26 April 2016
How to rebuild South Africa's economy after the ANC is gone
By Mike Smith
26th of April 2016
One of the most sobering books any South African can ever read is The Lexus and the olive tree: Understanding Globalisation by Thomas L. Friedman (1999).
The book is at the same time funny as it is depressing, but it is a chance to benchmark oneself. When I read it I realised that as long as the ANC is in power, black South Africans do not stand an ice cube’s chance in hell of ever making it in a globalized, technological world.
Friedman recounts how he went to the Lexus luxury car factory in Japan where he saw 300 cars being produced each day by 66 human beings and 300 robots. “From what I could tell,” he writes, “The human beings were there mostly for quality control. Only a few of them were actually screwing in bolts or soldering parts together. The robots were doing all the work”.
Now bear that in mind when you look at the South African economy.
South Africa’s economy is mostly mining and agricultural based with a bit of manufacturing in the automotive and armed sectors. What made it competitive in the world market was the source of relatively skilled, but cheap labour.
However, for years the ANC told these black workers that they were being exploited and oppressed by the white man. So when they came to power they instituted high minimum wages and made it almost impossible to fire a black person.
The unions through Cosatu became more and more militant. On top of it they introduced draconian and racist Affirmative Action, Black Economic Empowerment, quotas in education, sport, etc and did nothing to curb the crime wave sweeping the country. A “brain drain” followed as hundreds of thousands of skilled workers left the country.
The result was that infrastructure collapsed, the electricity supply became unreliable, education was dumbed down with Outcomes Based Education and the ridiculous SETA system reducing skill dramatically, reducing production and as unemployment grew, so did crime and social ills. Mass action strikes became the order of the day.
Under the ANC our health services and hospitals collapsed, doctors and nurses left the country, HIV, AIDS and TB increased exponentially and workers became more and more unreliable.
In fact the ANC did everything in their power to destroy the economy of South Africa with their failed policies such as RDP, GEAR and NEPAD.
Today South Africa struggles to attract new skills or investments. In trying to work around the skills problem, the existing mines, industry and agriculture had no other choice but to mechanise and computerise causing even more job losses.
As globalisation and technology marches on, black South Africans find themselves more and more marginalised; overlooked and redundant...they are truly like fish out of water.
Black South Africans still have to realise, as Allister Sparks says on page 218 of “Beyond the miracle”, that in today’s global market the only thing worse than being exploited is not being exploited at all. Even a poorly paid job is better than no job at all.
Yet when you point out the reality and the truth to the ANC, you are called a “racist” who wants to see blacks fail.
Can it be reversed what the ANC has done? Can one get the economy back on track after the ANC is gone?
We can try, but first some basics.
What is Globalisation?
The Dutch East India Company that started the colony at the Cape of Good Hope was the world’s first mega corporation. This developed into the British East India Company and as trade boomed, technology boomed.
The steam engines in locomotives and ships shrunk continents and the distances between them. Suddenly goods could be transported quicker and cheaper. The industrial revolution propelled us into the modern age of globalisation. The telegraph, telephone, radio, television and computers made communication ever simpler and faster. Airplanes made us cross many borders and put us on the other side of the world in a matter of hours.
Globalisation is simply a fact of life and cannot be reversed any less than the industrial revolution can be reversed. One can only accept it, find ones place in it and develop with it. If one wants to make it big one must have some kind of advantage or leverage.
What should a country do to attract investment?
The Washington Consensus is a set of 10 economic policy prescriptions by the IMF, the World Bank and the US Treasury before they will help a country or cut debt.
In order for a developing country to get help, they need to conform to good governance, respect for individual property rights, privatization of state enterprises, remove restrictive labour laws, introduce tax reforms, market determined interest rates, stable currency, etc...in short, “stabilize, privatize, and liberalize" as Professor Dani Rodrik of Harvard called it.
Countries who don’t wear it at all or slip out of it will find themselves with sanctions against them or even worse...simply ignored and overlooked.
Friedman says that when you wear the “Golden Straightjacket”, two things will happen; Your economy will grow and your politics will shrink.
Of course the paranoid Marxist ANC is too scared of this straightjacket. You mention it and they get visions of capitalist white men oppressing and enslaving them. Their game is “power forever”. There is no way they will let business take power from their hands.
Of course investors do not simply invest in a country. They only invest once they see growth, but to have growth you need investment. So the ANC finds themselves in a “Catch 22” situation.
The “Electronic Herd”
In another one of his colourful metaphors, Friedman sees the world’s millions of investors as a herd of Wildebeest which he calls, “The electronic herd” concentrated in the great financial capitals of New York, London, Frankfurt, Zurich, Hong Kong, etc.
Like any herd of animals on the great plains of Africa they may sniff the air, and catch the scent of something likely to eat and begin moving there to the great benefit of the country they converge on. However, they might just as likely sniff danger, take fright and stampede away leaving financial devastation in their wake.
No one is in control of the herd. It operates entirely by its own instincts based on information it receives and how it interprets it. There is no sentiment involved and no special circumstances are heeded. The herd is impersonal and purely driven by its instinct for profit.
Friedman divides the herd into two categories of investors. The long horn and short horn Wildebeest.
The short horn ones are the portfolio investors, who buy and sell equity stocks, bonds and currencies. They can quickly take their money out.
The long horned ones are the foreign direct investors who build factories and enter into production contracts with local manufacturers. They have a more long term commitment to the countries they invest in. However both types can move much quicker than ever before.
The trick is therefore to attract an ever growing herd of investors and retain them. Easier said than done if you are little Lesotho who only has water flowing down the Maluti mountains to export or Malawi who has a bit of tea and coffee and a pretty lake.
‘Moody’s Investors Service and Standard & Poor’s are the bloodhounds for the Electronic Herd. These credit-ratings agencies prowl the world, constantly sniffing over countries’ and identifying those that are slipping out of the Straitjacket.
These credit-rating-agencies can make or break a nation’s economy. For example, when these agencies downgraded the credit ratings of Brazil and Venezuela in September 1998 the financial markets of those countries collapsed.
Problem is that South Africa is currently on the verge of a downgrade to junk status. Economists predict that when that happens we will see R30 to the dollar or worse. The ANC of course do not take these ratings agencies seriously.
What do investors look for?
They want to see growth where they can make a fast buck. They want a cheap and skilled workforce with “Labour flexibility”.
“Labour flexibility” is just a euphemism for being able to hire and fire at will. An investor who knows he will have problems retrenching people during hard times will not hire extra people in the good times. For his company to grow, he needs to be able to hire extra. So in the end, “labour flexibility” leads to more jobs, not less. Trying to explain that to the paranoid and useless ANC could prove a challenge.
Nobody feels sorry for blacks
The ANC likes to preach their nonsense of how bad Apartheid was for them, because back in the 1980’s it worked for them. However times have changed. These young investors in the world financial centres probably have never heard of Apartheid. They were born after it.
If they have the opportunity to set up a sweat shop in Pakistan or Malaysia where there is skilled and flexible labour, why would they consider South Africa with labour laws, collective bargaining and lazy, unskilled workers? Because they feel sorry for them about Apartheid?? No.
These investors will move to Indonesia or the Philippines next year if they can make more money. It is not personal. It is business.
Globalisation means a computer company can design its equipment in Germany, have it manufactured in Taiwan, have the software written in India and even have the company’s accounting done in Bangladesh.
That is the reality. Where does South Africa fit into it?
First sort out crime and education
South Africa has a lack of skilled workers on the bottom tier and excessive high crime rates.
If you want to, for instance, do a South Korea and establish a ship building industry, you need highly skilled engineers. You might have to import them. They need to be safe. There needs to be education for their children. You need proper hospitals, etc, etc.
You need welders, fitters, electricians, riggers and an entire army of skilled personnel, artisans and technicians. They don’t fall out of the sky. As Allister Sparks points out, it takes 21 years and nine months to produce a single skilled worker. How many has the ANC produced?
As far as sorting out crime goes. You have 120,000 policemen of which 30% are illiterate. 11,000 officers do not have driver’s licenses. At Police headquarters in Pretoria there is a staff compliment of 14,000 – whilst the streets of Pretoria is bare of patrolling cops.
To get past the Catch 22 situation of "investment follows growth" and at the same time develop skills, one has to start at home.
Instead of having 16 million people on grants, South Africa needs a big, state driven “public works” enterprise similar to Franklin D. Roosevelt’s “New Deal” which employed millions of Americans during the Great Depression.
The ANC has destroyed enough infrastructure to employ everyone in South Africa. The ports need to be bigger. Build new dams and power stations. The railroads can be increased. National parks tourism can be developed and expanded.
Such programmes can be combined with on the job training and skills development.
In the case of pre-war and post war Germany, we can see that Hitler also embarked on a public works programme employing close to 100% of Germans. These skills were essential after the war for the next public works programme to rebuild Germany namely the “Marshall Plan”.
In fact all these successful post war economies such as Japan, Western Germany and Korea started with a public works programme.
South Africa is a difficult country to govern and the ANC have proved that they were always out of their depth. Rebuilding South Africa after the destructive ANC is gone will be a huge task. We need to start thinking about it now if we want to create growth and make this country great again.