Economic complexity is a concept seldom heard in South Africa. It describes the capacity of a country to engage in various forms of activity, typically with an eye on innovation, higher productivity, and expanded options for economic growth.

The basic hypothesis of this was set out by César Hidalgo and Ricardo Hausmann in a 2009 paper, ‘The building blocks of economic complexity’: ‘If all countries are connected to each other through a global market for inputs and outputs so that they can exploit a division of labour at the global scale, why have differences in Gross Domestic Product (GDP) per capita exploded over the past 2 centuries? One possible answer is that some of the individual activities that arise from the division of labour described above cannot be imported, such as property rights, regulation, infrastructure, specific labour skills, etc., and so countries need to have them locally available to produce. Hence, the productivity of a country resides in the diversity of its available nontradable “capabilities,” and therefore, cross-country differences in income can be explained by differences in economic complexity, as measured by the diversity of capabilities present in a country and their interactions.’

A well-managed complex economic system is typically an advanced one and has the ability to leverage new opportunities as they present themselves. They create a virtuous cycle that can be plugged into the global economy.

This idea has been developed in an analytical tool, the Atlas of Economic Complexity. Among other things, the Atlas, affiliated with Harvard University’s Growth Lab, profiles and compiles an annual ranking of the economic complexity of the countries it covers, drawing largely on trade data. In 2021, the latest available, this covered 133 jurisdictions.

Japan stood at the top of the ranking and had occupied that spot for two decades. Among the top tier are Switzerland, Germany, Singapore and the UK (the US is at 14, perhaps surprisingly). At the bottom sits Liberia, followed by a list that includes the Democratic Republic of Congo, Papua New Guinea and Venezuela.


The contrast is stark: high-income, developed countries, with skills-rich workforces, engaged in a variety of trade and commerce with a strong bias towards the high value-adding end of markets. It’s these countries that provide IT products, financial services, machinery, and chemical products. The second are low-income economies marked by inadequate infrastructure, where large parts of the population focus their efforts of survival, where skills are at a premium and perhaps also a paucity of opportunity to use them. Their economies depend on the extraction of natural resources and on agriculture (for many people, subsistence agriculture).

Hausmann, as this column has previously indicated, has also done extensive and valuable analysis of South Africa, the latest contribution of which was an analysis of the hindrances to growth. The report notes the decline in South Africa’s score on Atlas’s rankings. In 2000, South Africa was ranked 44out of 132 countries; in 2021, this had fallen to 68. Over this period, comparably situated Latvia went from 45 to 36. China rose from 39 to 18.

In other words, the apparent ability of South Africa’s economy to seize the day on global opportunities is waning. This is despite decades of official commitment to doing just the opposite – albeit under different names, such as industrialisation, beneficiation, the 4th Industrial Revolution and the Green Economy. This has been echoed by activists demanding changes to the ‘structure of the economy.’ And these ideas have been part of the grander initiatives, such as the National Development Plan.

The inability to bring about these shifts is captured by a breakdown of South Africa’s exports – itself a gauge of the manner in which an economy engages with the wider world – presented by the Atlas.

In 2021, fully 54% of South Africa’s exports were of minerals and ores; essentially the mining industry that the ANC in exile had determined should play a smaller role in the economy. (Incidentally, the index also regards most of these – with the notable exception of platinum –as low complexity exports.)

Only about 6% of exports were accounted for by cars and transport vehicles, despite the considerable state support for this industry. And only 3% was constituted by ICT, the archetypal high-complexity sector.

Unfortunate reality

The unfortunate reality for South Africa and for any aspirations it may have to secure this sort of high-value growth is that success will only follow foundational stability. Without a reliable supply of power, and a robust, cost-effective transport network, even low complexity industries are threatened – as has been seen with the impact of the failing Transnet rail system on the mining industry.

Progressing up the complexity ladder requires even more. More complex production processes need more intricate logistics systems, and it’s here that both potholed roads and a dysfunctional post office impose their own disincentives. With much production being virtual or digital, an efficient ICT infrastructure is crucial. Here, South Africa has done well in expanding overall access, though less well in giving the economy the quality and speed of service that it needs.

Complex economies are invariably economies that will attract regulation. ICT innovation brings with it important issues of patent and property rights protection, the digital world as a whole very serious concerns about privacy. Biomedical research, for example, is a cutting-edge field, but also a minefield of ethical risks. The challenge for any economy will be how to regulate these risks while not blunting the innovative energy.

Moreover, complex systems require suitably skilled workforces. This is an issue across the world, since opportunities for those most in demand are global in nature. This is not only a matter of the production of skills – education and training – but the incentives to work in one economy rather than another. These may be explicit, such as tax concessions or immigration support, or implicit, as in offering a superior quality of life.

Competent level of governance

The message here is that the sort of world-leading economy to which the South African government (nominally) subscribes requires a competent level of governance.

Yet in each case, the standard of governance, and the choices it has made, work in direct opposition. Dealing with the limitations of South Africa infrastructure has been the subject of much discussion, large outlays – and few results.

It’s been close to two decades since power outages began, and it bears noting that young people leaving high school now below to a generation that has never known a country without them. The flagship initiative to resolve them, the station builds at Medupi and Kusile, have not only lagged way behind schedule, but are plagued with design flaws and beset by controversy about the benefits accruing to the ANC. The latter phenomenon has been an all-too-regular theme.

Ongoing deficiencies in broadband curtail South Africa’s attractiveness as a cutting-edge place to do business, and one that the government acknowledges. But when a possible contributor to a solution appears – the Starlink system – this is promptly rejected on the basis that racial ‘empowerment’ demands must first be met.

Little restraint is shown in imposing regulations and passing laws, although their purpose frequently seems to owe more to the government’s ideological predilections and a belief in what it should be doing. It seems impervious to the realities of the severely truncated capacity of the state (even to draft the legislation that it believes to be necessary, a complaint memorably made by National Assembly Speaker Max Sisulu in 2012) and the disconnect between what the state might productively do and what its interventions will likely produce.

South Africa’s government legislates and transforms. It fails to govern.

Greatest tragedy

The country’s skills profile is arguably its greatest tragedy. A failure to develop a satisfactorily skilled workforce was an inheritance of the past. Post-apartheid South Africa has failed spectacularly to turn this around, in no small measure because of the interests of ANC-aligned unionists. And the failures in governance across the board – think crime, escalating costs of living, and so on – constitute potent push factors to drive the ambitious and highly-skilled abroad.

Indeed, it’s not apparent that the importance of skills and personal capacity are meaningfully recognised at all. An ANC MP declared over two decades ago that it was imperative to disregard merit as the overriding concern in employing state officials.

The Sunday Times recently reported that the ANC’s deployment committee (a body with no legal or constitutional legitimacy whatsoever) was dissatisfied with the potential candidates to head up Transnet. That they were not ethnically African was unacceptable. ‘The optics will not look good.’ Rather, some on the committee were lobbying for Mlamuli Buthelezi, a former Transnet executive who’d been suspended over allegations of impropriety.

The sense of blinkered unreality is breathtaking, though sadly not unexpected.

Ongoing decline

Carry on like this, and all that can be expected is ongoing decline. This is not a matter simply of the country getting poorer, but also progressively less sophisticated in its capabilities with a correspondingly degraded ability to repair the damage and claw back the ground it is losing.

This is the underappreciated reality of South Africa’s predicament. It needs to be understood and confronted. Future iterations of this column will discuss strategies for doing so.

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

Image by Peter H from Pixabay

Terence Corrigan is the Project Manager at the Institute, where he specialises in work on property rights, as well as land and mining policy. A native of KwaZulu-Natal, he is a graduate of the University of KwaZulu-Natal (Pietermaritzburg). He has held various positions at the IRR, South African Institute of International Affairs, SBP (formerly the Small Business Project) and the Gauteng Legislature – as well as having taught English in Taiwan. He is a regular commentator in the South African media and his interests include African governance, land and agrarian issues, political culture and political thought, corporate governance, enterprise and business policy.