South Africa

South Africa

The Gathering 2015: South Africa’s coming economic tsunami

The Gathering 2015: South Africa’s coming economic tsunami

J. BROOKS SPECTOR listens to The Gathering’s afternoon panel on the nation’s economic prospects and finds much to intrigue the listener from four thoughtful, knowledgeable panellists - but leaves with a great sense of foreboding.

This now-famous, knowing picture, Negotiations Begin, by renowned South African artist William Kentridge, hangs in the writer’s workroom as a constant reminder of that awkward dance between revolutionaries, politicians, big business and the darker, shadowy forces, all of whom were seemingly ignoring the nation’s population left hostage, gagged and bound to a stake.

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Created nearly a quarter century ago, Negotiations Begin captured the artist’s ambivalence over the progress (and results) of South Africa’s political transition. Of course some things would change, but many others wouldn’t – and most people, suitably trussed up, unfortunately would be unable to affect much of anything at all by the time the dance was finally called off.

All those years later and the panel discussion on the country’s economic future at the Daily Maverick’s The Gathering 2015 seemed barely more salubrious – and perhaps even less so – than Kentridge’s dark vision. Bringing together a distinguished panel comprising Moeletsi Mbeki, Iraj Abedian, Martyn Davies and Yolanda Cuba; the group wrestled with the state of South Africa’s economy, its economic future – and crucially – whether the government, business and the rest of society actually knew what had to be done and the urgency of this – and if they had the requisite strength to do it.

Speaking first, Moeletsi Mbeki reached back to his experiences as an exile and then segued to his current circumstances as an entrepreneur, author and commentator. He spoke to the evolution in his thinking about South Africa’s economic challenges, noting that his own thinking had become increasingly influenced by the realities of China’s explosive growth that had grown out of Deng Xiaoping’s famous dictum, heretically blessing capitalist accumulation, when he had said, “To be rich is glorious”. Contemplating the implications of that insight eventually changed Mbeki’s mind about the role of business in a new South Africa.

Mbeki also pointed to the power of unintended consequences, noting that the very act of disinvestment by many multinational businesses had perversely made many local corporations bigger and stronger than they had been before the disinvestment campaign had begun. This had real consequences for the country’s economic landscape post-1990, when the political settlement stretched out towards economic issues.

Currently, Mbeki observed, South Africa’s political economy suffers deeply from the whammy of a triple malaise. There is the slow growth, stagnant economy. Then there is its rampant public sector that is debt ridden and burdened with paralytic parastatals – even as it is also thoroughly corruption-ridden. Finally, the country is weighed down by the single party dominance, the effect of which is a process that can inflicts no electoral pain on the governing party, almost regardless of any missteps it takes – or any poor decisions it makes.

Accordingly, Mbeki pointed to some key hallmarks of poor political-economic leadership, including the profusion of BBBEE deals as well as the proliferating transfer of capital beyond South Africa. In Mbeki’s view, now is the time for big business to step up and play a much more visible role in supporting what it takes to create a genuine multiparty democracy in South Africa. It will be, in Mbeki’s argument, impossible to beat down corruption without that multiparty competition – and that should make it in the natural interest of business to support such a movement. As evidence of the malaise, Mbeki noted instead that illegal capital flow levels are now much higher than they were pre-1993.

Iraj Abedian, a resource economist and sometime advisor to government offices, began by noting that all the sectors of the country see the big problems, but that, paradoxically, no one does anything about them. The country is blessed with a diversified resource base and a strong business sector, but businesses must come to the party in order to reach real solutions to the country’s pressing concerns. Abedian noted there were some serious “evils” afoot; specifically a lack of skills, a failure in job creation, a propensity for bashing business – as well as union bashing and the trashing of the clean, accountable state.

Finally, Abedian argued, there is a need for South Africans to pool their resources and intellectual capital to make any real difference. Speaking to effective absence of real alternatives being advanced generally, Abedian said, “I have not yet heard a policy from any political party in this country that has not been tested and tried and failed elsewhere.”

Martyn Davies, perhaps the country’s best expert on Chinese developments and China’s involvement in the South African economy, argued that the current situation almost forces one to start thinking about what Malcolm Gladwell called “the tipping point”. Davies noted that the while the key must be to kick-start growth, that is a task easier said than done.

However, the country is still waiting for the growth spurt, years after the actual end of the 2008-9 financial crisis. He further pointed out that in 2007, only three nations were not growing, while some 114 were. In fact, the race for national development is now structural – but that structural is really just a clever synonym for something that is “politically hard to do.”

In effect, South Africa, unlike much of the rest of the continent, has effectively wasted a good crisis. Davies labeled South Africa the African equivalent of post-property bubble Japan’s continuing economic malaise. But, importantly, many major Japanese multinationals – although not the economy as a whole – have now reconfigured themselves to swim much deeper into the international sea, especially since they can now operate in what is virtually a cost-free environment as far as the borrowing of capital is concerned.

Along the way, Davies also took a poke at the advocates of easily transforming South Africa into an African developmental state – a favourite trope of so many in the country’s government economic leadership cadre. He asked such people to take a close, hard look at the state of Eskom, the institution that surely would have to be a key driver of any developmental state.

Instead, what South Africa really needs, Davies argued, is a competent state. Good riposte, that one.

Tackling yet another sacred cow, Davies addressed beneficiation as well. His argument, based on observations of the explosive growth of East Asian economies over the past two decades, was that “beneficiation” is no longer directly connected to resources, despite the usual idea of keeping mineral resources inside South Africa to move the products up the value chain. Instead, Davies noted, all that stuff in the ground actually conveys little if any comparative advantage globally. Pointing to the ubiquitous cell phone, for example, Davies noted that the vast preponderance of the value in the product resides in the IT sector based in California for its applications and other software, rather than the plastic or that combination of rare earth elements, coltan, that are used to make the devices.

Historically, Davies explained, economists have always argued that growth requires the three fundamental variables: land, labour and capital. But now, in his view, the only resource that really counts is people – educated, highly skilled, efficient, productive, motivated people – especially given the rich international resource supply chains and markets, and the virtually zero cost of capital. Davies pointed out that the most effective growing economies, now, are what must be termed zero resource economies. Davies’ argument was a parallel to what the writer often heard, living in Japan, that that country was a small, nation with no natural resources – ignoring the fact that it had vast stores of investment capital and a redoubtable labour force fit for a modern, high-tech economy. Ultimately, Davies argued, countries must work to grow – it doesn’t come raining down like manna from the heavens.

Speaking last, Yolanda Cuba, a senior executive at Vodacom and a board member at other companies, argued the subliminal message “out there” to business leaders from government and others, too often, was that it is “bad to make a profit”. But a nation of profit-making enterprises is crucial to the growth and building of a prosperous nation – and the paying of taxes. The poster child example of this view is, of course, Zimbabwe, a nation that, over the years, has largely eliminated its tax base.

That said, the South African business community must rethink the ways it frames any discussion of capitalism in the public sphere. It needs to explain fully and convincingly that investors on the JSE are the country’s own people – often by way of their pensions’ investments in businesses. And as for profits representing a social harm, business must similarly begin to explain that businesses earn their profits from solving social harms, rather than from causing them.

Instead of being the enemy, business leadership must turn the conversation around, arguing that the real enemies of development are unemployment, continuing poverty and the massive under-education and under-skilling of the population. Unfortunately, big business has learned that when it criticizes government or government policies, it gets a really big klap from the politicians, a la Reuel Khoza and Paul Harris’ experiences when those two business leaders had offered carefully phrased criticisms of government attitudes and approaches.

As a result, there is a need for something Cuba called “business 2.0.” In that version of things, it must be government’s job to create a much more enabling business environment, rolling out the red carpet and reeling in the red tape. The skills gap is tragically real and that must be addressed urgently. And finally, government and business must make it more comfortable for new entrepreneurs to take risks with capital in an effort to open up and grow new business opportunities in South Africa.

In the discussion that followed the initial comments, Iraj Abedian added it is not just business that feels excluded in the current national discourse. There is also a need to bring in the best from throughout society into the national discussion – and into the halls where the decisions are actually taken. He asked, rhetorically, why South Africans still feel the need to fight over old-style arguments over nationalisation versus privatisation, rather than the working out of new arrangements that will liberate growth in the future.

Meanwhile, Moeletsi Mbeki argued that while most of us know what the path ahead should look like, there are now some serious vested interests in the way, especially since the governing party is so thoroughly interwoven with the country’s industries. That, as he offered at the beginning, was the reason that a real, vigorous, aggressive climate of multipartyism is crucial.

With the last word, Martyn Davies argued that for the future, the key must be to away from corruption and ideology, and towards the kind of flexible pragmatism that de-stresses the national system rather than adding to it. Crucially, the country must begin to live for the future, rather than fighting and refighting all those sterile, old battles. Countries that progress, Davies insisted, stop looking in their societal rear view mirror all the time, and, instead, look to the road in front of them.

These were serious people making some serious observations about the problem. But is government actually listening to views like this? Does anyone in power really sense the urgency of these things, rather than a continued fiddling with new regulations and restrictions, the introduction of further policy uncertainty to the business investment climate towards South Africa, domestically or internationally? Instead, things like the Fifa and Nkandla scandals are our current distractions, and there will be many more like these in the lead-up to next two elections.

Forty years ago, when this writer first came to South Africa, business figures liked to argue about the competition they faced from the industries in places like the major Western European nations and Japan. Twenty years later, the discussion had moved on to whether this country could compete effectively with other newly rising nations in East Asia as well as places like Brazil and Chile, and select Mediterranean nations like Turkey. Now we are at the point of arguing whether – or, perhaps, more likely, when – Nigeria will displace South Africa as the continent’s economic leader.

No one at this meeting would say it outright, but one had the feeling of sitting around a spluttering camp fire as the wolves were continually moving in closer and closer in the darkness towards their intended victim. Or, perhaps because this is Africa, the better metaphor might be one of a pack of hyenas edging closer and closer to pick off the choice morsels from the recumbent figure lying at the centre of the increasingly desperate commotion? That dance continues. DM

Photo: (from upper left clockwise) Yolanda Cuba, Moeletsi Mbeki, Martyn Davies and Iraj Abedian.


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