Revitalising South Africa
2014-03-02
I have come across terminology regarding South Africa that reminds of the decline and fall of the Roman Empire, its demise admittedly taking over 500 years while ours is arguably being accomplished in less than 50 years. Talk of inner exhaustion and external crowding out leaving us an empty shell.
But perhaps none of this is as inevitable as Rome's was, its alarming ossifying institutional decay coming from within in ways that have yet to master us much more fully when considering our Constitutional foundation and vibrant democracy, while many of our economic weaknesses are self-imposed, are relatively recent and arguably reversible, a matter of leadership and choice.
So references to our "exhausted economic model" are perhaps more an indication of poor policy choices rather than irreversible institutional losses. And to describe our progressive de-industrialization since 2000 as a form of Dutch disease in which currency overvaluation sees our resource sector crowding out our industrial abilities also perhaps misreads certain recent features that we haven't managed very well.
South Africa's inherent economic capabilities haven't necessarily been fundamentally degraded. Instead, as in the 1980s, we have handicapped ourselves by putting unnecessary lead weights underneath our jockey's saddle. Lift those lead weights and see the horse perform, and the jockey hailed.
Yes, for a decade (2002-2011) we were exceptionally favoured, as were others, by a global commodity supercycle (mainly China driven) and an even greater stupendous capital inflow supercycle (driven by a combination of Western fortunes and misfortunes and capital redeploying accordingly).
In the process our Rand certainly experienced episodes of heavy overvaluation yet our mining sector was hardly the main cause of this or hardly the main beneficiary. Unlike the resource sectors of other major commodity producers such as Aussie, Canada, Russia, Brazil or Chile, and not forgetting most of Africa, ours did not expand production after 2000. Our main mining output indices all hug the zero line, or showed heavy sunset declines, with the major exception of iron ore.
This wasn't due to a lack of fortune, for globally it was all for the taking. Instead, it was a function of lacking sufficient commodity rail exporting and electricity infrastructure, intrusive government on the grand scale pursuing vague redistributive, transformative agendas achieving none of their grand objectives, and megalomaniac union ambitions reaping the whirlwind.
So sorry, the resource sector didn't crowd anything out. Instead, it itself was endlessly pummeled and intimidated to the point of standing still as compared to our main commodity competitors doubling or tripling productive capabilities and all our main resource companies finding themselves pushed abroad in search of real expansion opportunities as compared to the unreal invitations at home offering them ritual hair-kiri.
But this by the by.
The real crowding out in our instance, contributing to our observed industrial stagnation described by outsiders as exhaustion and by insiders as resource-pushed de-industrialization, came from unbridled consumption, as much public as private, in a word policy-favoured redistribution and episodic credit mania in an era of currency overvaluation and cheap consumption imports.
This was a choice, a bad one. Instead of going hell-for-leather in pushing public fixed investment in infrastructure expansion, fueled by cheap-financed and strong-currency favoured capital good imports, crowding in a similar private fixed investment bandwagon enthusiasm, we excelled in ganging up on the producers by favouring consumers at every turn in the name of old legacies requiring correctives.
Having the right focus, boosting investment and getting the growth engine to speed up, thereby absorbing a lot more labour annually, would have been far cleverer yet not as politically correct as the emotional choices made.
We threw away a whole decade in which the outside world suspended our balance of payments constraint by burying us in higher commodity export prices and especially cheap capital inflows. It was a decade in which we should have invested, invested, invested for the long-term, and imported machinery and equipment cheap at the price courtesy of extremely low global financing rates and an overvalued Rand while denying the new power elites their graft, the increasingly militant unions their head, and the rest of us our credit-funded and luxury-inspired consumption surges giving us acreages of overdone property, fleets of luxury cars, and stupendous shopping malls by the hundreds which economic buying power could so easily have been more wisely allocated.
Instead today we have to hear the President intone with his best graveyard manner that our recently newly deprecated currency means that imported investment goods are going to cost a good deal more, that our new infrastructure will be much more costly than only recently envisaged and that we all will be paying the price.
The historic legacies are bad. But the future ones will be sadder still as we have so far insisted on according effortless redistributive consumption a birthright, while instead we should have insisted on much greater consumption sacrifices (or abstinence as it really should be known), much more saving (public and private) and a much greater role for, and scarce labour resources allocated to, productive investment (as opposed to Nkandla fire pools so beloved of introspective politicians).
Yet it doesn't mean we are dead in the water, merely that we have badly wasted an incredibly fortuitous decade. It doesn't mean it has to go on like this.
The 1980s, and a good part of the early 1990s and latter part of the 1970s (in other words the better part of a generation) was similarly wasted in an effort to be rid of apartheid. Its dying days and the semi-civil war it required cost us this much.
So what is our two decades of de-industrialization, infrastructure breakdown, export stagnation, labour uproar and urban decay buying us this time, with one decade fully completed and us already knee deep into the next one?
Our ultimate purchase of the decade can be observed in the ANC leadership body language, which suggests things cannot go on like this, in parastatals acting as a law unto themselves while failing us badly with their public infrastructure obligations, with municipalities unravelling into death zones requiring the police to forcefully keep order, and with key unions united in some kind of death wish and pact as they attempt to confront and destroy capitalism, in a throwback that looks daily more like the Xhosa young maiden (Nongqawuse) in the late 1850s offering sage advice about killing all the cattle for the whites were about to be driven off by the newly re-arisen ancestral spirits.
It has been foolishness on the grand scale and, aside of the densest denizens, it has been steadily sinking in that here there are a few too many cul de sacs (dead ends).
This is not so much an exhausted model as simply the wrong one. There are better choices. This realisation has been dawning even though its full acknowledgement will take time arriving, such as happened with Socialism with Chinese characteristics (elsewhere known as unbridled Capitalism with Communists riding bronco - that is, bareback while holding on for dear life).
The best bits therefore lie ahead as we leave the ANC graveyard stagnation of this generation. But we may take the better part of another decade getting in position as we shed some more unwanted past baggage and equip ourselves with leaders less focused on latest model fire pools, either from within or otherwise from without.
It is all part of a rather difficult journey to collective adulthood that is no respecter of generations.
Cees Bruggemans
Consulting Economist
Bruggemans & Associates
Website www.bruggemans.co.za
Email economist@bruggemans.co.za
Twitter @ceesbruggemans