William Gumede
The Economic Decline of South Africa

William Gumede - The Economic Decline of South Africa

- Well, good evening everyone. It’s my very great pleasure to introduce Professor William Gumede. He’s got one of the most extraordinary bios I’ve ever read. He is at the moment based at the School of Governance at the University of Witwatersrand. He’s a board member of the Centre for Public Authority in Policy in London School Economics and Political Sciences, an advisory board member of the Global Public Policy Institute in Berlin. He’s founder of a very important organisation, Democracy Works now based in eight countries. He’s also the founder of the Institute for Social Dialogue, which tackles resource-based conflicts. He was the chairperson of Action Aid. He ran a programme for Members of Parliament of the British Commonwealth on how to conduct themselves ethically as MPs, an incredibly important programme. Between 2009 and 2014, he was advisor in the successful project to bring leading civil society, business and community leaders from Iran to South Africa to learn of South Africa’s transition to democracy. Between 2008 and 16, he worked on a project to take leading South African Civil Society, activists, academics and journalists to the Middle East on a co-learning and fact finding mission. He advised the South African government on the establishment of several state agencies, including the Parliamentary Budget Office, the Infrastructure Project Preparation Fund, and the Green Fund. He’s won a number of South African and international awards for activism, journalism, and writing, including the South African Courageous Journalism Award, the British Diego Award for excellence in reporting on Africa, work on Nigeria, and was awarded a special commendation by UNESCO. He’s the author of a couple of number one bestsellers. His most recent book is ‘South Africa in BRICS’. Now today he’s speaking about the economic decline in South Africa, and it’s a great honour, William to have you as part of the South Africa series. So welcome and over to you.

• Thank you very much for inviting me. I’m very, very grateful and very appreciative to, to deliver a lecture. And also, welcome to those who are attending. At the end of my presentation I’m very open to respond to questions outside my presentation because I know many of you would be very interested to hear about work I’m doing, putting together South Africa’s first pre-electoral national coalition for next year’s election. Now, to start my presentation. Now, last week South Africa’s Finance Minister said that South Africa may run out of money by March next year. I mean, to repeat that South Africa may run out of money by March next year. Now, why did the country get to that situation? Unemployment this year is 32%, and in 1994, at the end of apartheid, it was at 13%. South Africa’s economic ranking now is 36 globally if we use nominal GDP figures. So it’s a really a decline from where we were in 1994. South Africa’s currency, now it’s 18 rand to the dollar. And in 1994 it was R3.60 to the dollar. We’ve seen a collapse of infrastructure with a rail, power, air, road, housing and ports, and some calculations have put it South Africa’s infrastructure might have declined 40, 50 wards backwards. South Africa’s share of world export has also declined. I mean since not 2001 it’s declined by 15%, and you know, cumulatively it is, it has declined by almost 30% since 1994. We’ve seen the almost collapse of manufacturing and really the country’s been de-industrializing, meaning that products that were produced for local use and for exports in 1994 are now not being produced anymore and are being imported. Nigeria and Egypt are now bigger economies than South Africa. Now , if one compared the last 30 years, compare South Africa with other emerging markets.

Poland is a very useful comparison. I mean 2015, Poland’s GDP per capita based on purchasing power exceeded 24,000 US dollars, which translated into 65% of the Euro zone average, and Poland in 25s was ranked as the 19th biggest economy in the world. Now, hence in 1989, at the end of Communist Party rule, Poland was in social crisis, political crisis crisis, and economic crisis with inflation at some point in the mid 300, 300%. Saudi Arabia is another interesting emerging market comparison. The petroleum state has transformed itself to the largest economy in the Middle East over the last 30 years, and I’m using 30 years to make the comparison to South Africa’s, you know 30 years since the end of apartheid. I mean the Saudi Arabian economy is now larger than US, one trillion US dollars. Please change the slide? Singapore, former colony of Britain, now in 2015 had a GDP per capita of US $56,000 and it’s almost on similar levels. Those GD per capita, similar levels to Germany. South Korea, former colony of Japan, now is almost two trillion US dollar economy making it the world’s third largest economy. And as comparison, during apartheid South African economy to our scope Singapore economy and South Korean economy. Mauritius, former economy of Britain, also now its economy increased sevenfold since 1976 and 2008. And GDP per capita, now is roughly around 7,000 US dollars. And the Mauritian economy diversed successfully, diversified from sugar to textiles to a service economy.

And a very, very diversified economy. Please turn the page? Now, in very very broad terms, the recipe for economic success for many of these equivalent emerging markets. The first thing is these countries or successful developing countries are often, often driven. The governments are driven to catch up with developing country to developed. In these countries, there are often a very clear emphasis on lifting economic growth. Quality education is often the pillar, or rather is the pillar for development. And these countries prioritise become getting world class competitive education for the citizens as quickly as possible. Just give, I mean if you use the example of Singapore, if you think about this in the late 1960s, Singapore, 90% of Singapore what really was informal slum, that most people lived in informal settlements. Now by the late 1980s, Singapore mathematics were taught in the UK schools. So Singapore economics became really globally successful. So that’s what I mean by country is prioritising quality education. And many of these countries manufacture for the world. They manufacture things that the world needs. And the whole thing about manufacturing for the growth, it dramatically transforms local economies because if you want to export to the US as a company you need to understand the US market. You need to the US market and you have to beat all of the other competitors in the US which means all of those forces really are all catalytic to change local economies. Now again in these societies there’s often a partnership between the private and the public sector.

So a partnership for growth. And often the public services these societies get transformed, and they’re often merit based is fundamental in the change in many of these countries. In Singapore, Taiwan, and South Korea, one has to write a competitive exam to enter the public service and they only take the top candidates. And lastly, if they often comparatively, these countries have comparatively low levels of corruption. Please turn the page? So, need to recapture. These countries create new industries which the world needs. So, manufacture entirely new industry. South Korea in the 1980s, established a gaming industry and just think about where gaming is now in the world economy. But these countries were often also very pragmatic. They were not ideological, and they were very, very pragmatic when they came up with policies. And they also strategically used their endowments, the historical endowments was geography, like Singapore as a trade port, city, country, or their diversity. Rule of law wherein the idea that one set of rules applies to everyone else. No one is exempted from, you know, from the rules. But these countries also use foreign financial support so much better. I mean Poland obviously got massive EU support funds, but they used it for entrepreneurship and for infrastructure. South Korea also got a huge influx of post war US financial support and again, they used it for entrepreneurship with infrastructure development.

Singapore taps into foreign investors for their infrastructure and entrepreneurship development. Please turn the page? Now in South Africa, what went wrong? The first thing that went wrong since 1994 is the neglect of entrepreneurship. And what happened in South Africa is that in the post 1994 periods, the focus increasingly became political entrepreneurship. And what do I mean by political entrepreneurship is that the focus has been on so-called entrepreneurs getting business from the state based on a politically connectedness to the ruling party and to leaders in the state. Now what that does, it really undermine entrepreneurship. Entrepreneurship in the wider, in in economy. South Africa also rapidly de-industrialized. The ANC government did not focus on expanding the manufacturing base of the economy. They didn’t focus on creating new industries for the world, you know export industries for the world. And then the decline that we’ve seen in South Africa of infrastructure, particularly infrastructure at a local level. Many of South Africa’s municipalities collapse because of incompetence, corruption, lack of rule of law, and all of, combined all of these things have destroyed businesses. So I mean, I want to reemphasize the decline of the in SAR Africa. Very much a downward trend for the last 16 years. Manufacturing really has, contribution to GDP has declined and we’ve seen lots of job losses because of the decline of manufacturing. Please turn the page?

We’ve also seen the wrong use of the state. Now the state is very important in industrialization, but it is the way that the state is used will determine whether a country industrialise or whether a country achieve high goals. It’s almost, if you look at the countries that have done well, the developing countries. Singapore which I referred to earlier. Poland. Taiwan, and South Korea, it’s the state in those countries were a very intelligent state. So it is the intelligence of the state that makes the difference. But South Africa since 1994, has had a continuous state. A state that has been used really to enrich an elite rather than a state that supports industrialization, manufacturing, or enforcing the rule of law. We’ve also seen there’s that neglect of human capital in South Africa so we have, we don’t have a globally competitive public education system. Of course, the private education system is very competitive, but there’s been a decline in the public education system. By that I mean the government education system. One of the mistakes that the government made early on after it came to power in 1994 is that it closed almost all of the technical institutions, and the institutions where citizens could learn artisan programmes like becoming electricians, plumbers, and so on. I mean you cannot have to imagine closing down technical institutions in a technology, in a technology world. In a world where, where technology is key for development.

South Africa has built new universities in the post 1994 period. But universities have focused on social sciences, not medicine, or engineering, or technology. And for me quite important, in the state there has been a, the dismissal of the idea of merit. So political connections, being part of the ANC’s liberation path, and colour considerations, trumped competency. The argument has often been made that political experience translates into technical experience. So people get appointed based on their political experience to run highly technical and complex organisations. State organisations, although they do not have technical experience. Please turn the page? We’ve seen often very ideologically based policies, and very solidarity based policies, and policies based on the past, whether it is in the economic field, in the health field and the foreign policy. Just give you an example, in the foreign policy space, I mean South Africa has aligned with Russia. It makes no economic sense and it has harmed the economy because the impact of the Russian Ukraine war has really cut off or take taken off growth from the South African economy quite directly. But the government has supported Russia based on the past, past solidarity. In the region South Africa has supported ZANU in Zimbabwe, and ZANU in Zimbabwe has been a very autocratic government, and many Zimbabweans have fled Zimbabwe to South Africa, putting a strain on South Africa’s public resources and undermining South Africa’s economy.

Again I can use the example of Sudan when South Africa supported, it’s a former dictator Bashir. We’ve seen what happened thereafter that Sudan has now collapsed and caused one of the continent’s major migration crisises and political, regionwide political instability. Corruption has undermined the credibility of policies. So many policies have often been formulated for corrupt reasons, not in the public interest of the country, or the economy, or society. And often, sadly, many South Africans do not see how the massive impact of corruption on the country’s economy. On increasing poverty, increasing inequality, and causing job losses. But we’ve also seen the politicisation of society and state. Now in many of the emerging markets that had medical turnarounds on the economic front, what they’ve done, the first thing that they’ve done at the beginning of the economic reforms has always been to take politics out of the state. You know, to make the public service a professional public service. And we’ve in South Africa gone the other way around. We’ve made it a political public service. And what do I mean by that? So appointments in the public service are often not based on skills and technical experience, but really have connections to the ANC. So, a wholesale politicisation of the state. We’ve also seen the politicisation of business. So the private, say if you’re private sector, if you want to do business with the state, you have to conform with the demands of the state.

If, if it’s because the state, part of the state is corrupt, the private sector’s, is often expected to also pay bribes, to behave corruptly in order to get state contracts, or to appoint individuals from the governing party to the boards of the private sector companies. And the irony of that, the appointments of many politicians to the boards of many private sector companies has often caused such chaos in these private companies. You know it has often devalued those companies because it often brought the politics of the ANC into the boardrooms and executive rooms of private companies. Now we’ve also seen that the governing ANC has marginalised non ANC talent. So often if you’re not seen as a member or supporter of the ANC, no matter your talent, your technical skills, your personal experience, you’re very unlikely to get appointed to critical positions in the state. Or sometimes you get contracts with the state, which means, you know, the marginalising of talent and the energy in the country has really deprived the economy because talent and human capital is critical for growth. And we’ve seen no effective partnership between the state and business in South Africa because the ANC have been largely anti-business, anti entrepreneurship. They’ve been often hostile to local business and it’s been a distrust between business and the state. Please turn the slide? I have to apologise because I have a flu and I’m a bit nasal and nasy and I hope you hear me clearly. Actually if you’re not, please just shout. We’ve seen the creation in South Africa of what I call a party state, where the ANC as the governing party and the state becomes owners, one and the same thing.

There is no firewall between the ANC’s political party and government. I’ll give you an example. Now the ANC has a national deployment committee and on their committee sits the top leaders of the ANC and they decide who should be appointed as CEOs and board members of state owned companies. And often they decide which private companies to get contracts with the state. So you can see what this mean. So just from a market economy point of view, that political decisions are made in the allocation official and also in the allocation of talent. And many ANC leaders often prioritise very outdated ideologies. Often new Marxist type of economic priorities. I mean if you take a survey of public statements from ANC leaders since 1994, a lot of those statements call for really outdated economic policies. I mean, take I mean I started with Poland as an example, as a comparison example for particular reasons because Poland came from the communist era and they moved out of that era towards a market economy, still of course using aspects of the state to deliver services. But in the South African case, we’ve seen that in the post 1994 period, many prominent members and leaders of the ANC really went back and hark back to policies based on Eastern European communism. So, then we’ve also seen just wrong policies. So, if there was the intention to adopt a good policy and the policies, the policy was not corrupt, it was often a wrong, totally inappropriate policies. So we’ve seen policies that are not based on evidence or on science. I mean we’ve seen it during the HIV/AIDS crisis in South Africa when Thabo Mbeki was president.

Although the science said very clearly that HIV/AIDS needs to be treated with certain kind of drugs, Thabo Mbeki as a president insisted and claimed, and didn’t even know scientific basis to the true, you know treatment. The drug treatment of HIV/AIDS. And, of course we’ve seen millions of South Africans die needlessly. And the same with South Africa’s state owned electricity utility, ESKOM. Now, in 1994, ESKOM was one of the world’s, was in the top 10 best power companies in the world. By the late nineties, mid to late nineties, the ESKOM management told government that, to invest in maintenance and invest in the long term capacity. These recommendations from the ESKOM management were rejected by the government. Although these recommendations were based on evidence, on science, it was rejected because the politicians thought they know more about science than about evidence. And now of course, we’ve seen the country experiencing power outages. And often the government has focused on the wrong priorities. On things that should not be important. Things that should be marginal. Marginal, spending energy on, on the wrong things rather than tackling the critical areas. And lastly, corruption.

I mean, again, if you look at emerging markets, the last 30 years that have gone very well, they’ve, they’ve dealt with corruption and they’ve been, they all have reasonably low levels of corruption. Please turn the page? Wrong priorities. Now, since 1994, South Africa has had no clear country economic goal. If you think about a country like Japan, after the Second World War, aimed to be the second biggest economy within a couple of decades. The Chinese aim to be, are aiming to be the biggest economy in the next few years. India now is aiming to be a developed country by the hundredth year anniversary of independence. Now South Africa up to now doesn’t have such a clear goal that the country can align all of its economic policies to. And all of its social politics and all of its political and policies. South Africa also has no focus on growth in the way that some of the emerging markets are focused on. I mean it’s still among many ANC leaders a disputes over whether prioritising growth, economic growth is a good thing. Whereas in many other emerging markets this is taken as obvious. We often, in the country, we’ve seen, we’ve got the wrong collective mindset in the country. There’s often been a falling back on blaming the past for present mistakes, rather than taking responsibility and accountability.

So often there aren’t policies, or criticism of government corruption is often deflected and, by for example, if it’s corruption, if you remember Jacob Zuma was the South African president. When he was criticised for corruption he said, well, the apartheid leaders were also corrupt. Why can’t I be corrupt? So, the deflecting of current mistakes on the past has really undermined a growth, a collective growth mindset. Now, democracy. South Africa is a constitutional democracy. Now, large numbers of ANC supporters and non ANC supporters contest democracy. Some people still argue that democracy is a western thing, that South Africa’s constitution works. Others argue that South Africa’s constitution was put together by western academics and jurors, although South Africa’s constitution obviously was put together by South Africans, by some of the best legal minds, born on the African soil. And, it means we’ve got essentially two, a two tier rule of law in South Africa. So one is the constitution. The second one is customary law. And in the rural areas where the rule, where the law and the rule of law, according to the constitution, does not apply to large parts of the country. Now, one, a country cannot grow economic growth and investment if there isn’t one set of rules for everyone. Redistribution in South Africa did not prioritise entrepreneurship, human capital and infrastructure like it did for example in the Singapore. But what we’ve done in South Africa, we’ve created black oligarchs.

So you know, similar phenomenon than in Russia. But this time blacks linked to the ANC would have beneficiaries of prioritisation of Black Economic Empowerment programmes. Please stand the page? South Africa has also been suffering from resource complacency. Many African countries and other developing countries that have a wealth of resources often, are often complacent. They say, well we have the resources, we are rich. And then they have no incentive to develop other resources. I mean a country like South Korea, and Singapore don’t have any resources. So, you know, they’ve been determined to develop other sectors and gave competitive sectors. So South Africa also has had resource complacency. And then human capital. In South Africa, human capital development has not been seen as a key catalyst for growth, for development because of the presence of resources. We’ve seen the collapse of education. I mentioned before the closure immediately after 1994 of many of our technical, almost all our technical and artisan training institutions. And, again to repeat, we’ve had a misguided redistribution strategy and priority.

And often the argument has been made that any, if anything goes wrong in the economy, the government can just nationalise the resources or tax the rich. And that has become a fallback economic strategy meaning that the government didn’t, didn’t have to sit down and really come up with coherent economic plans because the fallback economic strategy has been to nationalised resources, packs the ridge. We’ve seen the destruction of the private sector that deliver public services that are working because of a state focus delivery ideology. So let me explain. Private education, private health system in South Africa delivers world class competitive education and health. But the public health system, and the private and the public education system have in many parts failed. So instead of prioritising, fixing the public health system and the public school system, the focus often by many ANC leaders has been to try to break down the private health system and the private education system. Please, on the page? So to conclude we’ve seen wealth destruction since 94. We’ve anti-growth, anti investment, anti-business, public policies and public rhetoric from the governing party and its leaders. We’ve seen redistribution strategies that have empowered the politically connected few. We’ve seen anti- merit strategies and politicisation of the state, the economy and society. We’ve seen exclusion of talent and ideas and we’ve seen a decline in civil society, business partnerships. Thank you very much.

• [Host] Well I had wanted to also just let William know so many wonderful comments here you know. Gail says thank you for an excellent presentation. Hope you feel better. Erica says, very interesting. Thank you. Rita. Many thanks. Sincerely appreciated. Just lots of very happy, lockdown community members here this evening.

• William, you’ve given a brilliant presentation. It was so clear. And, what I’m going to say to you is, I hope you don’t mind, will you come back because there’s obviously, there’s obviously

• Yes.

• so many questions but you are

• [William] I’ll come back.

• and I think we’ve got to let you go. But thank you so much for clarifying so many different areas for us in a, you know, in a very troubled time for all of us. So please take care of that cold and thank you so much. And we’ll be in touch about coming back. Thank you.

• Absolutely.

• And good night everyone.

• Thank you so much and God bless.

• God bless you all. Bye-Bye.