If we don’t integrate our young adults into global supply chains, South Africa’s potential will remain largely unemployed.
Peter Drucker, the legendary management guru, is credited with coining the adage, “You can’t manage what you can’t measure.” Quite possibly the best measure of a country’s economic dynamism in today’s rapidly evolving and highly integrated global economy is the portion of its young adults who add value to exports.
The nature of their jobs is also telling. The value added by employees tends to be quite modest with tourism jobs and lower still with commodity exports. South Africa’s manufacturing export jobs are concentrated in the sectors most distorted by government policies, such as automotive, pharmaceutical, steel and aluminium production.
South Africans steadily spurring innovations creates the impression that our economy is dynamic. Yet, alongside our having entrenched the world’s most severe youth unemployment crisis, hardly any of our twentysomethings add meaningful value to exports destined for first-tier markets on terms which haven’t been influenced by commercially distorting government interventions.
Innovate and integrate
As a vanishingly small portion of our young adults adds value to exports on purely commercial terms, we mustn’t delude ourselves into thinking we have a dynamic economy. That isn’t to say that we don’t have innovative people and companies. But our leading companies that have successfully expanded internationally, such as Investec, Discovery and Nandos, serve foreign markets by employing people in those markets. We don’t innovate while integrating globally in ways which propel growth and employment in South Africa.
The Cold War ended amid advances in communication and transport technologies that encouraged extraordinary expansion of global supply chains largely indifferent to national borders. This unleashed the extraordinary global upliftment of many hundreds of millions of previously disadvantaged people. Meanwhile, our ruling elites steered us from externally imposed sanctions to domestically enforced localisation regulations.
Africa is the least developed region due to geography, geology and domestic politics. Transportation costs would be sharply lower if this region had Europe’s, let alone North America’s, network of navigable waterways. Rather, Africa is cursed by geological riches wreaking domestic political havoc in an economic era increasingly dominated by digital services and international trade. Most commodity-dependent nations are poor and most poor countries are commodity dependent. Geological wealth mixed with geographic isolation invites predatory politics − as we know well.
Sub Saharan Africa is, by far, the least lucrative regional market. South Africa’s long-stagnating economy largely reflects combining localisation policies with meagre discretionary income. This won’t be remedied by exporting to neighbours with faster growth rates but extremely low per capita incomes. Our extreme levels of unemployment and poverty trace to localisation policies amid an era of intense globalisation and rapid-paced innovation. South Africa lacks sufficient consumer spending power to employ a healthy majority of school leavers and the region is even worse off in this regard.
Self-imposed barriers
Formation of our government of national unity (GNU) presents an opportunity to overcome the self-imposed barriers which have constrained our economy. But, as this happened swiftly and unexpectedly, our national dialogue hasn’t yet caught up. Our public discourse is slowly acknowledging that we have two overarching economic goals: reducing unemployment and growing GDP. However, we have not begun to acknowledge the fact that GDP cannot grow fast enough to adequately reduce unemployment. Nor are we confronting the reality that reducing unemployment is actually far more important than growing GDP.
Our households are many decades away from being able to spend enough to support a healthy level of workforce participation. The only way we can achieve that is to follow the lead of the dozens of emerging economies which have integrated extensively into global supply chains by carving out small niches which they can defend. SA-based companies are constrained from doing this by a slew of anti-business regulations. China fervently pursued this path and yet, after four decades of roughly 10 percent annual growth, that country’s domestic spend remains woefully inadequate to support full employment.
The ANC can be persuaded to provide special exemptions from such anti-competitive regulations for value-added exporters, as this costs them nothing and our obscene level of unemployment threatens the party. But the ANC isn’t going to initiate such an effort. The impetus must come from within the GNU or from a focused public outcry.
The next step hinges on identifying niches for South Africans to add value within global supply chains. This is the central component of 21st century economics which we have ignored. As most people are restrained by outdated notions and focus excessively on obstacles, it is essential that entrepreneurs lead the charge by ferreting out myriad international opportunities of all shapes and sizes. This very special role explains why entrepreneurs are revered.
To create a dynamic economy we must integrate many of our young adults into global supply chains. This is also the only way to overcome our unemployment crisis.
[Image: https://www.pikist.com/free-photo-sfrzp]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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