Our political and economic biases preclude broad prosperity. Mixing inequality politics and resource extraction undermines upliftment.
A recent editorial by a leading business publication extolled the virtues of chrome beneficiation. While pursuing beneficiation is admirable as it acknowledges the importance of competing to add value to exports, we mustn’t casually presume it will benefit the majority of South Africans who are poor.
In most countries, increasing GDP benefits those least well off but this is not automatic. Mining is capital intensive not labour intensive. Due mostly to government policies prioritising patronage, our economy is structured to benefit favoured groups, such as civil servants and tenderpreneurs.
Despite current policies having entrenched widespread unemployment and poverty, we continue to presume that increasing GDP will surge employment and upliftment. Rather, as the finances of so many households and government entities are overwhelmed by servicing expensive debt, secondary growth effects are muted, resulting in meagre trickle down potential.
ANC factions are held together by patronage which the party uses inequality to justify. This victimhood style of politics precludes adequate growth by undermining competitiveness. Localisation policies then seek to counteract the need to compete internationally but this precludes adequate growth as our domestic purchasing power has long been inadequate and stagnant.
The “resource curse” describes how valuable deposits of raw materials encourage patronage politics and an overly valued currency. This can easily devastate competitiveness. Most commodity exporting nations are poor as today’s global economy is very supportive of upliftment – but it requires adding value to exports and this requires integrating into supply chains through emphasising competitiveness and specialisation.
Politically inspired concept
The term “beneficiation” is not used in highly developed economies as it is a politically inspired concept that rarely survives scrutiny. Bulk shipping is cheap while smelting requires low-cost energy.
The editorial advocated for SA’s chrome smelters to receive “urgent electricity relief”. This means SA’s households would be subsidising industrial production. Under some circumstances this could be sensible, but ANC policies have already entrenched ultra-elevated unemployment alongside widespread poverty.
SA’s recent GDP report showed low growth that was slightly better than expected as accelerated withdrawals through the two-pot pension fund system funded higher sales of shoes, socks and the like. Most of our households are poor, over-indebted or both. It is fully unrealistic to think that their paying even more for electricity to subsidise smelters will be offset by trickle-down benefits.
Focusing on improving GDP growth while ignoring household realities is an invitation for populist pressures for policies of the Jacob Zuma variety. The countries that have adequate consumer purchasing power have been increasing productivity for generations while saving and investing prudently. Conversely, many of our lower-income households believe that if a bank will loan them money they must be able to afford it while others presume that if the banks are profiting, the economy must be benefiting.
Meanwhile, the banks rely not on character-assessing criteria but rather credit scoring mixed with a portfolio approach where those who pay on time subsidise the banks through their paying high rates that compensate for the high default rates of others. That low-income households are, in effect, subsidising the bank’s credit losses through paying high interest rates is antithetical to upliftment. Repeating such subsidising to create smelters is similarly deleterious.
Permanently marginalised
Roughly half of our 20-somethings are on track to being permanently marginalised while few of those better off save adequately. This unsustainable situation is exacerbated by policies which undermine value-added exporting.
Therefore, while the intent of adding-value to exports through beneficiation is admirable, the ANC is disinclined to promote competitiveness as that would clash with running a massive patronage network. Conversely, having many millions rely on grants to fund subsistence-level lifestyles aligns with the ANC’s patronage politics.
The evidence is overwhelming and incontrovertible; we have no choice but to surge value-added exports. It is an unaffordable mistake to think that we have to identify value-adding prospects before committing to pursue this path. We must commit to finding opportunities consistent with 21st century growth drivers such as global integration, services, specialisation and now artificial intelligence. We mustn’t kid ourselves by placing faith in beneficiation. It is tempting, yet dangerous, to believe that resource endowments provide advantages for adding value. Rarely is this true.
It very much suits the ANC that our national dialogue continues to deny the reality that our consumer purchasing power is woefully inadequate to spur broad upliftment. Yet the rest of us must accept the need to add value to exports. Instead, our collective response is to say, in effect, that we aren’t going to pivot in that direction until we identify which growth channels we must pursue.
Countries in other regions avoided such policy paralysis as they couldn’t rely on exporting commodities to pay for imports and they were influenced by faster moving neighbouring countries.
Adding value to exports
We must firstly, and urgently, commit to restructuring SA’s economy toward adding value to exports. The second step will be ongoing. Diverse entrepreneurs will need to ferret out opportunities for our companies to carve out niches where they can become globally competitive through specialising within international supply chains.
If we must subsidise electricity costs to beneficiate minerals, then lower-income households will be subsidising such smelting operations. We dare not further abuse our lower-income households. We must cease fixating on the country’s resource endowments to the point that it curses us.
It makes more sense to do things like attracting digital nomads to spend their northern hemisphere winters here thus creating many service sector jobs. Loosening visa requirements is very sensible.
Associating upliftment with large investments and resource extraction reflects our being out of step with the drivers of global growth. We need to rather focus on services, specialisation and global integration.
Out of step
Nor should growth initiatives further compromise lower income households or require sharp increases in government debt. Our perceptions of growth options are out of step with the times and our circumstances.
Ultimately, we must see our greatest assets as being our abundance of idled young workers and how their education shortfalls can be offset by AI and how they can be integral to carving out niches personalising company interactions with their customers. To pursue broad prosperity we must overcome the resource curse by integrating our young adults into the global economy.
[Image: Pete Linforth from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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