Rather than follow high-growth countries that add value to exports, racial populism has promoted SA’s isolationism. Localisation policies now mix with ultra-elevated unemployment and high consumer indebtedness to ensure economic stagnation. Stopgap measures, such as funding consumption by liquidating retirement savings, reflect short-term thinking.
No country is more geographically distant from the largest economies than SA is, and policies supporting widespread patronage, such as BEE and localisation, create further separateness by precluding the competitiveness needed to grow value-added exports.
This leaves our economy dangerously reliant on commodity exporting, which is highly capital-intensive. While we could probably add about 2% a year to our GDP trajectory through increasing commodity exports, that would create few jobs, directly or indirectly.
Strong growth in one sector should unleash economywide multiplier effects. Yet, if a governing party’s strategy is to secure electoral dominance through pervasive patronage across a country’s public and private sectors, multiplier effects will be muted. Having low-income households become excessively reliant on expensive debt further stifles growth.
Such patronage-reliant electoral strategies are a form of populism that can be particularly effective if a majority of the electorate is poor and wealth is narrowly concentrated among members of a different ethnic group.
While such a path can be followed for decades if a country has abundant commodity wealth and a sophisticated financial services sector, the ultimate effect is to embed widespread poverty.
The recent contention by Capitec CEO Gerrie Fourie that SA’s unemployment rate is actually near 10% highlights our meagre understanding of how low-income households make ends meet. About half of SA’s households are poor and a huge portion of those in lower-income communities struggle to service their debts.
If a bank approves a loan application, they must be able to afford it. If banks are making money lending to low-income earners, then such banking of the previously unbanked is constructive. Such perceptions are common, dangerous and wrong.
Economic development requires raising worker productivity, saving sufficiently and investing wisely. Future productivity will be determined by a country’s young adults. The average productivity of our 20-somethings is astonishingly low, while their willingness to take on expensive debt is high.
Most of our 20-somethings are unemployed, informally employed or public servants. Few experience rising productivity through their employers investing, meaningfully and effectively, in skill building. Meanwhile, many workers borrow excessively. As workers’ finances become more dire, patronage politics can become more effective.
A large portion of young adults in high-growth countries are sufficiently productive that they compete successfully to add value to goods and services consumed by affluent households. Almost none of our young adults add value to exports. The vehicle manufacturing sector is a misleading exception due to government interventions.
Poor people who sell to poor people stay poor. Whereas in 1980 Sub-Saharan Africa accounted for 12% of the global population living in extreme poverty, today that figure is 67%. After the Berlin Wall fell in 1989, the global economy transitioned from partial to deep integration. Rejecting this era’s high-volume upliftment escalator has been the development equivalent of disregarding industrialisation or the information age.
Our bloated yet highly ineffective public service is not illegal. We should initiate a refreshed national dialogue by discarding the term “patronage” as it is routinely associated with corruption. We should rather adopt the term racial populism. After originally relying on its liberation credentials, the ANC’s electoral strategy morphed to rely on a racial populism, which presumes the poor will be grateful for meagre grants and won’t blame the ANC for their plight.
The ANC’s version of racial populism is risky politically as the poor are increasingly inclined to see ANC leadership as elitist and unconcerned about their needs. Economically, it entrenches perilous levels of unemployment and poverty.
As it makes no economic sense to deter investments in value-added exporting, such companies should be excluded from anticompetitive policies such as BEE. A new national dialogue must address why racial populism creates poverty-entrenching separateness from the global economy.
• Hagedorn (@shawnhagedorn) is an independent strategy adviser.
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