What will happen when the music stops and ANC runs out of favours?

Laws and policies need to be reformed so value-added exporting initiatives can spur growth and create jobs

The ANC seems likely to soon control a national coalition government, after being ousted from governing the top two, if not three, metropolitan provinces. Such an election outcome would have a patronage-reliant governing party benefiting from the entrenchment of widespread rural poverty while being threatened by aspiring urbanites. Effective democracies blend and advance the legitimate interests of disparate groups. Many expect that repairing our economy will benefit not just private sector employers and employees, but the unemployed as well. However, as our economy reflects the long and reckless overindulgence of patronage policies, our youth unemployment crisis cannot be remedied by “trickle-down” economics.

In healthy political economies, policies support growth and companies invest in young workers, leading them to eventually prosper and buy a home, and perhaps later a better home. Many affluent voters expect fixing the economy will make such outcomes common. Conversely, the vast majority of SA’s “born free” black adults make the realistic assessment that they have been permanently marginalised.

For them, not changing their vote is rational. There is little on offer to them for the foreseeable future other than patronage. Our youth unemployment bulge is truly enormous, and even sustained economic growth would lead to few of them ever becoming meaningfully employed. Alternatively, sub-subsistence grants offer a frayed lifeline.

Patronage is detrimental for both capital formation and growing per capita income as it encourages corruption while deprioritising competence. And, would-be corrective political pressures can be blunted by abundant resource wealth as some people can be given houses while youth unemployment swells perilously.

Expanding our commodity exports would further entrench the high unemployment that is leading to a majority of our young adults becoming lifelong government liabilities, whereas if we invested in them they would become our most valuable asset.

Meanwhile, the global economy is downgrading its reliance on commodities, particularly thermal coal, as vibrant nations pivot towards digitally driven growth — while lacking sufficient numbers of young workers. As politics and economics collide in a gnashing of gears we slide in every direction other than forward. Surveys reveal that for most voters the top issue is jobs, and sustainable economic growth requires increasing productivity, which requires investing in young workers. Yet fixing Eskom and Transnet would increase commodity exports, generating tax revenue to fund sub-subsistence grants for idled young adults for far longer than a wealth tax or selling forex reserves could.

Our obscene level of youth unemployment is an extreme global outlier. It can’t be remedied with a localisation focus amid an intensely integrated, highly innovative global economy. As localisation policies are unsustainable without a large and growing middle class, they amplify the detrimental effects of our patronage politics. We are many decades from achieving a large middle class as our huge youth unemployment bulge won’t be remedied; the vast majority of them will just get older. Our political economy is a hectic vicious cycle that can’t be transcended by attracting capital as it discourages capital formation.

For investment to noticeably spur growth it must fund value-added exporting initiatives. This would require a repudiation of patronage politics, ranging from BEE to localisation regulations, which are central to the ANC’s electoral competitiveness.

We must modify our thinking on investmentled growth to pursue far greater global integration. The binding constraint acting against job seekers is that our economy was too small to achieve anything like full employment even 15 years ago when per capita income was peaking. Localisation policies have since made a bad situation far worse.

As the Western Cape and Cape Town demonstrate convincingly, provincial and local governments can counter localisation’s negative effects on job creation. They can overcome our binding constraint on jobs and woefully inadequate and stagnating domestic purchasing power by, for example, encouraging airlines to add flights to Cape Town.

The key insight is that unlike, say, the mining industry, there are no requirements that the capital required to purchase and operate the aircraft be subject to SA’s expropriation-minded parliamentarians. Many jobs are created on the back of investments in the hospitality industry, and more broadly, but the crucial catalyst is not capital mobilisation in SA.

Those aircraft enable foreign tourists to enjoy SA’s charming beauty while introducing the country to how today’s leading emerging economies sustain high growth. Neither exporting commodities nor localisation policies can provoke meaningful gains in employment or productivity. Both deter development while further embedding patronage politics.

The trick is to develop an entrepreneurial culture that identifies and develops various valueadding niches in global supply chains. As evidenced by trends in our per capita income and youth unemployment, SA’s domestic-focused entrepreneurs overfish in the small, already overfished, pond that is SA’s economy.

If the ANC loses Gauteng it is very much game on. The governing party seems to have already anticipated that its odds of surviving legitimate elections in 2029 are poor. It has many options to undermine constitutional protections such as free speech, that legitimately free and fair elections require. As the reactions among investors and prodemocracy nations would be negative, the ANC seems to think that pivoting decisively towards Brics+ and Global South nations in general is a workable alternative.

China is the largest importer of most commodities, while the US is the largest exporter of jobs. As the two largest economies gradually “derisk” their reliance on each other, and while China seeks to adjust to overreliance on building infrastructure and housing, SA should be prioritising the proportion of school leavers who digitally integrate into supply chains serving affluent Western consumers.

By abandoning the misperception that capital must be mobilised in SA to create jobs, we can appreciate why so many high-flying countries transitioned by carving out globally relevant niches. Mexico, which benefits from proximity to US consumers, is beginning to outcompete China in some manufacturing sectors. In many service sectors, fluency in English is critical, thus advantaging SA.

Naysayers will point out that India’s many English speakers have long been outcompeting us at integrating into global service sector supply chains. But as childhood teaches, we needn’t be good at every sport to be competitive at some. Global integration is about carving out niches. Levi Strauss invented a style of rugged jeans and, long after most California gold mines closed, his company remains globally formidable.

Two or three provincial governments could soon be unlocking SA’s potential by leading efforts to integrate school leavers into the global economy. No path offers more potential to counter our patronage-induced economic malaise.