Tax-and-spend budgeting habits now need to accommodate a workable growth plan. Budget wrangling has breathed life into the government of national unity (GNU), but the parties haven’t awakened to how geopolitics and technologies are swiftly reshaping economic challenges and opportunities.
Our budget woes won’t be relieved by a 1980s-style commodity windfall, nor will 1990s-style idealism indulge our foreign affairs foibles. Tariffs are spurring supply chain shifts, while European foreign aid budgets are being cut to fund far higher defence spending. Meanwhile, AI promises to meaningfully disrupt myriad jobs while compensating for educational shortfalls.
ANC policies have entrenched the world’s most severe youth unemployment crisis, and no sufficiently robust solutions are under consideration. As our domestic consumers are overly indebted and overly reliant on our overstretched government, the only plausible way to surge employment is through integrating into supply chains serving Western consumers. Yet our foreign affairs policies are distinctly anti-Western and
anti-employment.
Prospects for Hamas, Hezbollah, the Houthis and Iran were sharply downgraded last year. Russia also features among the ANC’s favourite international actors that don’t advance the nation’s interests.
Politically exploiting ideals
The political rise of the ANC followed the fall of the Berlin Wall and the end of the Cold War. Idealism flourished — until Russian President Vladimir Putin mounted a full-scale invasion of Ukraine in early 2022. The sudden rollback of diversity, equity & inclusion (DEI) in the US and beyond represents a concerted confrontation against politically exploiting ideals.
JPMorgan recently announced it was replacing DEI with “DOI”. The world’s most valued bank is endorsing diversity and inclusion while abandoning equity in favour of opportunity. While such pragmatism is gaining international momentum, our former ambassador to the US departed after characterising US President Donald Trump as a white supremacist.
As localisation and BEE are central to the ANC’s electoral reliance on patronage, last month Ramaphosa insisted that “we need SA solutions to SA problems”. But policymakers have favoured patronage over growth so aggressively that last May most poor voters turned on the ANC.
The ongoing budget kerfuffle alerts everyone to the ANC’s diminished ability to create jobs or increase grants. Our government coffers are bare, while our households struggle alongside a generally low-skilled workforce.
Twenty years ago we had five years of 5% GDP growth. China’s commodity demand sharply boosted mining profits, and rand strength provoked lower interest rates. People bought houses, appliances and more. Our economy today has far less potential for such multiplier effects.
Commodity demand could surge but secondary growth effects would be muted by widespread patronage and household overindebtedness. Having a very low productivity workforce also impairs multiplier effects. Most of our younger jobseekers are unemployed, and millions of slightly older applicants are long-term unemployed. Too many who do have jobs are low-productivity public servants.
Purchasing power
Long-stagnating per capita income, alongside government budgeting woes, highlights why our domestic economy lacks the purchasing power to propel higher growth. Pursuing investment-led growth to expand commodity exports is sensible, but it won’t create many direct or indirect jobs. Rather, more commodity exports would fund more patronage, thus perpetuating a bleak status quo.
As localisation and BEE policies have devastated prospects for young adults — leading to our having some of the world’s highest incidences of murder and rape — surveys show voters’ top priority is jobs. This traces to patronage politics continuing to exploit SA’s tapped-out consumers. Recent examples include the two-pot pension legislation and attempts to raise VAT by another two percentage points.
We must increase exports by excluding value-added exporters from anticompetitive legislation, and by targeting countries that are large importers of goods and services. As Brics members are poor prospects — in many cases they are direct competitors — and as the US runs by far the largest trade deficit, we must hope pressure from the GNU and pragmatic ANC voices will better align our foreign policies with our development needs.
• Hagedorn is an independent strategy adviser.
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