CORE CONUNDRUMS OP-ED
The urgent matter of our political economy – where is South Africa headed?
South Africa needs to broker consensus around seven core conundrums. There is no quick fix, no magic bullet: we urgently need a national conversation to develop and get behind a common agenda.
In the important matter of the political economy, I would like to focus on seven conundrums around which I think it is essential to broker consensus. None of these is an easy issue but if we are to change course towards a better-functioning, better-performing country, we need to seriously contend with them.
The growth conundrum
This is not something that only affects South Africa. The global economy is registering tepid growth amid a high inflation cycle – triggered by the war in Ukraine – with low growth, especially in traditional trading partners (EU, the West). There is an emerging phenomenon of “friend-shoring” where trade and investment follow political allegiance, and the weaponisation of trade agreements (Agoa). South Africa is in a difficult space – dependent on the West to maintain current trade and investment relationships while pushing non-alignment (really multi-alignment). I am sure there is a diversity of views in this room on this issue.
But national interest must drive what we do. This is perhaps where we are weak – in determining and acting in the national interest.
South Africa’s growth is highly tied to global commodities demand – which has caused a low growth trajectory since 2012. Consistent low growth has diminished state revenue and resulted in a growing fiscal deficit (debt servicing is the fastest-growing budget item). Low growth has had repercussions, including lower levels of entrepreneurship than our peers, and a higher start-up failure rate.
More than just the need for growth, there is not a shared understanding of how growth is achieved – that private-sector investment is a requirement for it and that there are minimum conditionalities for attracting and retaining investment (well-maintained infrastructure and utilities provision; well-priced and efficient logistics; skills and capabilities; low crime levels; policy certainty, etc). Capital is mobile and even South African capital will be attracted to economies where these conditions are met.
We clearly need all role players to agree on a minimum growth agenda, and then get on with it.
The second conundrum concerns our environment
This is a conundrum in the true sense of the word, given our fossil fuel resource base, and the opportunities to pivot on a new growth path built around green industrialisation. The energy transition is a reality, but whether it further disadvantages the developing world is a legitimate concern. Meanwhile, load shedding continues to undermine our prospects of recovery.
Our ‘cappuccino economy’ – white on top and black underneath – is unsustainable and creates political and social cleavages which can be exploited by populist forces.
How we got here is not rocket science. We’ve added 35 million people to the grid since 1994 and the economy has more or less doubled, but we’ve added very little new generating capacity outside of Medupi and Kusile, which have brought their own problems. We’ve forced our coal-fired stations to run on empty, with little to no maintenance, and with declining technical capacity in Eskom to manage them. We need to add 20,000MW of generating capacity over the next 10 years, which is both a nightmare (given our project management record) and a tremendous opportunity to pivot towards green industrialisation. We need a clear long-term strategy and how it is to be financed. And we should not forget about the losers in the energy transition – the coal-mining workers and communities.
The inequality conundrum
The third conundrum we need to address is our inequality dilemma. Besides being morally unacceptable, high inequality constrains growth and causes political instability. South Africa was reported by the World Bank to be the most unequal of 164 countries that were benchmarked.
The Black Business Council Summit of 2023 marks the 20th year of the Black Economic Empowerment Act. We have to face the reality that the black share of income in South Africa has increased with a growing black middle class. But the black share of wealth has not changed significantly. This has to do with South Africa’s high levels of market concentration and barriers to entry which constrain economic participation.
Our “cappuccino economy” – white on top and black underneath – is unsustainable and creates political and social cleavages which can be exploited by populist forces. Our attempts to address this through positive discrimination policies – affirmative action, BBBEE, preferential procurement, set-asides, etc – have been corrupted, with rents being directed to the politically connected. We placed the state as the centre of black wealth creation, which made it susceptible to clientelism and ultimately destroyed state capacity.
Read more in Daily Maverick: Black economic empowerment is in big trouble
We need to rethink our models for inequality reduction. Obviously social protection and increased investment in programmes to expand human capability need to be at the centre, but we also need to do far more with regards to economic inclusion. We need to grow a new stratum of entrepreneurs who grow wealth through innovation and productivity, rather than political patronage. Financial inclusion, access to markets and more enabling support for start-ups is key, especially for youth start-ups given that the labour market simply cannot absorb the tens of thousands of school leavers each year. There needs to be a coordinated effort to build and sustain an enabling ecosystem for innovation-led growth.
The state capacity conundrum
Given our extreme service backlogs in 1994, and the high levels of market concentration, we needed the state to step up to correct market failures and level the playing fields. In spite of our best intentions to build this developmental state, many of the state-building gains have been reversed.
The low growth cycle has been exacerbated by structural weaknesses and State Capture – hollowed-out state capacity, evident in poor levels of service delivery, inadequate energy supply, poor logistics, rising crime and extortion, and municipal dysfunction.
Civil society needs to step up to resume a robust role and business needs to provide support to organisations preserving democracy and ensuring accountability.
We must also acknowledge that we have been too slow in reversing the damage done by State Capture to basic state functionality, especially at local government level. Looking at new partnership models for service delivery – to make up for state deficits – and new ways to ensure accountability should be at the top of our agenda.
The political conundrum
We need to be mindful of what is happening globally, with geopolitical shifts and the rising politics of self-expression, of identity, and of polarisation. This is fast replacing the old politics of compromise and consensus. At home it is clear we have a damaged national psyche, which is the perfect feedstock for populist mobilisation, quite possibly along race, class and other social cleavages. Demographic anxiety is now a very real political phenomenon across the world and is influencing – and undermining – democratic systems.
We cannot ignore the fact that disillusionment and voter apathy are manifest in South Africa and that voter turnout has been massively affected. In the 2019 national elections, only 17 million out of 26 million registered people voted. In the 2021 local elections, only 12 million people voted – which means 15 million registered voters stayed away. When you consider that more than 13 million people who can vote have not even registered, this paints an extremely worrying picture of the political environment. Electoral reform might go some way towards engaging more people in the democratic project. But we all know that the political problem is much deeper. We must not assume that new political entrants, while important, will solve this problem.
The civil society conundrum
Civil society today is a shadow of its former self in the 1980s, both in organisational and financial terms. Much of its leadership was absorbed into the state, and NGOs turned into service delivery agencies as donor monies dried up. The State Capture period saw a real and concerted resuscitation of civil society, but I feel that the foot has since been taken off the pedal. Civil society needs to step up to resume a robust role and business needs to provide support to organisations preserving democracy and ensuring accountability. We need to rethink the idea of a national vision, and new forms of accountability. We have to ensure that elected leaders are ethical and accountable – not just to their parties – but to society.
The leadership conundrum
As I round up, let me pose a question: Who represents and speaks for South Africans? This is on a variety of fronts, including business. Are the organisations at the forefront reflective of the broad business spectrum and business interests.
It is no secret that our country has a serious leadership problem across all sectors – political, economic and social.
Another dilemma is the participation of the greater population in the big national conversations. We find increasingly that a small group of us are talking to ourselves – a situation accentuated by the media and social media creating echo chambers and political ghettos with the same people exchanging opinions among themselves.
This links back to the issue raised earlier about declining electoral participation. So, we must ask whether the people and organisations leading the national conversation are still connected to their constituent base.
We should bear in mind that it is difficult to sustain democracy without trust. I do not have to emphasise to this audience that there is a serious trust and credibility deficit in our society – aggravated by a litany of corruption scandals that have severely eroded faith in the political system and leadership.
This potentially undermines the legitimacy of the state.
There is no quick fix, no magic bullet for all these questions. Protecting democracy, staying the course on reforms, halting a capital and brain drain, tackling inequality, and addressing the livelihoods crisis will take exceptional leadership. Now is not the time to lament that we don’t have the right leadership. We urgently need a national conversation to develop and get behind a common agenda. DM
This is an edited speech by former deputy finance minister Mcebisi Jonas delivered at the Black Business Council Summit 2023.