State steals youth’s future by shunning export-led growth
President Cyril Ramaphosa seems to be gaining the upper hand within his party, and the pandemic is set to retreat. If optimism is justified, what 2030 unemployment rate should we target? Or should we rather focus on the consequences of chronically high unemployment?
For every two South Africans who have jobs, one is unemployed. The ratio should be at least 12 to one. Sustaining high growth is the standard remedy. Yet no-one is forecasting high growth; nor are meaningful policy shifts under consideration.
Economic growth barely kept pace with population growth during the decade preceding the pandemic. After stagnating for a decade, the average South African’s purchasing capacity won’t recover to its pre-Covid-19 level before 2024. Meanwhile, our government’s diminishing borrowing capacity will flatten its spending trajectory.
Employment should improve modestly as the pandemic recedes, but additional gains will then become elusive. Whereas it’s difficult to imagine our unemployment declining to one in four by 2030, many consequences of high unemployment are predictable.
Lacking work experience is normal at age 21, and employers prefer to train young adults. If most of a country’s 30- to 40-year-olds are economically marginalised, the effects will be severe for them and the nation. The 2030 unemployment data is destined to describe a huge employment shortfall for those in their 20s and 30s. More than six in 10 young adults are unemployed.
Countries reduce poverty by spurring youth productivity. Education is critical, while employment is essential. SA has long been provoking debt and poverty traps. That most of our young adults are poorly educated, while lacking work experience and prospects, cements our economic inertia.
Conventional manufacturing employment is in long-term decline globally, whereas redistributionfocused policies block our integration into emerging international growth areas. Our policymakers presume — recklessly — that SA’s public and private sectors can ratchet up spending to spur adequate growth and job creation. Rather, our debtservice trends aren’t sustainable while much of our asset base is eroding.
Investment-led growth is not plausible. The world is awash with surplus capital but SA can’t cover its prohibitively high borrowing costs as the government’s policies and practices preclude sufficient growth. They undermine our competitiveness, thus constraining export potential. Meanwhile, the private sector’s meagre pace of replacing fixed assets is an appropriate response, given projections of nearly stagnant domestic spending.
Countries that are structured to achieve full employment have induced pandemic-era stimulus approaching 20% of their annual output. Conversely, as we lack a functioning blueprint, we have vastly higher poverty and unemployment and our remaining borrowing capacity can’t build much value or create many sustainable jobs. Bad policies produce bad results.
To cut poverty and unemployment to acceptable levels requires aggressively increasing annual sales. This requires expanding valueadded exporting to highpurchasing-power nations. Soon thereafter, our savings rates should be increased, trimming public and household debts. This is the essence of the blueprints common among successful emerging economies.
Without restructuring the economy to steadily expand exports, it would likely take at least a half-century to reduce unemployment and poverty to normal levels. Yet our politics induce redistributioncentred policies that preclude the competitiveness necessary to steadily grow value-added exports.
BAD BET
None of our various leaders can offer a viable plan to grow the economy because they accept today’s political dynamics. The ANC will not independently decide to de-emphasise redistribution to prioritise competitiveness and value-added exporting. Nor does it seem plausible that it will be discharged from power in 2024 — though it might become the senior party in a governing coalition.
Being born in SA 20 or 30 years ago was a bad bet. Young adults in other regions tend to be vastly better educated, with much better prospects.
SA is a resource-rich country, yet the global economy is being reshaped by digital possibilities alongside rapid innovations and a growing bias to favour green options.
Cryptocurrencies are challenging gold’s investment case, while oil and coal deposits are being written down as stranded assets — or even reclassified as liabilities.
SA’s 2030 unemployment statistics will classify a huge portion of our most valuable resource, our youth, as stranded assets. As only export-led growth can tame unemployment, it’s time for a national dialogue reset.
● Hagedorn is an independent strategy adviser.