Prosecuting corruption is necessary but it won’t fix our economy. Vigilantly pursuing the Zondo Commission’s recommendations must be accompanied by finding solutions to our youth unemployment crisis,  guided by today’s international currents. 

While legal tools have evidenced rampant corruption, lawful forms of patronage, such as a bloated public service and cadre deployment, pose still greater economic threats and political challenges. BEE, anti-competitive labour laws and ‘localisation’ regulations benefit the politically-favoured while blocking growth. 

Our SOEs and Russia’s army are both crippled by patronage. The Russians compete haphazardly on the battlefield, so they shell Ukrainian cities. ANC policies and practices sabotage our country’s competitiveness to the point that they destroy school leavers’ prospects. Ukrainians, well-versed in local and Russian forms of patronage and corruption, are risking everything so their next generation can follow Poland’s path to European integration.

If Western countries remain united, the West’s primary and secondary sanctions will be very difficult to counter because the West has an abundance of the core development ingredient which the rest of the world is lacking; discretionary purchasing power. Our tolerating South Africa’s purchasing-power deficit has produced monstrous unemployment, which is largely unresponsive to high commodity prices.

As the US economy is structured to expand its already swelling purchasing power, it stays near full employment despite running huge trade deficits, which have exported millions of jobs, mostly to Asia. Because the US also runs enormous fiscal deficits, it floods the world with reserves – which can be sanctioned. 

Abundant and freely traded 

Being abundant and freely traded contributes to the dollar and US treasury securities being attractive as reserves in the international banking system. What ultimately makes sanctions effective is that they deny exporter access to the West’s surplus purchasing power. This devastates the growth trajectories of the sanctioned countries. ANC redistribution-focused policies affect our economy similarly.

The world’s laggard nations are mostly commodity exporters whose rulers exploit historical injustices. Most Western economies continue to create wealth through competitively embracing free trade and disruptive innovations. The importance of bulk commodities will continue to decline as digital advances further erode the significance of distance and borders. Policies matter.

The post-Cold War era reduced global poverty and thus global inequality. Inequality concurrently spiked within many countries. It is now personified by tech billionaires who are mostly nerdy coders. Their managing chunky shareholdings accelerates the digital transition as they compete through innovating disruptively. This messy approach unleashes tremendous possibilities which consumers then endorse or reject. Conversely, most of the world’s poor live in countries that export hydrocarbons, minerals or agricultural commodities.  

Adding value to exports

Dozens of countries have reduced poverty through adding value to exports. Yet such transitions are harder when ruling elites can fund patronage through commodity exports. That Taiwan’s natural resources are so modest forced an alignment of entrepreneurial juices and government policies. This tiny island nation now dominates global production of high-end semiconductor chips, the digital economy’s bedrock.

Life prospects for most of South Africa’s ‘born free’ blacks are truly horrific. Our youth unemployment crisis poses even graver risks than Eskom does and it is becoming vastly more difficult to solve. 

Solving big problems requires keen situational awareness. Rather, as no country is more distant from the top wealth-creating clusters of the world and few countries are as resource-endowed as South Africa, we persist in believing we can resolve our economic challenges without vastly greater integration into the global economy.  

The Zondo Commission reports depict greed fueling systemic government malfeasance, yet the ANC’s political machinery can still exploit racial inequality to justify the redistribution-focused policies which block growth while funding legal and illegal forms of patronage. 

Rather than exploring the extent to which our policies are hopelessly misaligned with core global trends, we let our hopes ride on the unlikely prospect of the 2024 election provoking sharp policy shifts – which remain poorly defined.

Profoundly negative 

ANC leaders are not unreasonable in presuming they will remain the dominant political force post-2024. High commodity prices are providing the fiscal space to expand their patronage web. 

Subsistence payments to unemployed young adults epitomise patronage designed to buy support with policies that ensure profoundly negative long-term consequences. 

Last July’s rioting will have served as a preview if we continue to doom most of those ‘born free’ to chronic poverty. Meanwhile, the party promises various ‘reforms’ which are mostly about performing basic public sector functions less badly.

While strong commodity demand has supported our bonds, currency and shares, our unemployment is worse than any country experienced during the Great Depression. As with our domestic economy today, in the 1930s, the world economy suffered from inadequate consumer spending. 

‘Keynesian’ views about governments running deficits to offset inadequate consumer demand in recessions became, and remain, commonly accepted among countries where most citizens are middle class. More recently, adding value to goods and services destined for affluent markets has underpinned sustained high growth for dozens of countries challenged by widespread poverty.   

Our economy is structured to redistribute purchasing power. Thus, incomes stagnate and we have far too little discretionary spending to create jobs, while many countries have an overabundance. The day of reckoning has been postponed, and made more difficult, by our government and households imprudently incurring much expensive debt.

Whereas our long-stagnating domestic purchasing power is woefully inadequate to meaningfully curb our bulging unemployment, it is not particularly difficult to integrate 18 year olds into the global economy. The city of Cape Town’s success at training and placing call-centre workers is telling. 

No plausible scenarios

There are no plausible scenarios where South Africa overcomes its unemployment crisis unless we can create jobs adding value to goods and services destined for overseas markets. We believe our school-leavers are too poorly educated to compete globally. Yet the phenomenal rise of Asia was not led by education or investments but rather by adding value to exports.

Our president believes in investment-led growth but our policies make this unworkable. To increase employment by, say, twenty percent, domestic spending would need to grow by a similar amount. But our per capita income growth is set to stagnate indefinitely. So inward investments targeting South African consumers displace local companies and then repatriate interest payments and profits while struggling to meet high capital hurdle rates, given our precarious economy.

Elevated commodity prices have improved GDP and tax revenues while creating few jobs. Their long-term impact on employment is probably negative as they relieve pressure for necessary policy reforms. The ANC has recently clarified their preference for increasing basic income grants over job-creating policy reforms. Meanwhile, this year’s geopolitical cataclysm has revealed the advantages of accountable governments supporting competitive businesses.

Ukrainians and South Africans are similar in that both countries’ exports are dominated by commodities, both have been disadvantaged by widespread corruption, and Russia’s president has significantly influenced both countries’ previous presidents. But Ukrainians rejected the easy option of avoiding war by again becoming a client state of Russia. They are fighting and dying for the next generation to be able to integrate into Europe, whereas the ANC is condemning most born-free black South Africans to life-long chronic poverty.

Today’s global tensions reflect might-is-right rulers challenging an imperfect rules-based global order. Our national dialogue should be updated accordingly. 

The views of the writer are not necessarily the views of the Daily Friend or the IRR

If you like what you have just read, support the Daily Friend


Shawn Hagedorn worked in banking, finance and capital markets in New York City and London before emigrating to South Africa. He holds degrees in finance, economics, and international business and his writing has appeared in a number of publications including Business Day, Sunday Times, Mail & Guardian, and Politicsweb, amongst others.