The world’s many smartphones can accurately and continuously share their locations. But can South Africans, or those in other lands, make sense of this country’s economic positioning?

While holding a globe, it is easy to locate South Africa and to see that no country is as distant from a top-three economy, the US, China or Japan. Whereas we constantly know where we are and what day it is, do we reasonably assess where we are along South Africa’s political-economic trajectory?

GPS (Global Positioning System) coordinates use hard data to describe locations within a few metres and to then measure the speed and distance of movement. GDP (Gross Domestic Product) calculations rely on prices. Costs and benefits which aren’t reflected in prices, like increases or decreases in pollution, are ignored. Yet, for nearly a century, GDP approximations of economic performance have broadly captured how progress has varied among and within nations.

Current exchange rates are often used to express each nation’s GDP in US dollars. Yet a nation’s currency can fall while its economy expands and living standards rise, or vice versa. Therefore, GDP is sometimes calculated to reflect ‘purchasing power parity’. A Big Mac costs more than twice as much in the US as in South Africa. As our cost of living is relatively low, our GDP more than doubles on a purchasing power versus exchange rate basis – nonetheless, both measures depict stagnation.

Using current exchange rates, China has the world’s second largest economy, whereas on a purchasing power parity basis it became the world’s largest economy nearly a decade ago. As with calculating a motor’s torque versus its horsepower, the appropriate metric depends on the objective.

Trading partners

The most valuable trading partners have large GDPs on an exchange-rate basis and they are willing and able to maintain very substantial trade deficits – while mostly importing finished goods not raw materials. This is very difficult, as a country’s consumers must routinely generate more than enough discretionary income to maintain full employment. The US is clearly the leader at this while South Africa is among the worst.

None of the BRICS countries is able to maintain high trade deficits alongside low unemployment. Conversely, the US is the undisputed world heavyweight champion as a consumer of value-added imports. As a consequence, the US exports many tens of millions of jobs. After raising interest rates from nearly zero to over five percent in a year and a half, the US’s unemployment rate is 3.7% – and unlikely to rise noticeably.

If a country wants to maintain high growth while maximising job creation, the West is a vastly more valuable trading partner than Asia or Africa. As a consequence, various emerging economies are benefiting greatly from the West’s ‘de-risking’ its reliance on Chinese value-added imports.

If we remain overly reliant on commodity exports, then South Africa will be a highly attractive trading partner for China, the undisputed top importer of raw materials. However, while it is conceivable that commodity prices could soar sufficiently to maintain our patronage-heavy political economy, this is quite unlikely – and it is equally undesirable.

Although it is not impossible for commodity exporters to harness a sustained increase in demand to meaningfully alleviate poverty and unemployment, it is extraordinarily difficult politically and economically. Patronage must be resisted, or purged, while a commodity boom must be triggered and sustained. However, global growth today is increasingly driven by services while prospects for exports like thermal coal are under threat. Nor is it easy to purge rampant patronage.

Most high-growth emerging economies prioritise value-added exporting. If commodity demand booms and we transcend our SOE constraints while maintaining our isolationist biases, as reflected by tolerance for the ANC’s localisation policies, would we not eventually achieve normal workforce participation? This appears to be mathematically possible but it would take many decades while marginalising many millions along the way. A more likely outcome would be social and political upheaval. Our obscenely high youth unemployment compounds this path’s difficulties and dangers.

Food-stressed voters

It is tempting to believe that purging our public sector of widespread corruption and incompetence would fix our economy. Rather, this is a necessary but insufficient condition for achieving a level of workforce participation sufficient to maintain a functioning democracy. Patronage-reliant governing parties can rather easily manipulate food-stressed voters.

To achieve normal labour force participation we must either reconceive our economy around growing value-added exports or somehow sustain high growth for a very long time with our current economic configuration. The first option requires mimicking successful emerging economies by overcoming all the difficulties involved in carving out niches in the global economy. The second option doesn’t exist; it is a dangerously seductive delusion. Rather, widespread faith in this delusion goes a long way toward explaining why our youth unemployment rate is so perilously elevated.

Unemployment crisis

Attributing our youth unemployment crisis to horrific education outcomes seems obvious but it doesn’t withstand serious scrutiny. Top development experts, such as Ricardo Hausmann, emphasise that such thinking is at odds with the trajectories of typical high-growth emerging economies. Most sustained high growth before investing aggressively in education.

There are no plausible scenarios where South Africa achieves sufficient sustained growth to achieve anything resembling normal labour force participation unless we fundamentally reconfigure our economy to prioritise value-added exporting. Twenty years ago, a commodity boom triggered five years of roughly five percent growth per year, yet our unemployment rate ratcheted downward slowly and rather insignificantly. And back then our government and households were much less indebted and our youth unemployment was much less severe.

Abundant resource wealth must not distract from the core reality that an economy’s size and health are ultimately determined by the productivity of its workforce. Has any other country ever dared to flirt with our level of youth unemployment alongside dismal education outcomes and resistance to employing highly skilled foreigners? No, of course not.

Our perceptions were further distorted by the importance of inward foreign investment during the sanctions era. We blatantly ignore that those investments were predicated on foreign demand. Beyond those supporting commodity exporting, few large investments in South Africa can now be justified as our domestic growth prospects are dismal while our value-added exporting prospects are doomed by localisation and related policies.

Venezuela is often considered to be a ‘failed state’ but China’s youth unemployment rate is nearly twice as high. While such statistics and comparisons are never flawless, our level of youth unemployment is more than twice as severe as China’s.

Scientific data

At last week’s COP28 gathering in Dubai, more than 20 countries pledged to triple their nuclear energy production by 2050. It is not that nuclear power suddenly became significantly safer or more price competitive. What changed was that the politics of how nuclear power is perceived gave way to scientific data.

Most people have insufficient time, interest and expertise to assess science-based assertions. Instead, we collectively make values-based judgements. This is encouraged by people aligning politically around shared values and it is further reinforced by media outlets corralling like-minded audiences and then reinforcing their political proclivities.

Humans aren’t as collectively clever as we could be. We have long been witnessing unstable governments acquiring nuclear-weapon capabilities while advanced democracies have irrationally discounted the benefits of nuclear power displacing excessive reliance on hydrocarbons.

It seems likely that artificial intelligence will soon diminish the political and emotional distortions of key decision inputs. GDP won’t become as precise as GPS, but we will better assess where we are and which paths can be successfully navigated.

[Image: Dariusz Sankowski from Pixabay]

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

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For 20 years, Shawn Hagedorn has been regularly writing articles in leading SA publications, focusing primarily on economic development. For over two years, he wrote a biweekly column titled “Myths and Misunderstandings” without ever lacking subject material. Visit, and follow him on Twitter @shawnhagedorn