opportunity to learn from Greece, take steps to traverse this perilous landscape of economic and political turmoil and come out the other side – stronger, more agile and ready to continue to be the anchor stone of Africa’s economy.
Vusi Thembekwayo CEO of Iconoclasts Knowledge Bureau & a business speaker who empowers his audience with research findings, models and tools that they can immediately apply in their business or careers to achieve leapfrog results. See http://vusi.co.za for more information.