In a study published by Harvard Growth Lab last week Ricardo Hausmann, one of the world’s leading economists, asked an important question about SA: “Why is the economy growing far slower than any reasonable comparator countries?”
It is important to note upfront that this was not simply a Harvard report produced from afar — there were contributions from a range of SA’s most prominent academics.
A key finding was that sluggish growth since the global financial crisis in 2008 can be attributed largely to the collapse of network industries — particularly electricity, transport and water. SA once enjoyed a comparative advantage in electricity-intensive sectors such as mining and manufacturing.
The final chapter of Hausmann’s report focuses on opportunities for SA, including green growth. This hinges on leveraging SA’s mineral reserves to manufacture clean technology such as vanadium redox flow batteries for grid-level storage, platinum metal group based fuel cells, and electric vehicles. It feels like a no-brainer given that SA has significant technical know-how in these areas.
The government has prioritised attracting investment to labour-intensive sectors such as manufacturing and expanding its export-led growth model. But the collapse of network industries has inhibited any progress in these sectors. Earlier this year the SA Reserve Bank calculated that load-shedding is costing the country about R951m a day. Even worse, the Bank forecast the country’s economic growth collapsing to just 0.3%, from 1.2% in 2021.
I’m often asked why neighbouring resource-rich countries don’t leverage the Port of Durban any more, given that it has long been a gateway to the continent. The reality is the port is rapidly collapsing. Transnet Port Terminals (TPT) recently announced that it will take 4.5 months to clear the backlog at Durban harbour, which now has 63 vessels at anchor waiting to be processed. TPT says with 71,000 containers stuck at sea it has lost R160m since September. Much of this is because of broken machinery.
Our neighbours, which have far smaller economies, are turning to Namibia’s Walvis Bay, Mozambique’s Beira, and Kenya’s Mombasa ports, leading to further income loss at a time when TPT has requested a bailout because of its financial position.
From a government perspective it is easier to point to macroeconomic factors for the stumble after the global financial crisis in 2008. But nearly all of our comparator countries rebounded to sound growth. The increasing failure of network industries and lack of adequate intervention for 15 years gave SA no chance of bringing historical drivers of growth back to life.
Green growth is out of the question without rebuilding network industries. Mining and manufacturing cannot survive. Earlier this year mineral resources & energy minister Gwede Mantashe noted that the failure of the rail system has cost firms $8.5bn in bulk mineral sales. These products are not commercially viable if they cannot get to a port for export.
When you factor in electricity, rail and port costs it is crippling. It is nearly impossible to incentivise domestic or foreign private sector to bring investment into the clean technology sector under these circumstances.
Privatising state-owned enterprises is controversial in SA and Hausmann does not suggest it, arguing instead for making use of private sector skills and capital. For example, he suggests that rather than selling power plants to the private sector we should rent existing power plants to other operators, with incentives for efficiency. This approach would be less politically fraught than selling assets and would enable a faster recovery.
SA does not have a viable alternative. Its growth rate has not topped 2% since 2014 with the exception of 2021, which was a result of the rebound from the Covid-19 lockdown. The economy contracted 6.3% in 2020 — far more than Sub-Saharan Africa’s average of just minus 2%.
At a time when many neighbouring countries are leveraging their resource reserves to join clean technology value chains, SA is crippled because of the failure of these network industries. Unfortunately, there is no reprieve in sight. Future divestment and decline in exports will be unavoidable.
• Dr Baskaran (@gracebaskaran), a development economist, is research director for energy security & climate change at the Centre for Strategic & International Studies in Washington DC.
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