Greg Mills
How South Africa Works – and must do better by Jeffrey Herbst and myself is released this month by Pan Macmillan.
The book argues that the overwhelming challenge that South Africa faces, and has to date failed to address, is unemployment. If it is not addressed, it will be impossible to sustainably lift many millions of people out of poverty.
The book examines the challenges and opportunities across key productive sectors illustrative of the policy challenges that leaders face. It scrutinises the social grant and education systems to understand if South Africa has established mechanisms where people can not only escape destitution, but be ready to be employed, and identifies steps that some of South Africa’s most exciting entrepreneurs have taken to build world-class enterprises.
Below are two short extracts each from the introduction and conclusion, which highlight the challenges and solutions.
“Nelson Mandela is dead. Long live the struggle,” might have read the epitaph to the first 20 years of non-racial democracy in South Africa. While the end of apartheid in April 1994 brought about political rights for the excluded black majority, their economic enfranchisement over the subsequent two decades has proven to be exceptionally difficult.
The fundamental claim of this book is that the overwhelming challenge that South Africa faces, and has to date failed to address, is unemployment. The current unemployment statistics are appalling and fall especially on young African youths who were promised a better future in 1994. As the premier of KwaZulu-Natal, Senzo Mchunu put it to us, “The pain in our stomachs is the rate of unemployment, the pain of poverty, the pain of the gap between the rural and urban areas, the pain of underdevelopment.” This challenge, he said, “is threatening our future”.
If the unemployment crisis is not addressed, it will be impossible to lift many millions of people out of poverty. Especially in light of the Arab Spring, fuelled in good part by youths who believed that they had no future, the stability of South Africa cannot be assured given compounding issues of insecurity, unemployment and lack of investment.
The prospects of the African National Congress (ANC) will also be challenged if it cannot deliver jobs to the “born-free” generation. Equally, the ANC’s trade union partner, the Congress of South African Trade Unions (Cosatu), with an ageing cohort of members, requires economic and employment growth to refresh their membership.
Government has long recognised the need to create jobs. President Nelson Mandela said at the opening of Parliament in 1996, “Despite the welcome rate of growth, very few jobs have been created. In fact, against the backdrop of new entrants into the job market, there has been a shrinkage of opportunities.” Yet, two decades on, the crisis remains.
This situation has made many business and other leaders we have spoken to “nervous” about South Africa’s direction of change and growth, especially when compared to the positive changes elsewhere in sub-Saharan Africa. Yet, as we will demonstrate throughout this book, many firms have succeeded in becoming competitive and generating jobs despite all the barriers to commerce in today’s South Africa. However, much more could be done if business and government’s interests and actions were better aligned.
Two decades and five “new” strategic economic plans into its democratic transition, South Africa does not have the luxury of too many more chances.
We also do not believe that South Africa can solve the unemployment problem solely through redistribution. The most dramatic redistributive steps that South Africa has taken are Broad-Based Black Economic Empowerment (BBBEE) and the social grant.
BBBEE, like its predecessor, Black Economic Empowerment (BEE), has succeeded in creating a small class of African business people who have wealth on the same order of magnitude as very rich whites – 10 percent of the Top 100 companies on the Johannesburg Stock Exchange are held directly by black investors largely through BEE schemes – but it has had, as will be shown, no perceptible impact on unemployment.
As a project of elite transformation, BEE has been successful, but it is more a burden for employers than a transformative agent for the unemployed. The social grant has been a great success in keeping an increasing number of people out of absolute poverty, but it pays far less than the salaries of even those with unskilled jobs. Simply put, South Africa is not sufficiently rich to redistribute enough resources to address unemployment. It must expand the economic pie and increase the number of jobs if the poorest are to benefit.
Black and white cats
As we have observed throughout the course of this study, constraints on growth and business cut across racial boundaries in South Africa. Equally, their success will ensure job creation across the economy – or as Deng Xiaoping famously observed: “It doesn’t matter whether a cat is black or white, so long as it catches mice.”
This retrospective of the experience of the first 20 years of the “new” South Africa began with Mandela’s death in December 2013, given how the statesman had personally come to symbolise both the struggle against institutionalised racism and the promise of South African democracy. We have deliberately chosen to write this book after the spasm of remembrance because there is little need to produce another report card on how South Africa has done, but rather to understand the choices it faces in what could be called, especially after the passing of Mandela, the “post-heroic” future.
The book also differs from many other retrospectives in that it digs deep into South Africa’s economic workings through extensive interviews with a broad spectrum of business managers, government leaders, unionists, entrepreneurs, taxi drivers and farmers, among many others.
The country’s future is being built daily on the shop floor, on the farm, down in the mine and in corporate boardrooms where South Africans are making millions of uncoordinated decisions that cumulatively will determine the country’s future. These decisions are made in contexts that are established by major policy documents, but also by how legislation and regulation are understood and executed by officials at every level of government.
Sometimes, the results are far different than imagined by government or apparent from simply reading the national newspapers. This book shows that how government actually works often hinders job creation. It highlights the actions of some entrepreneurs who have created world-class businesses despite the challenges of the current economy. And it shows how important it is for South African business to transform along with government and labour.
This book shows how South Africa really works.
Leading change
If South Africa is to break out of the two societies it is building – one rich and employed, the other unemployed and on welfare – and act as an inclusive, high-growth African exemplar, it will need to have a plan matched by priorities and sufficient will to execute it. Such a change is also necessary if the ANC is to survive.
This plan has to entail a liberation from the politics of the past, towards economic freedom, reduced dogma, an emphasis on jobs, prosperity and competitiveness, and where the animus to business not only disappears but is replaced by the celebration of business leaders who create jobs and globally competitive firms. With big corporates, private- or state-owned, unlikely to provide the jobs required, an energised job market also needs to support vibrant small- and medium-sized enterprises.
This stance, and the specific recommendations we make will allow the government to avoid the bureaucratic and regulatory strictures of the current conception of the “developmental state” in favour of creating an environment that promotes growth and job development.
Poignantly we write on the 25th anniversary of State President F.W. de Klerk’s ground-breaking announcement to Parliament on 2 February 1990. That speech and the subsequent transition saw all sides make courageous decisions for the benefit of the country despite their previously stated and seemingly entrenched positions.
The changes we suggest will similarly require courage to get past today’s paralysis, which is induced by distrust and ideology, and for citizens and leadership to each play their part. To change its trajectory to a high economic and employment growth future, South Africa cannot afford to be a country of victims led by indecisive politicians.
The ability to resolve the deadlock thus depends fundamentally on government. Other parties are important, but if the government and the ruling party is not playing its role, the actions of labour and business inevitably will be stunted.
If the ANC can assume its critical part, take the necessary steps towards competitiveness, unlock higher levels of growth, and thus change the thrust of the transformation imperative, it will be able to prove that it is not a prisoner of its past, and once again be able to celebrate its mission to liberate all South Africans. If not, an ANC government will doom South Africa to a dismal low-growth and high-unemployment future that is threatening the very fabric of its society.