A few weeks before our budget imbroglio began, President Cyril Ramaphosa stated, “We need SA solutions for SA problems.” However, our economy is trapped by excessive levels of poverty, debt and unemployment.
A need to redress historical injustices against the majority of citizens is ideal for a governing party seeking to entrench the support of most voters through redistribution. But such rampant political patronage undermines economic basics.
Raising living standards has always been about increasing productivity while saving and investing prudently. The trajectory of our workforce’s productivity is remarkably grim, as ANC policies have entrenched the world’s most severe youth unemployment crisis while most of our households are poor, overindebted or both.
In recent years ANC and business leaders have sought investment-led growth. But interacting with investors did not lead to more pro-growth policies, nor an appreciation that investment-led growth is only suitable for spurring commodity exports. Rather, it was presumed that higher commodity exports would unleash substantial second-order growth effects.
The five years of nearly 5% growth triggered by a commodity boom in 2002 benefited substantially from such multiplier effects. The rand rallied sharply, interest rates fell, housing prices firmed and households borrowed — often at high rates for unsecured loans. Our economy is now far less able to positively lever externally generated growth surges.
Former president Jacob Zuma is routinely associated with extreme corruption, but during his nine-year reign legal patronage also compounded. His successor hasn’t adequately constrained either, but the big difference is that legal patronage is approved through the budgeting process.
The ANC’s poor performance in last year’s elections stems largely from it having prioritised patronage at growth’s expense. Our budgeting woes echo these effects. That is, Ramaphosa could not have been more wrong — SA cannot solve its own problems. Our economy has long been slowly imploding due to woefully inadequate domestic spending capacity, which traces to weak household balance sheets and ultra-elevated unemployment.
We should pursue investment-led growth to expand commodity exports, while appreciating that this can’t possibly achieve adequate job creation. Yet the trajectory of our workforce productivity — due mostly to low workforce participation among young adults — signals ongoing economic decline. The stark implication is that creating jobs has become more important than growing the economy. The ANC refuses to accept this as it would require purging patronage-inducing policies such as BEE and localisation.
Because SA is so isolated geographically, politically and economically, the ANC has been able to convince nearly all of us that it is necessary to grow the economy to create jobs. As the trade war between the US and China highlights, China’s four decades of nearly 10% annual growth was never contingent on growing China’s economy. Rather, China’s growth followed from converting peasants to factory workers who added value to exports.
Aside from the highly distorted automotive manufacturing sector, few of our young adults add value to exports. Still today, China’s household spending capacity is insufficient to grow its economy.
Nor is it prudent to see China’s amazing 40-year growth spurt as having been investment-led, despite China’s success at attracting many billions of dollars in investments. As China’s domestic consumption was so weak, its growth was achieved through value-added exporting, and that growth, alongside high savings rates, spurred enormous capital mobilisation.
We lack a viable economic growth strategy and are in denial about how extreme our unemployment crisis is. Our elongated budget process is further challenging the ANC’s reliance on patronage, while a few wiser politicians acknowledge the need to prioritise growth and jobs.
SA’s most critical economic challenges have far less to do with the rate of our GDP growth than with integrating our young workers into the global economy.
• Hagedorn is an independent strategy adviser.
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