Will the future of SA be bleak or prosperous? – OPINION



Shawn Hagedorn says current government policies are creating mutually reinforcing debt and poverty traps

What is the probability that more than 50% of black South Africans will be poor fifty years after the end of apartheid? Without precise political hubs, this tragic outcome will soon become inevitable.

Take stock

Our economic outlook is shaped by measures of changing market conditions. The models used to evaluate titles are, however, significantly different from those needed to guide development. This is particularly problematic in South Africa.

Our capital markets are up-to-date and comprehensively integrated while our economic policies favor isolation and the supply of raw materials to the world of the stacks of yesteryear. Meanwhile, many development experts who influence our policymakers are dismissive ideologues of how the current disruption-driven global economy continues to reshape business realities.

Most countries continually recalibrate their economies by copying what benefits their neighbors. South Africa, the region’s long-standing economic hegemony, and the region in general, are stuck in the past.

Effectively valuing securities is very difficult and although it stimulates growth by raising capital, it does not. Likewise, real estate agents allow transactions while your home was designed by an architect and built by a builder. The plans that drove the rise of Asia, rapidly raising over a billion people, were not guided by the parameters of the capital market.

Two or three years of high youth unemployment during the trough of an economic cycle causes superficial scars. Like a civil war, prolonging unusually high youth unemployment wreaks havoc on a country’s future.

Choices

Strong commodity exports halted South Africa’s decline in creditworthiness. The current policy framework should take advantage of more and cheaper capital to move to a high growth path.

On the contrary, our policies create mutually reinforcing debt and poverty traps. This will be highlighted when, in February, we discuss the extension of basic income subsidies to healthy young adults. If commodity prices are then significantly lower, the discussion will be tougher but more realistic.

To improve labor market participation, countries need to increase domestic consumption or exports, or both. Our domestic consumption has been excessively fueled by costly public and consumer debt. The increase in commodity exports may temporarily improve the parameters of the capital market, but this is not sustainable. Nor will it tackle our most dangerous development constraint, skyrocketing youth unemployment.

Over the past decades, dozens of countries in other regions have experienced high growth by developing niches within global supply chains. This project is to economic success today what assembly lines were three generations ago.

Our redistributive policies inflict a strong internal bias, thus undermining participation in “global assembly lines”. Therefore, our economic growth depends on domestic consumption as well as the export of raw materials and some motor vehicles. As our per capita income stagnates as the costs of servicing onerous debt mount, isolationist policies further accentuate rampant poverty and unemployment.

Demand for many of our exports has increased recently as Covid restrictions have eased and economies have rebounded. Almost simultaneously, investor-led efforts to reduce carbon emissions have undermined the long-term prospects of our export heavyweights. Platinum Group metals and motor vehicle exports are vulnerable as the outlook for thermal coal has slumped.

No transition

The pandemic has triggered an economic crisis, thus testing the resolve of our so-called reformist president. The “localization” of his party will trigger more inflation, unemployment and corruption. Such a doubling of policies that hamper growth is evidence of an inability to reform.

Anti-uplitment policies are common among resource-endowed countries with consistently high poverty. Resource wealth discourages ruling elites from adopting proven high-growth pathways, most notably, integration into global supply chains followed by improved educational outcomes.

ANC policies are reversals of those that lead to broad prosperity. Responding to the current economic crisis with whereabouts legislation underscores the need for a reframed national dialogue to inspire profound change in 2024.

Capital market metrics prevent us from recognizing how our current path prepares us for worst-case scenarios. Every year, hundreds of thousands of South Africans in their 30s who have never worked become, indeed, unemployable. Each year our economy becomes more and more out of alignment with the global drivers of success. The main one is to add value to exports within global supply chains.

ANC policies prevent significant growth in value-added exports despite declining prospects for our current export list: commodities; the production of motor vehicles encouraged by the government; and sub-Saharan Africa – although this region accounts for less than 1% of global discretionary purchasing power.

Job prospects currently depend on domestic consumption to grow the economy – despite consumers being overburdened and having too little disposable income. Large volume job creation requires a policy change to increase value-added exports. Instead, our policies limit our competitiveness and our attractiveness for investment to the point that a majority of our young adults have become economic liabilities. Our national discourse therefore grossly underestimates the long-term implications.

Alignment issues

The interests of political parties and unemployed young adults align when high growth is achieved through value-added exports. Conversely, when the exports of a geographically isolated country are dominated by raw materials and its population is predominantly rural and poorly educated, the ruling elites are motivated to act as feudal lords. Feudal structures have prevailed across the world for many centuries. Their enduring cultural norms emphasize enslavement and dependence, not electoral accountability.

Scientific and commercial advances have enabled even poorly educated workers to achieve levels of productivity far above subsistence lifestyles. The standard rise today is for high poverty countries to have a significant portion of their workforce employed in the midst of “global assembly lines”. This triggers a constant updating of skills and knowledge.

2024

If the 2024 national elections do not signal a watershed, five more years of policies favoring redistribution at the expense of growth will devastate South Africa’s long-term prospects. It will then be nearly impossible for a new government, in 2029 or later, to undo the damage and prevent most black South Africans from being poor fifty years after apartheid ended.

ANC electoral support is expected to drop below 50% in 2024. Yet examination of electoral and economic trends suggests that the wheels should come off – along with the flickering lights – to sideline the ANC. . A new government would then probably need at least a decade to get back to where we are now.

The focus should be on achieving a 2024 government coalition between the ANC and one or more centrist parties.

Now

The need to debate subsistence subsidies for millions of healthy young adults provides an ideal framework to change the framework of our economic conversations from inequality to employment and poverty.

While our president remains enthralled with the investment conferences, attendees and voters alike are losing patience with his empty promises. Just as global investors have outstripped elected officials in developing climate solutions, we must look to investors to support small and medium-sized enterprises focused on finding specialized export channels.

If a North American company wants to invest in South Africa and hire South Africans to add value to products and services destined for Europe, how does it make sense for redistributive policies to block such investments? job creators?

The ANC will not abrogate the political framework which supports its vast network of patronage. But it is in the party’s interest to grant waivers to initiatives that create jobs by integrating into global supply chains.

Even a minor success in this direction will validate that SA can embrace the growth model, integrating into global supply chains, which is common among high growth countries today. As the old saying goes, “nothing succeeds like success”.


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