Develop me
South Africa needs to reconfigure its economic model
is no doubt that recent events in South Africa have shaken both the political and economic status quo. It would be imprudent to dismiss events of the past weeks as just internal politics in the African National Congress (ANC) party without looking at the issues from a broader perspective. Blaming the unrest on alleged instigators is both cheap politics and an admission that people can not take instructions from anyone other than their national leaders.
The unrest was a clear sign of major things to come if leadership does not take decisive action to ensure the economy is expanded to accommodate everyone and every race before it is too late. Extending social grants is simply short-circuiting the problem. The real answer lies in creating economic and employment opportunities for everyone.
Of course, there is an easy and obvious way out of this for politicians; make people happy now by giving them a grant with the hope of winning the next election. The future of the country will depend on the ideas of today's leadership and abandoning economics which is the source of bread and butter and clean votes will be suicidal for the future of the country.
The root cause of the crisis in South Africa lies in a myriad of questions around the economy. There are hot issues of marginalisation, ownership and control and these can be traced back — along racial lines — to the colonial era. This means that the goals of the liberation struggle are yet to be implemented or achieved. The other dimension is that the economy has not been growing in line with the aspirations of the black majority and its population growth.
Of course, the real challenge is not that there are no solutions, but the old guard that still owns a major part of the economy is still holding on to an old idea from the colonial period. It is an idea that assumes that they must regain total control of the economy before allowing new ideas into the economy to diversify and grow. It is for this reason that South Africa, despite the size of its economy is still importing commodities that it should be producing. And that would enable them to create a vibrant, competitive economy which creates jobs for its people and keep them off the streets.
The traditional pillars of South Africa's economy have been grounded in mining and agriculture and lately chemical engineering — the key drivers of colonisation of Africa in the 19th century. Any other industry that sprouted later on had to be built around these which made it easier to establish the current economic power structure in South Africa and to control the economy.
In the 1990s, during negotiations for independence, the economy witnessed a shift, not out of natural growth, but a desire by the old regime to accommodate the new post-independence black elite. That saw the sprouting and growth in the tertiary sector, which includes finance, wholesale and retail trade, tourism and communications. But the foundation of these remained grounded in agriculture, mining and chemical engineering.
Part of the deal during the 1990s negotiations was to outsource consumables from an affordable supplier and in this case China which — because of very low labour costs — could meet the requirements of the new South Africa. This is why today, affordable clothing and electrical appliances from various chain stores scattered across South Africa and penetrating into the region are all produced in China. The lower prices and cheap quality are meant to keep labour costs lower and to increase the frequency of replacing used up products. That keeps the majority of those with income happy and able to afford new products.
Recent developments have shown that this model has now outlived its shelf life and new ideas are now required to expand and diversify the economy. In 2020, the government admitted that South Africa's economy contracted for the first time in 11 years and they blamed coronavirus lockdowns for hampering the economy by disrupting trade and output. While the pandemic had a huge shock on the economy, signs were long on the wall that the economy was not coping with population growth. The unemployment rate was already high before the pandemic and was at 32,5% by the end of 2020. This is the highest unemployment rate recorded since 2008.
There are opportunities if South Africa decides to reconfigure the old economic model by bring home the textile, clothing and furniture industries. On average, South Africa imports more than US$3 billion worth of textile and clothing and $7 billion worth of furniture per year and half of this from China. It could start with China because already China is outsourcing hard-labour industries to other countries. This will not only boost the textile and furniture industries and create employment opportunities but will have knock on effect on the supply sectors such as agriculture and plantation in South Africa and the region.
The attempt by the government to shift towards becoming a knowledgebased economy, with a greater focus on technology, e-commerce and financial and other services can only be seen at consumption level. By now South Africa should have been one of the leading producers of technology and electrical appliances, but it relies on imports. It has state-of-the-art universities that can easily champion technological innovation but most of the graduates find themselves going oversees where their expertise is needed and appreciated.