If we were to somehow surge job creation by increasing regional exports, our neighbours would be worse off and South Africa’s gains would be short-lived. By better appreciating the dynamics behind this, we can identify high-growth paths.
Africa, with 18% of the world’s population, accounts for barely 3% of global GDP. This puts its share of global disposable income, the loosely defined yet essential growth ingredient, at below 1%. Much of that discretionary buying power is concentrated in South Africa, yet our domestic growth is also constrained by woefully insufficient consumer purchasing capacity. This, combined with ill-conceived labour policies, is central to why we have the world’s worst youth unemployment.
We must accelerate job creation from a standstill to something like a million net new jobs per year. But our per capita income peaked around the time Jacob Zuma became president and it is on track to stagnate indefinitely. Potential to spur growth by accelerating household and government spending is further constrained by debt loads which are excessive and often excessively expensive. That is, that card has already been played − badly.
Debt and poverty traps
Many countries in this region, including South Africa, are caught in mutually reinforcing debt and poverty traps. To achieve sustained high growth, policies must shift to promote increased productivity and value-added exporting to countries with abundant purchasing power.
The ‘Great Depression’ is called that as US unemployment briefly topped-out at a staggering 25% − versus 10% during the 2008 “Great Recession,” 15% during Covid and 4% during the recent business cycle trough. While South Africa’s unemployment seems stuck above 30%, if not above 40% if discouraged would-be workers are included, it is our six-out-of-ten youth unemployment which both reflects and reinforces South Africa’s deficit of economic dynamism.
Those who are still jobless a decade after leaving school are extremely unlikely to ever become meaningfully employed. This is particularly true when, like in South Africa today, such economic marginalisation of school leavers has become normalised. As employers will routinely prefer fresh graduates or older jobseekers with experience, life prospects for the majority of twentysomething black South Africans who are unemployed are wretched.
Achieving sustained high growth would surge productivity, in large part, by pummelling our world-topping youth unemployment rate. But what can unleash sustained high growth in South Africa?
As our political and business leaders advocate for investment-led growth, we might consider the investment by the world’s largest retailer in South Africa’s third largest retailer in 2010. Through its Massmart investment, Walmart was to benefit from selling to the world’s youngest and fastest growing region.
That this investment thesis proved to be fully misconceived highlights our economy’s central disconnects. The deal closed as South Africa’s per capita income was peaking at a level which now seems increasingly out of reach.
Selling to Africa’s disparate consumers offers many management challenges, such as storage and logistics, which might have succumbed to combining the expertise and resources of a top South African retailer and Walmart. Yet the core growth blockage has been that consumers across sub-Saharan Africa lack sufficient purchasing power to sustain high growth.
If Walmart had been as committed to sourcing products from South Africa and our neighbours as it was to selling to our domestic and regional consumers, this could have unleashed sustained high growth. Instead, our policy makers discourage such high-growth potential by undermining South Africa’s global competitiveness.
Disposable income
By definition, people who live at a subsistence level have no discretionary income. Most household budgets across sub-Saharan Africa reflect subsistence level or lower-middle income. The region’s middle class is growing, but from a modest base, while South Africa’s middle class is highly indebted and contracting.
South Africa’s disposable income isn’t sufficient for even half of each year’s school leavers to find employment and our middle class is shrinking. Our policy makers respond with a mix of localisation policies and sub-subsistence grants while targeting regional markets, despite their also lacking sufficient domestic purchasing power to fuel healthy growth. This is a formula for meagre GDP gains while encouraging more illegal immigration into South Africa.
Noticeably raising living standards requires raising worker productivity. Countries with high purchasing power have many highly productive workers. The ANC and its tripartite alliance partners, the SACP and unions, aren’t inclined to prioritise worker productivity.
Productivity
Economic development requires increasing productivity, yet unionists raise a valid concern. If productivity increases without a corresponding increase in demand, employment will decline. But this shouldn’t be a problem.
Expanding productivity should grow consumer incomes sufficiently to justify ever expanding employment. All other regions have made great progress at meeting this challenge as they are highly integrated economically and this provides access to the large concentrations of affluent consumers which have mostly been clustered in Europe, North America and, more recently, parts of Asia.
This era’s on-ramp to the economic development superhighway relies on continually improving productivity through carving out niches in global supply chains. Like an assembly line, this spurs efficiency gains through emphasising specialisation and innovation. China, along with many other − mostly Asian − nations, adopted this blueprint with world-changing results.
Exporting raw materials forgoes the economic development gains which follow from adding value to goods or services. Increasing our commodity export revenues adds few jobs but it does expand our government’s capacity to fund sub-subsistence payments for the unemployed. This lessens pressure for much needed policy reforms while further entrenching widespread poverty alongside rampant patronage.
Access
It is not foreign governments which restrict our access to affluent consumers. Rather, domestic policies and practices, and how our economy is structured, are incompatible with today’s core economic development drivers.
Echoing the specialisation of labour associated with assembly lines, niche-focused companies in global supply chains have massively boosted industrial production and efficiency. More importantly still, they have fueled extraordinary job creation and broad upliftment among many emerging nations. The gains have been concentrated in manufacturing but services are catching up.
Policies such as localisation and BEE undermine the potential of South African-based companies to compete globally. In effect, our policy makers are insisting that our companies increase employment by targeting domestic and regional consumers. Such thinking was always going to choke growth.
A good guide to assess a country’s long-term prospects is the portion of its young adults who are globally competitive at adding value to exports. Due to misguided policy making, we score miserably at this.
A common refrain is that our obscene level of youth unemployment traces to horrific education outcomes. Yet few of the hundreds of millions of jobs created in China and across Asia in recent decades required high educational achievement.
Neither South Africa nor its neighbours will benefit from our targeting regional exports to spur growth. Our economy will continue to languish until we meaningfully integrate into the global economy.
[Image: Tung Lam from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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