Since our government’s policies have entrenched the world’s most severe youth unemployment crisis and none of our leaders can articulate a workable solution, we should embrace the cliché “to improve something, start by measuring it”.
Our official youth unemployment rate is 62%, and our political and business leaders hope to steadily reduce this by growing domestic purchasing power. Yet plausible scenarios to support such thinking don’t exist. This would become obvious if we tracked how many of our younger adults have been permanently marginalised. The number is about 5-million and given our modest growth trajectory another roughly 300,000 will join them each year.
Our business and political leaders prudently agreed to pursue investment-led growth and this should boost GDP by increasing commodity exports. But this sector is extremely capital- intensive, not labour-intensive. To achieve and sustain rapid job creation we must either surge domestic consumption or value-added exports.
However, per capita income has been flat for 15 years and forecasts suggest GDP growth will not exceed population growth this decade. Our consumer and government spending have long been insufficient to spur adequate job growth. Far too much purchasing power has been brought forward by households and the government incurring expensive debt. Prematurely accessing pension assets signals late-stage desperation.
SA’s growth prospects are so undermined by misguided government policies, ultra-elevated unemployment and weak household finances that ratio analysis has become a haphazard shortcut. For instance, a fundamental review shows that both our debt-to-GDP and fixed-investment-to-GDP are unreliable metrics. Even if a country’s government debt exceeds its GDP this could be fully sustainable, depending on the cost of the debt and the country’s long-term growth prospects. Conversely, our debt costs are unusually high while our growth prospects are particularly weak.
While lifting SA’s low fixed-investment rate should increase GDP by raising commodity exports, it is wrong to presume mobilising capital would noticeably increase jobs through boosting domestic consumption. The binding constraint choking our economy has long been inadequate domestic purchasing power. ANC anti-growth policies further flatten our purchasing power trajectory while stoking already ultra-elevated unemployment.
Our weak domestic consumption and high unemployment have become mutually reinforcing. The world’s largest retail company, Walmart, made the multi-billion dollar error of investing in Massmart just as our per capita income shifted into long-term stagnation. Other investors know this, and that our domestic consumption will remain soft.
That our discourse routinely conflates corruption and patronage has also become relevant. Most patronage is legal and requires a complicit parliamentary budget approval, yet the ANC no longer dictates parliamentary outcomes.
Perhaps the least defensible of frequently expressed views is that we just need far less corruption and far more competence. That view was demonstrably false a decade ago and our level of youth unemployment renders it delusional.
The ANC’s electoral dominance had long relied on patronage, but last year’s elections showed how this strategy can backfire. Pro-patronage policies are irreconcilable with robust job creation, and surveys identify jobs as voters’ top concern. The oft-repeated false narrative that many jobs will follow from investment-led growth benefits no-one.
The ANC fixates on investment-led growth, because increasing commodity exports through huge capital infusions funds much patronage. The rest of us should support efforts to grow commodity exports while lobbying for broad dispensations from anticompetitive policies for value-adding exporters. This is our most manageable path towards spurring growth and high volume job creation.
ANC factions squabble among themselves while casually dismissing the views of outsiders. But voters clearly prioritise job creation and the ANC knows it is vulnerable in next year's local government elections and in 2029. It doesn’t have any promising job creation ideas, whereas exempting value-added exporters from BEE-type regulations would essentially be free and is basic common sense.
Few young adults in SA add value to exports, whereas this path is common among high-growth countries. To provoke powerful solutions, our policy debates must be accurately informed.
• Hagedorn (@shawnhagedorn) is an independent strategy adviser.
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