How can we untangle ourselves from our current mess?

In the 30 years that SA joblessness had steadily risen, China, India and the Asian tigers such as South Korea, Taiwan, Singapore and Hong Kong pulled hundreds of millions of people out of poverty. More surprisingly, so did Ethiopia, the fastest-growing country in the world in the 2010s, according to the IMF.

Recent studies in Ethiopia show that it was good policy and practice that made the difference. We should be listening.

Both Robert Mugabe and Nelson Mandela had a chance to learn from the best. The former Zimbabwean president had several meetings with the most successful economic reformer in world history, China’s Deng Xiaoping. China cut poverty from 88% in 1981 to 0.7% by 2015.

Deng advised Mugabe not to get stuck in dogma, to be driven by the realities on the ground, and to maintain stability. In reply, Mugabe scolded Deng for deviating from Mao’s path. Deng was annoyed. He thought Mugabe wasted his time.

Which economy would you prefer today — China’s or Zimbabwe’s?

Mandela took Chinese success more seriously. At Davos in 1992, premier Li Peng told Mandela to avoid nationalisation because communist China had tried it and failed. Madiba appreciated that China’s track record gave Li the authority to give advice. That meeting changed his views.

The lesson of Asia and countries such as Ethiopia are not simply to “privatise”. Japan calls itself capitalist, China calls its system “socialism with Chinese characteristics”. Both used a mixture of a strong private sector and a strong state.

The common lessons of successful countries are not about state or market dominance, development economists have shown, but how the state develops and applies its policies.

The Asian route — start with low-cost manufacturing and move up the complexity chain — is not open to SA. Asian countries still dominate those sectors, and robots are reducing the number of jobs in them anyway. But Asia’s real lesson is not “go make clothes,” it is “find the global trends that suit your particular country and ride them with determination”.

SA faced three great global trends tailor-made for its economy after 1994. We flubbed all three.

In the 1990s, the world was obsessed with the dot-com boom but we failed to upgrade our telecommunications system to take advantage of it fully. In the 2000s, the China-led resource boom drove commodity prices up, but our mining output steadily declined because of policy uncertainty. In the 2010s, we had a similar stop-start approach to green energy, the new trend sweeping the world.

We cannot get those jobs back. But all three trends still hold the potential for large numbers of new jobs if we face up to our mistakes and self-correct.

While we faltered, the percentage of the population living in extreme poverty in Ethiopia fell from 70% to 20%. Ethiopia’s employment went from 20-million jobs to 58-million. This was almost a 200% increase in the period we in SA rose less than 50%, from 15-million to about 23-million.

The poster child for Ethiopia’s success is its airline. As SAA declined until it collapsed, Ethiopian Airlines climbed the charts to become 26th in the world airline index. It is known for its hard-working, loyal and underpaid staff, and for never getting a government bailout. It now owns 49% of Nigerian Air, Zambian Air, Air Malawi and Air Guinea, and 100% of Ethiopia/Mozambique Air.

That could have been us. In 1994, you would have bet that it would be us. So how did Ethiopian Airlines eat SAA’s lunch?

It turns out that Ethiopian Airlines is 100% state-owned, but the government’s deal with its airline is that it will not interfere — and will not bail it out either. Competent managers are incentivised not to fail because there will be no rescue. They will be out of jobs. SAA, meanwhile, had the worst kind of state deal — state ownership paired with state interference, leading to losses and endless state bailouts concluding with ignominious bankruptcy.

We surrendered our airline dominance to Ethiopia and the United Arab Emirates, and gave China our construction dominance. Not too long ago we were an embryonic force for renewables in Africa, but we left that to China too.

But the airline is peripheral to Ethiopia’s grassroots progress. A study by Oxford’s Prof Stefan Dercon shows Ethiopia’s accurate understanding of its state’s relative strengths and weaknesses, and a culture of real-time error correction were keys to its success.

From the research of Dercon and others there is every reason to believe if these guidelines were adopted — and implemented — we could turn around SA’s jobs slide:

• Make sure you understand the real capabilities (and limits) of your state. (Don’t propose a second Eskom if you can’t run the first);
• If you don’t want to keep bailing out state-owned enterprises (SOEs), you have to let their executives make the decisions without interference (no bombastic ministers);
• Instil public pride in goods made in your country (lead by example, drive cars made by SA union members, not German ones);
• Successful job-creating policy is sectoral. Nobody invests in “SA”. Listen to sector experts, while keeping the public interest to the fore;
• Take advantage of global trends suited to your economy — they often provide the biggest jobs payoff; and
• Instil a culture of real-time error correction. (No SABC boards vacant for four months, or Eskom’s transmission board not appointed for a year.)

These are not lofty ideological theories and they sound like common sense, but here’s what it would mean if they were applied.

• Accurately assess your state’s true capabilities.

This should be the most obvious, but as soon as you hear it you know it’s not applied in SA. All states have their unique strengths and weaknesses. Stay away from doing what the evidence indicates it cannot.

Every new project idea should start with a careful assessment of the state’s historic effectiveness in the relevant field. A state bank is not necessarily bad, but the first question must be about the track record running similar institutions, not just their competence, but their record of achieving the job-creating results contained in their declared purpose.

What about our regulators? Politicians act as if they can be given any task. But are they fulfilling their present mandates effectively? Many should protect consumers, but do South Africans feel protected from the rising tide of fraudulent cellphone, internet and email attempts that are now daily routine?

Until the public has confidence in the regulators, it is more urgent to fix them, reform them or close them than to add new burdens.

• Even SOEs must be free of operational interference.

The list of SOEs that have started turnarounds only to be thwarted is long — SABC, Eskom, the Post Office to start with. Respond to evidence of their track record, not the prejudices of back-room party honchos.

In my 18 months on the SABC board, we faced five communications ministers. Only weeks into the job, each came to tell us what the government expected from us, often oblivious of the issues people around the table with decades in the field needed to be resolved. Then they were replaced.

• Instil loyalty to buying SA goods.

In my book Cyril's Choices, An Agenda for Reform I quoted former trade & industry minister Rob Davies: “Every bent contract goes to an importer at the expense of local companies.”

State capture contracts went to foreigners, not locals, because it is easier to manage foreign backhanders. China is implementing its “made in China 2025” policy, and “made in India” was launched in 2014. SA’s biggest contracts advance Beijing’s “made in China 2025” programme.

Perhaps SA’s biggest corruption contracts — bigger than the arms deal — were for the 1,066 locomotives ordered mostly from China at the expense of an SA General Electric locomotive factory. By contrast, “made in China 2025” sets the number of internationally recognisable Chinese brands and internationally competitive companies it expects to have on the world stage. SA’s China contracts are part of made in China 2025.

Our government simply does not think like that. When the government-owned Sanral awarded R6.6bn in construction contracts to Chinese firms while SA construction firms face collapse, Sanral spokesperson Vusi Mona said: “In SA, there is no law that says foreign companies cannot do business with us.”

In SA we do not care who gets the business or where the profits (future investment funds) are repatriated to. If SA turns a blind eye while someone else eats our lunch, do not be surprised when they gobble.

Instead of feeling patriotic pride in cars made by SA union members, politicians arrive at party events proudly displaying their taxpayer-funded imported luxury German cars, instead of slightly less luxurious SA-made Mercedes or BMWs. (It is notable that Davies and his successor, Ebrahim Patel, both deliberately drive locally made cars, but they do not trumpet the fact to their cabinet colleagues).

• Job creation policy must be industry specific.

Politicians think “investment” is generic. When investors do not invest, they call it “an investment strike”. But investment decisions are made in sectors where they see potential profits. Where they do not, they “strike”.

The ANC wants to give the Reserve Bank an employment mandate. It will make little difference. Investors will decide based on sectoral opportunities much more than national monetary conditions.

Berkeley Prof Chalmers Johnson, the renowned Japan scholar who coined the term “development state”, told me in an interview that it fails if either the state or the private sector overpowers the other. Only when power is split more or less equally between the state and business is rapid growth achieved, through market-conforming, public interested compromises.

The government is now trying to negotiate sectoral compacts. They will only work if each side is forced to take on board the legitimate concerns of the other.

• Exploit global trends when they run in your favour.

This is where SA’s biggest job-creating opportunities were mishandled, though of course there are others. Three trends dominated global growth after 1994 — the information boom of the 1990s, the resource boom of the noughties, and the green energy revolution of the 2010s. SA was well placed to take advantage of all three, but we blew it.

The 1990s’ global growth driver, information, is not to be confused with the fourth industrial revolution (4IR), which could produce a “jobs bloodbath”, the president’s 4IR commission chairperson, Prof Tshilidzi Marwala, told me.

By the mid-1990s we already knew that faster, cheaper internet would create huge job opportunities, in areas including programming, call centres, and African tech. Good, above-ground jobs that young people want. Even our conservative Treasury expected it to add 0.6% to growth.

SA was well-placed to exploit it. We had English speakers who could fill new jobs in call centres and other back office work, young people interested in the new technology, and good enough infrastructure to launch the upgrades needed to be competitive.

The potential of the information economy was punctured by many missteps. The last was to stall the migration of TV signals from analogue to digital to free up valuable spectrum for faster cheaper broadband. So our data costs are far higher than those of our peers.

Twenty years after the Digital Commission laid down the pathway, the job is still not done. Most of our poorer neighbours have long since completed the task, some using SA experts.

The China-led resource boom of the noughties yielded far less benefit to SA than it should have: exploration for new mining ground had stalled. Mining ministers and policies changed too often for investors, and the government delayed issuing permits. This explains the anomaly — SA still benefits from high mineral prices even as total output in tonnes declines.

SA had at least a dozen manufacturing or assembly plants for solar panels and related kit at the start of the third great wave, the green revolution. But the government’s stop-start approach to green energy left investors bewildered and disillusioned.

• Instil a culture of real-time error correction.

A modern country does not take years over urgent decisions. Delays cost jobs. As soon as theft and sabotage at Eskom power plants became a problem, a modern state should have urgently deployed specialist crime teams. Where skills were scarce, they should have been brought in urgently from outside.

Rapid error correction must be embedded in the culture.

Wasted investment on locomotive and solar energy factories, alienated mining companies, and digital migration cost hundreds of thousands of jobs. The government’s errors did nothing to fight the “triple scourges of poverty, unemployment and inequality”.

Several African countries have done better, but Ethiopia is the standout example. Its economy was far less sophisticated than ours, but its methods were ahead of us.

Their government analysis showed high dependence on agriculture, so the first step was to introduce farming reforms, better seeds, better practices and extension services. Farming yields rose, so they moved on to small-scale agricultural manufacturing. Infrastructure, another spur to growth, was prioritised and implemented. Then came the time to kick-start industrial activity, which has been growing healthily.   

Sceptics may try to dismiss Ethiopia as irrelevant to SA, as they do Asian growth. They argue these countries are more authoritarian, subject to different conditions.

These points are true, but they are too easy an explanation. Dercon points at that the two top performing African economies, Ethiopia and Rwanda, have one other thing in common. Their governments are both run by ethnic minorities. For them, the luxury of legitimacy from tribal affiliation is absent. Their legitimacy depends on delivering improving economic wellbeing. That, explains Dercon, is one reason they never relax.

SA has experts of all races ready to act if this becomes the culture. Wouldn’t harnessing their skills provide the vision the country is crying out for?

To make these changes will take preparation. For SA’s sake, potential 2024 coalition partners should be hard at work now.

• John Matisonn is the executive director of Ideas for Africa and the author of ‘Cyril’s Choices, An Agenda for Reform’.