South Africa

SA POLITICS IN CRISIS

How fast will the ANC fall, part four: What real growth in SA would look like

(Photo: Lehlomelo Toyane)

By damaging the economy, State Capture cost many South African jobs indirectly. But it also caused severe damage that is direct and measurable because so many of the corrupt contracts cut out South African suppliers to replace them with imports. In five articles this week, John Matisonn assesses the crisis in SA politics and the reforms needed to turn it around.

Dr Rob Davies, former president Jacob Zuma’s trade and industry minister, is blunt. Days before he retired, Davies confirmed: “Every bent contract goes to an importer at the expense of local companies.”

Total job losses from this inverted “import substitution” easily reach tens of thousands. When Zuma innocently asks, “What did I do wrong?”, that’s a good place to start.

Late last year, a fake news campaign claimed that South African unemployment rose from 1.6 million in 1994 to 20.9 million in 2020. The claim went viral before Africa Check was able to show it was false. Many probably still believe it.

The bad faith of such campaigners is obvious, but the truth is bad enough. 

On the expanded definition, which includes people who have stopped looking for work, unemployment grew from 4.16 million in 1994 to 9.3 million in 2019. On the narrow definition of work-seekers, the figures went from 2.29 million to 5.9 million. In the first year of pandemic lockdown, 2020, these rose to 10.1 million and 6.5 million respectively.

So the absolute number of jobless South Africans is extremely high, rising to 75% among younger groups. Understanding why this happened should be an obsession of every politician.

When a crisis hits the world, South African job losses are often higher than average. After the global financial crisis of 2008, for example, the South African economy suffered less than western countries, but South African jobs suffered more. 

How fast will the ANC fall, part one: What will determine the party’s future?

The economy’s resilience in the face of a world banking crisis was a result of a sound banking and regulatory system, and exchange controls that restricted local banks’ ability to buy toxic foreign assets like subprime loans.

But jobs were lost at more than twice the rate that the country’s growth fell. Our labour market is highly sensitive to shocks. Unskilled workers are more easily retrenched and more easily replaced by machines or robots.   

In the best period of the post-apartheid economy (2003-2008), the percentage of people with jobs increased — but overall, from 1994 to 2019, it fell. Zuma was president for nine of those years, the first part of which coincided with the global financial crisis.

If governments or regulators accept bribes to import Chinese widgets, the factory will close and investors will take their money out of South Africa to where the jobs are, perhaps to China.

The collapse of South Africa’s railway system has not only forced a whopping 550,000 out of 700,000 commuters to switch from trains to more expensive transport, but a South African GE factory lost contracts worth billions. 

This factory sources locomotives’ platforms, traction motors, bogies and alternators assembled by workers in Pretoria, radiators and air conditioners from Germiston, fuel tanks from Pinetown and has satellite branches across South Africa. 

From China’s point of view, Transnet’s R54.4bn deal for 1,064 locomotives was part of Beijing’s “Made in China 2025” campaign, clearly not a “Made in South Africa” campaign. There is no point in blaming China. The fault is ours.

That’s the State Capture part: but what went wrong before Zuma? Our economic decline was caused by more than corruption. Why did South Africa’s growth, even at its peak between 2004 and 2008, never match our BRICS partners? We peaked at 5.8% when job growth was at its modest best. But China, India, Russia and Brazil did better.

The explanations for the 27-year arc of rising unemployment, for those at the coal face of business, are all too clear. South Africa’s relations with business are dysfunctional.

Former president Thabo Mbeki recognises the problem in his recent post-mortem on the 1 November local elections.

“I am aware that some of us feel uneasy about the idea of our working closely with private capital,” he writes, and recognises it needs to change. 

There is job-creating potential on the land and in the cities. But two obvious examples would have made all the difference to growth and employment. 

Correctly applying that old cliché — think global, act local — to two major global trends would have created hundreds of thousands of jobs. We knew about them, but didn’t act. We are doing exactly the same thing now by resisting the global trend of the 2020s. 

Jobs are not created at jobs summits. Investors don’t put money into “South Africa”. They invest in specific sectors. President Cyril Ramaphosa’s investment drive is welcome, but investors will build a widget factory if they think there is a market for widgets. 

How fast will the ANC fall, part two: Two approaches to business — cronyism or contempt

South Africa missed the chief global growth trend of the 1990s and the chief global growth trend of the noughties. Both were a perfect match for South Africa and would have put our growth rates close to our BRICS partners. Hundreds of thousands of jobs — many of them interesting jobs that young people are keen to have — would have been created. 

The first trend we mishandled was the information boom. 

In the 1990s, we had every reason not to miss it. Widely corroborated research promised high job-creating growth. Even the conservative Treasury projected a .6% addition to GDP, and sector specialists were much more optimistic.

The Mbeki administration saw the opportunity and used South Africa’s then high prestige to attract a team of top Silicon Valley leaders in the field to a presidential commission. Yet, after a couple of years they were so disillusioned they stopped coming — because their advice was ignored. People like that don’t deliberately waste their time.

The second world trend we mishandled was the resource boom of the 2000s, driven by China’s massive domestic infrastructure expansion. 

We did benefit from a rise in global commodity prices, but total output — the measure of whether we are producing more or less — declined. It was a fraction of what we should have had. South Africa’s century-old mining houses took advantage of our opened financial borders to leave the country. Exploration stopped and existing mines got older. 

The reason South Africa’s mining industry is declining is that we have stopped exploration for new deposits. Meanwhile, exploration on all five continents has been robust and new deposits are regularly found. 

Anglo-American and the other South African companies are still miners, but they mine in South America, Eastern Europe and Australia far more than they do here. Companies in the top five of the JSE in 1994 are now minor South African players.

Experts find no reason why exploration here would not be equally successful. Exploration stopped because the government ignored the valid — as opposed to invalid — concerns of the mining companies. More damage was done by the constant change of ministers and policies than by black economic empowerment itself. 

More damage was done by blundered policy execution than by the policies themselves.

The tilt of government priorities was clear: there were incentives for black shareholders, but nothing comparable for more black jobs. 

These were the two of the most important economic trends of the first quarter-century of South African democracy and we substantially missed both, at enormous cost in jobs. 

We are now aggressively restricting South African benefits from the next global trend with huge African potential — the green energy revolution.

While the government restricts business from building on important global trends, it doesn’t consistently ignore business. The Houses of Parliament, Tshwane government buildings and Luthuli House are all flooded with business lobbyists. That’s the business influence to be very wary of. 

What does it mean in practice? It means big companies with lobbyists sniff around those three locations of power. New legislation coming up? Lawyers are on hand to help write the most sensitive clauses. And then, of course, there are the bribes.

The result is that business has influence on this government — in exactly the wrong way — but no influence when it could be used in the right way for constructive public interest reform. It’s either cronyism or contempt.

How fast will the ANC fall, part three: The party’s cars tell a turbo-charged story

Developmental economists know this problem well; that rent-seekers capture government officials if officials let them. The result is that the proper relationship with business, one that achieves faster, job-creating development of long-term benefit in the public interest, is lost.

Corruption and policy failure are both tied to cadre deployment. Cadre deployment is not new to democracies, in Africa or elsewhere. The reforming US president Theodore Roosevelt’s early career focused on it nearly 150 years ago.

In 1883, reformers in the US passed the Pendleton Act, which cheekily mandated that party appointments to the federal civil service be cut to a mere 75%! The remaining 25% would be filled through competitive exams rather than party affiliation.  

Roosevelt’s first Washington job was as Civil Service Commissioner, where he implemented the Pendleton Act in his campaign against the “spoils system” — what we would call the patronage of cadre deployment. Later, as New York police commissioner, New York governor and then president, Roosevelt led the reforms to change the system. 

Many of his reforms were only made possible by an immensely talented crop of investigative journalists who dug out these cases and gave them an influential audience, mostly in a long-dead publication called McClure’s magazine. Roosevelt met them regularly, fought with them sometimes, but considered their fight his own. A cadre of unimpeachable, smart investigative journalists is invaluable to job creation.

Like today, inequality then was at a peak. They called it the Gilded Age. TR began the fight against cadre deployment. Under his nephew, FDR, inequality was narrowed from the 1930s till the election of Ronald Reagan, when it began its expansion all over again — an expansion that continues to this day.

As someone who experienced the gauntlet of parliamentary interviews for jobs under Mandela, Mbeki, Zuma and Ramaphosa, I had long since concluded the process was in conflict with the spirit of the Constitution, and possibly the letter.

One parliamentary committee chairperson dismissed the need for questions by saying, “We know your experience.” The decision had been made in Luthuli House. Many voted with little clue as to what kind of performance they should expect.

Reading the ANC’s deployment committee’s minutes last week concerned me as much for the shallowness of members’ reasoning as the process itself.

It’s long been obvious that the committee’s list is usually adopted unaltered by the parliamentary committees — the ugly underbelly of “democratic centralism”. In the now burnt-out corridors of the National Assembly, this is an open secret. 

What was less negative than expected was that concern often focused on gender and regional balance rather than party role. But when you know the complexity of the jobs they are being assigned to, the lack of appreciation of specific skills is at least as disturbing as whether they will be swayed by their party connections. 

Deputy Chief Justice Raymond Zondo has hinted that his final commission report will attack this problem directly. He may well say it conflicts with the Constitution. That could be the most contentious intra-ANC battle ahead of the elective congress.

And one of the most important. DM

Read Part One here

Read Part Two here

Read Part Three here

Tomorrow, Part Five: When Ramaphosa goes.

John Matisonn is a former senior United Nations elections official, Independent Broadcasting Authority councillor, and long-time political and foreign correspondent. He is the author of Cyril’s Choices, An Agenda for Reform; and God, Spies and Lies, Finding South Africa’s Future Through its Past.

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All Comments 6

  • An interesting analysis. But you only consider job creation by large companies. Many jobs are created by smaller start ups. But the current legal framework – BEE, labour legislation, etc. makes it onerous for people to start and grow a company. One writer (I think Bob Townsend in Up the Organisation) put it as “if you are not in business for fun or money, what are you doing in it”. I have had heard anecdotal evidence of people simply closing their businesses because it was just too much hassle to run them – the fun part had gone. For example a white South African has a business idea for a new product it will probably be stillborn because he or she will battle to sell the product to companies that will only deal with high level BEE score companies to keep their own score up. There is no fun in fighting the tide.

  • Insightful analysis that is so appallingly accurate it’s tantamount to saying the crooks in parliament knew precisely what they were doing and why and had absolutely no interest in saving, even less, growing the SA economy or providing jobs or even relief for the poor. It’s a very cynical view of the status quo, John, even and especially if it’s true. Can’t wait for the demolition of your next piece.

  • Surely this cannot be that hard….. If your aim is economic growth then the only thing the government can do is to create the environment for such growth to take root and grow: the so-called “stroke-of-the-pen”.
    To my mind the simple first step is to transform VAT rules. Let all imported “finished goods” attract 25% VAT, whilst SA produced ones attract 10%. See how fast foreign companies establish and grow their local footprint so their products remain competitive, whilst creating scope for training and local jobs.
    Since we no longer have many surviving “component” industries, we could allow a “sunset clause” for their imports, but ultimately component businesses must be established and grown. The focus must be on local manufacture, of as much of everything as we can possibly achieve.
    Let those expensive luxurious foreign sourced ministerial limousines be heavily taxed – at the cost of the minister’s pocket, or give them a locally made car!
    That surely is where the rubber must meet the road on our path to economic recovery – a kind of self-sanction. Post UDI Rhodesia did exactly that as international sanctions came into play. Surely, we can do that too!

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