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The country which best demonstrates the shortcomings of joining BRICS is the only country that has been added to this motley consortium, South Africa.
When, in 2010, South Africa joined the vague amalgamation of Brazil, Russia, India and China, our youth unemployment rate was already very high but it wasn’t yet sufficiently entrenched to threaten political stability. Our unemployment has risen further while our incomes haven’t increased since peaking in 2011.
As with an AIDS-like health crisis, obscenely high youth unemployment, if left unchecked, can quietly spread for many years before the damage threatens catastrophic outcomes. Playing down the risks or just treating symptoms, with sub-subsistence payments, or beets and garlic, goads such threats to compound.
No country has an entrenched youth unemployment comparable to ours. None of our leaders offer workable solutions.
Business leaders sought to join hands with our government’s policy makers to cultivate investment-led growth. They hoped to mitigate the ANC’s anti-business and anti-growth policies and practices. While this reasonable approach initially showed promise, adequate progress soon became ever more elusive.
Fixing SOEs and retracting anti-business policies would open the door for repairing the economy. Yet remedying our youth unemployment crisis requires a new mindset. We simply cannot do it independently. That our various leaders refuse to accept this goes a long way toward explaining why the problem has become so extreme.
To overcome our unemployment crisis through growing domestic demand would require massive momentum at growing our households’ discretionary incomes. Such momentum is not intrinsic to economic growth. Achieving it is particularly difficult for countries where commodity exports support much patronage.
Remedying all of our government’s flagrant flaws would surely boost economic growth yet there would still be far too much expensive consumer debt alongside worker productivity stagnating at a low level. Fixing our politics and commercial economy won’t fix the youth unemployment crisis which makes it easy for opportunistic actors to spark large-scale social upheaval – such as the looting in July 2021 which led to over 350 deaths amid little law enforcement or subsequent prosecutions.
Financial repression
Financial repression, in the form of forcing lenders to sharply reduce the rates on outstanding loans, would temporarily boost discretionary incomes for many households while punishing various shareholders. The IMF has frequently required such financial repression measures alongside policy reforms as a condition for lending to countries experiencing a debt crisis.
Around the time we were joining BRICS, Greece was about to enter the throes of such a debt crisis. All the key players, including the IMF, were hectically challenged but current evidence strongly suggests that the plan worked. Greece also has long had worker productivity issues constraining its export competitiveness but it is part of the EU and it is positioned at the intersection of Europe and Asia.
Our economy does not require a tune-up. It more resembles a rusting fleet of outdated and neglected vehicles that, ideally, should be replaced. We aren’t ready for electric motors but modern navigational systems would be quite helpful.
South Africa isn’t in Europe or Asia but, in an economic sense, this could quickly change. The world economy is being reoriented by wealthy Western countries ‘friend-shoring’ their imports. This clunky term describes a response to the shifting direction of geo-politics which seem likely to prevail for many decades.
China’s competitiveness is evidenced by its being the world’s largest manufacturer and number one goods exporter. Its economy is far more formidable than the other BRICS economies combined. Localisation policies alongside much anti-competitiveness legislation puts our grim economic trajectory on a track similar to that of heavily sanctioned Russia.
Willie Sutton, a well-known American bank robber, was asked why he robbed banks. He replied: ‘Because that’s where the money is.’ This quote has become a metaphor for focusing on obvious solutions.
Deficient discretionary income
Successful economies don’t target African markets because they have the same core problem South Africa has: deficient discretionary income. South Africa should rather be showing regional leadership by having our entrepreneurs develop myriad ways to integrate into global supply chains serving affluent markets.
We must recognise that only the West combines prodigious discretionary income with a shortage of young workers – and it’s not as if South Africa is home to many Chinese or Russian speakers. The two other BRICS countries, Brazil and India, are our reference competitors. They have far more companies and young adults adding value within global supply chains than we do and, consequently, their prospects are vastly better than South Africa’s.
None of the current BRICS countries are going to become significant importers of our value-added exports. That is, aligning with them further undermines the already horrific prospects which most young South Africans face.
The countries which have expressed interest in joining BRICS tend to share two characteristics: they are poorly governed, if not highly autocratic or corrupt, and they are poor candidates for value-added exports from South Africa. The list of countries formally seeking admittance includes Argentina, Egypt, Iran, Saudi Arabia, United Arab Emirates, Algeria, Bahrain, Indonesia, Algeria, Egypt and Nigeria. Countries that are known to have informally expressed an interest include Afghanistan, Angola, Bangladesh, Belarus, Ethiopia, Kazakhstan, Kenya, Mexico and Mozambique.
Improving prospects for our school leavers by increasing domestic demand is far beyond our reach. However, that need not be a problem as today’s high-growth economies add value to exports destined for affluent markets.
Acquired on the job
Harvard’s Ricardo Hausmann, one of the world’s most respected development economists, argues that most of the skills that a labour force possesses were acquired on the job and that what a society knows how to do is determined by the kinds of goods and services it produces. Leaders in India and Brazil appreciate that China’s extraordinary growth reflects such thinking.
Russia’s and South Africa’s governing elites prefer to secure their grip on power through making a massive patronage system reliant upon their bestowing generous favours. In today’s hyper-competitive global economy, this ensures decline notwithstanding abundant resource wealth.
It would, of course, be much better if our education outcomes weren’t so horrific. Yet Hausmann’s view is informed by the paths taken by this era’s high-growth emerging countries. Skilling a workforce is mostly about employment.
Among the many disconnects contributing to our dysfunctional political economics is the belief that the poor and unemployed are stupid for not voting the ANC out of power. There is little understanding that the poor rely on those who rely on patronage which traces to ANC rule.
The ANC lock on the electorate has long been vulnerable to opposition efforts to spur rapid job creation. The binding constraint acting on the most vulnerable aspect of our political-economy, jobs, has long been access to deep and expanding discretionary income – not access to capital.
No country has ever found this to be easy but in successful emerging economies, legions of creative entrepreneurs persist until winning formulas are identified. As our entrepreneurs mostly focus on domestic consumers, their impact on total net job creation is meagre.
A weak rand can at least partially offset our low worker productivity. That offers an opening. The far greater opportunity relates to the West’s friend-shoring.
Selfish and unmoved
The ANC’s economic stewardship is dreadful but this doesn’t mean their leaders are stupid. Rather, they are selfish and unmoved by the misery they are inflicting on a majority of young South Africans.
By pivoting decisively away from the West, prospects for entrepreneurs to create jobs through integrating into global supply chains will wither and reliance on patronage will benefit. Erdogan in Turkey is the latest in a long line to demonstrate how such patronage reliance can be electorally effective. If this approach seems in doubt, it shouldn’t be difficult to spur sufficient social unrest to avoid fair elections in 2029.
Exporting to the West offers a path to broad prosperity. Aligning deeper with Russia and China as BRICS expands, allows the ANC to shield itself from accountability through joining an international choir of grievance chanters.
If South Africa’s future is to resemble that of, say, Zimbabwe, then, oddly enough, it suits the West that our leaders are now cosying up to the likes of Presidents Putin and Xi. When South Africa’s debt crisis arrives, it will be considerably harder for our ruling elites to blame the West.
Perhaps those negotiations will produce a workable plan.
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