At an address at the University of Pretoria last week, US Secretary of State Antony Blinken set out a vision for a partnership between his country and Africa. This was widely reported and discussed. The accompanying remarks by South Africa’s Minister of international Affairs and Cooperation received rather less attention. Coming shortly after her department launched a document on the country’s National Interest, it made for interesting listening.
In line with the National Interest document, she framed the government’s foreign policy in clear relation to its domestic priorities. Emphasising to the need for South Africa to overcome its socio-economic problems, she referred to extensive trade between the two countries and the contribution made by American companies.
She continued: ‘I would like to see more companies in our country, because we do need higher economic growth. We need to find opportunities for young people in our country to form their own businesses, to become entrepreneurs to get connected to the digital world and to feel that they really have a place in our democracy and in our society. The unemployment of young people is one of the biggest challenges that our country faces. And if we do not address it successfully, it is, I think, a basis for very serious social conflict in South Africa, so we have no choice but to find a solution.’
Social conflict is not a distant prospect. The riots in July last year showed just how combustible the situation was. This is correct. But whether the country has ‘no choice’ but to find a solution is far more questionable.
South Africa as a country has choices, and always has had them. Some may have been tough choices, some may have been unpalatable ones. Others might have been practically circumscribed by the envisaged consequences. But choices there certainly have been.
Over the past three decades, South Africa has been reintegrated into the international community. It did so with a sizeable economy – certainly by African standards – and easily the most advanced one on the continent. It had a sophisticated infrastructure. Its political settlement and developing institutions were widely admired. And it had a remarkable reservoir of goodwill across the world. In the early 2000s, a boom in the prices of commodities gave South Africa a bountiful windfall. If anything, this gave South Africa more latitude than most to make the choices it wished to.
It’s been a mixed record. In the early years – on the positive side – there was a strong element of pragmatism and maturity. This cannot be gainsaid. Perhaps more than anywhere else this was evident in the (then) new government’s macro-economic management. Fiscal and monetary policy recognised the precarious position bequeathed to the new government and prudence, combined with improved revenue collection put South Africa’s finances on a more secure footing. Together with the commodities boom, it helped get GDP growth over 5% between 2006 and 2007. Employment opportunities expanded, albeit insufficiently, and the fortuitous conjunction of circumstances (and reasonable choices) enabled the roll out of South Africa’s extensive system of grants.
But for all that, the country has never achieved what had been hoped for in the mid-1990s. The Minister referred to youth unemployment, arguably the most prominent and debilitating expression of South Africa’s crisis.
Let’s put this in perspective. In 1999, the official unemployment rate stood at 23.3%, or some 3.2 million people. A decade later, in 2008, the rate had declined slightly, to 22.6, but the numbers had risen to 4.3 million. By 2017, the unemployment rate had risen again to 27.2% and the ranks of the unemployed had swollen to 6.1 million. In 2019, the last full year prior to the pandemic, the unemployment rate stood at a painful 29.0%, accounting for some 6.7 million people.
The latest statistics put the unemployment rate at 34.5%, and the corresponding number at 7.9 million.
That’s unemployment in general. Among younger people – the ‘youth’ – it is far higher. Stats SA put the unemployment rate for those aged 15-24 at 63.9%, and for those aged 25-34 at 42.1%. As a recent commentary from the statistical agency dryly said: ‘Although the graduate unemployment rate remains relatively low in South Africa compared to those of other educational levels, unemployment among the youth continues to be a burden, irrespective of educational attainment.’
The position of the government on this reflects the ‘no choice’ assertion of the Minister. Her colleague, Minister of Employment and Labour (a title in the executive purposefully created to foreground job creation – though without much impact), Thulas Nxesi, put it in more colourful terms in Parliament earlier this year: ‘We will continue to reconstruct this country. We will continue to transform this country. We will continue to develop this country. It is a revolution that we are still involved in. It is not an event with a commencement date and an end date. The aim is to continue to radically change our country and never stop in doing so!’
‘Radically change our country’ perhaps, but not ‘resolve our crises’. State intervention in the economy since the 1990s has had the effect of retarding employment creation and stifling the economic dynamism necessary to drive it.
Labour market policy has privileged those already employed at the expense of the unemployed and new market entrants. In theory, small businesses are viewed as the engine of job creation in the country; there is also some evidence that they are a better bet than their larger counterparts for engaging young and inexperienced job seekers.
But research into the experiences and perspectives of small firms shows the inhibiting influence of the labour regime – its laws and its institutions, not the least of which are bargaining councils whose decisions become binding on firms that have no involvement in concluding them. Business environment group SBP conducted a survey over a number of years – a wonderfully insightful study while it lasted – into a large group of SMEs. Its 2011 report had this to say: ‘If there is a single issue that ignites ideological and political passions in discussing SMEs, it is the impact of labour legislation. In our panel, just short of one in five (19%) say that labour regulations are the biggest barrier to growing their staff numbers. Critical issues include the inflexibility of labour laws, inflated staff costs, difficulties with the unions and strikes.’
Despite this, labour legislation has been something of a holy cow for the country, largely immune from serious reform. Choices made.
Labour policy impacts directly on employment creation. But it is merely part of a larger regulatory system, which cumulatively undermines South Africa’s economic dynamism. Think business licencing and reporting requirements, empowerment demands, SARS compliance and so on. Another study by SBP put the cost of red tape at 6.5% of GDP. (The study was done in 2005, so is a little dated, though there is little to suggest that a great deal has changed.) This reflects a massive misdirection of resources.
In addition, sometimes confused and invariably counterproductive policies such as the escalating demands of the Mining Charters and the campaign for Expropriation without Compensation placed wholly unnecessary burdens on growth. Trevor Manuel, former finance minister and one of President Ramaphosa’s investment envoys gingerly conceded that EWC was proving a tougher matter to explain to foreign audiences than had been envisaged – although it’s unclear why anyone should have been surprised that a threat to property rights prompted reticence about doing business in South Africa.
This has been reasserted as policy of the ruling party at its latest conference.
Meanwhile, pending amendments to the Employment Equity Act would see unprecedented state intrusion into firms’ hiring practices in the form of ministerial quotas. Consummate penalties for failing to comply send the message that transformation – as defined by an officialdom that is often overtly hostile to business – supersedes even firm survival. If enacted, this can only further sink prospects for growth and place another lock on the door to youth employment.
Yet, so far, this appears to be the choice that the government has made.
In a contribution published on TimesLive, with the international context of the Minister’s remarks in mind, former opposition leader and now frequent commentator Tony Leon drew attention to the sharp disconnect between her words on foreign trade and investment and government policy as a whole. ‘Property rights remain under assault, bilateral investment treaties have been binned and then there is the issue of BEE, a holy grail for Pandor and her colleagues, despite the concerns raised by the very foreign investors, Pandor states it is her government’s intention to ease the burdens of doing business here.’
He noted that the American Chamber of Commerce in SA has raised grave concerns about the ‘uncertainty’ surrounding BEE, and the costs it imposes. To this might be added similar concerns expressed by European businesses operating in South Africa. Responding to the latter in 2018, then Minister of Trade and Industry Rob Davies declared: ‘We want to look more closely at what your concerns are, because all of these are areas where we need to be able to exercise our policy.’ He added: ‘Localisation is not something we will be able to renounce. Nor are we going to be able to renounce BEE.’
Put differently, there is a willingness (sort of) to listen to concerns, but emphatically not to act on them.
Davies was incorrect however, to state that the government would not ‘be able’ to step back from these policies. As the incumbent government with a sizeable Parliamentary majority, it could do so – if it so chose. It has chosen not to.
As an aside, the ANC and the government have shown few inhibitions about alienating some of South Africa’s chief trade partners and sources of foreign investment and tourism. And, no, this is not in the main about Ukraine, Palestine, support for Venezuela, the utter fawning over Cuba or the big questions of geopolitics – even though there is a constant stream of denunciations of Western countries whose businesses provide livelihoods to millions of South Africans.
Consider the statement put out by the head of President Ramaphosa’s office in 2019. This came after a group of Western countries with large economic interests in the country had offered a critique of the investment environment in the country (remember, we want to look more closely at what their concerns are): ‘The African National Congress has noted with deep concern the interference by the Western imperialist forces like the USA, UK, Germany, Netherlands and Switzerland into the affairs of South Africa……the ANC condemns this dramatic holier than thou stance of these former colonisers and we would not like to relate to them on the history of master slave relations…we do not appreciate a threatening and bullying tone…they leaked their letters to the media, suggesting they had less than honourable intentions….The ANC wants to be clearly understood that we will not be fooled into swapping one attempt of state capture and corruption for another! This is how we view the interference of these five countries, as just another form of state capture. The ANC shall not allow South Africa’s constitution and sovereignty to be undermined by these latter-day colonialists.’
A willingness to listen, to ‘look more closely’, has its limits, quite clearly. And Switzerland might have been surprised to find itself described as a former coloniser.
The former CEO of the Institute of Race Relations wrote these words a few years back, words that might well have been written today: ‘All this suggests a government that prioritises racial transformation above growth, investment and job creation. It also suggests a government that believes it can achieve racial transformation in the absence of growth. Trying to force these policies to “work” will inflict an economic price on the country that is likely to be paid in job losses and declining living standards.’
The tragedy is that so much of this was the consequences of conscious choices made while the evidence demanded something different. South Africa has made choices, just too many of the wrong ones. It seems determined to continue doing so. Even more tragically, it is now those millions of unemployed and frustrated young people who are paying the price for it.