9 minute read
ECONOMY
SOUTH AFRICA: AN ECONOMIC AND INDUSTRIAL POWERHOUSE FOR AFRICA
South Africa needs an economic growth miracle. MIYELANI MKHABELA forecasts that maximising light and heavy manufacturing is at the source of such a miracle, as it has been for other emerging markets and advanced economies
South Africa is going through tough times and is realising that the solutions of the past can end up being the challenges of the future. Things can be better than they are, if South Africa prioritises an industry strategy and addresses the prolonged economic stagnation since 2008, the livelihoods crisis and youth unemployment – which is currently above 70% – as well as tackling the risk of state collapse, failure of public sector infrastructure and maintenance, and proliferation of illicit economic activity. The realisation of a capable state and capable human capital demands that the ruling party take the hard decisions of releasing or reducing the old leaders, replacing them with a good mix of young leaders, of fast-tracking service delivery, solving complex challenges to prepare the nation to be attractive to foreign direct investment, and improving ease of doing business in South Africa.
The African National Congress must refocus its primary purpose of economic development and expansion to be inclusive to all people. The ruling party must focus on plans for manufacturing and production that will include multiple industries, as diverse as the future of the automotive industry, chemicals, electronics, renewable energy components, healthcare and textiles. Light and heavy manufacturing has been the foremost source of economic growth and development, jobs and innovation in emerging markets and advanced economies. For sustainability purposes, we need to have maximum economic impact while highly managing environmental consequences. Global primary materials use is projected to almost double, from 89 gigatonnes (Gt) in 2019 to 178 Gt in 2060. Non-metallic minerals – such as sand, gravel and limestone – represent the largest share of total materials use. These non-metallic minerals are forecasted to grow from 44 Gt to 86 Gt between 2017 and 2060. Metal use is smaller when measured in weight but is predicted to grow more rapidly, and metal extraction and processing is associated with large environmental impacts. The strongest growth in materials use is projected to occur in emerging and developing economies. Sub-Saharan Africa is expected to undergo an economic and materials use growth spurt. Where economic growth rates are projected to be more modest, materials use grows between 1% and 2% per year on average. South Africa must position itself to be one of the leading industrial nations to contribute to the global primary and secondary materials production of 178 Gt in 2060.
Metals extraction and use have a wide range of environmental consequences, including toxic effects on humans and ecosystems. The overall environmental impacts of extraction and processing of key metals are projected to at least double between 2019 and 2060, mostly driven by the increase in the scale of materials use. Managing economic drivers and environmental consequences are aligned to every industry strategy and South Africa has to align or maintain its position to climate change.
The ANC Economic Development and Transformation Committee must further explore a strategy to enhance supply chain connectivity and resilience in South Africa, elevate the country’s position in the global value chain, strengthen investor confidence in the country, and explore new drivers of economic growth and development, with a particular focus on the role of public-private collaboration, innovation and technological transformation. Collaboration can establish a strong research and innovation ecosystem, boost ideas and share resources.
The South African economy was already in a weak position when it entered the pandemic after a decade of low growth. In 2019, the economy grew by only 0.1%, partially caused by the resurgence of load shedding associated with operational and financial difficulties at the energy utility Eskom. South Africa’s economic recovery in 2021 is benefitting from the favourable global environment (trade partners’ growth and commodity prices). However, pre-existing structural constraints, such as electricity shortages, continue to be binding for the medium-term outlook. Economic growth is expected to rebound to 4.0% in 2021. Commodity prices remain important for South Africa, a major net exporter of minerals and net importer of oil, however, strengthening investment, including foreign direct investment, will be critical to propelling growth and create jobs.
The percentage of the population below the upper-middle-income-country poverty line fell from 68% to 56% between 2005 and 2010 but has since trended slightly upwards to 57% in 2015 and is projected to reach 60% in 2020. The livelihoods crisis and unemployment remains the leading challenge or risk for South Africa.
South Africa ranks poorly in labour market flexibility, encompassing hiring and firing practices, flexibility of wage determination, and poor labour-employer relations. Looking at fast developing nations – China, Vietnam and South Korea – they all have better labour market flexibility and that’s assisting them to attract foreign direct investment currently, and when they’ve equalised, they can reduce flexibility. Foreign direct investment competition in emerging markets forces South Africa’s ruling party and trade unions to provide sustainable development solutions that will make the nation more attractive and transition to the second stage of development, moving from efficiency-driven economies to sophistication and innovation economies.
South Africa’s challenge, similar to developing countries, reduced fiscal pocket, increased indebtedness and slow pace of economic recovery and underperforming industries. Behind this divergence, however, lie decades of deepening economic and social divisions, an unstable insertion into global financial markets subject to mercurial flows of capital, and diminished policy space. Rebuilding the economy needs commitment from the public and private sectors and all other stakeholders, including churches.
South Africa needs the grace of a Buffalo economic growth miracle similar to the German Miracle-on-the-Rhine after World War II and the Miracle on the Han River after the South Korean War from 1950 to 1953. South Korea maximised export products through light and heavy manufacturing and the United Nations Conference on Trade and Development (UNCTAD) upgraded Korea’s status to a developed economy. South Korea is now at a critical inflection point and I believe South Africa needs to experience the same to be ranked as part of advanced economies.
South Africa had been globally ranked 34 in 2008 and 2009 but has now dropped to 67. And yet, South Africa has the capacity to implement an industrial strategy and attract more institutional investors. With better ranking in infrastructure, South Africa needs to take advantage of manufacturing clothing and textiles, automotive parts and creating its own vehicle brand, developing the agriculture and agroprocessing market, and producing electricity for parts of the African continent. Achieving the gains from the African Continental Free Trade Area (AfCFTA) is especially important due to the Covid-19 pandemic, which is expected to cause up to US$79-billion in output losses in Africa in 2020 alone. Covid-19 has caused major disruptions to trade across the continent, including in critical goods such as medical supplies and food. By increasing regional trade, lowering trade costs and streamlining border procedures, full implementation of AfCFTA would help South Africa to increase resiliency in the face of future economic shocks and help usher in the kinds of deep reforms that are necessary to enhance long-term growth. The strength of South Africa’s industrial sector must be rooted in building innovative capacities, highly skilled employees and successful interaction between industrial SMEs, family businesses and large enterprises in highly effi cient and precisely timed value chains. Globalisation, regionalism and innovation are taking place more quickly, and there is a clear trend towards state interventions and away from multilateral agreements. As a potential successful industrial economy, South Africa needs to respond to these changes by proactively shaping new developments and leading in supply chain operations and manufacturing of minerals and building refi neries, like other G20 nations. The economic development strategy’s core objective is to give a lasting boost to the increasing production needed and competitiveness of the entire industrial sector in South Africa and the African Region and to consolidate and build on the technological manufacturing hub in South Africa. The strategy is based on the tried-andtrusted principles, in fast-growing economies and nations that experienced miracle growth, of the Social Market Economy and defi nes the cases in which state intervention can exceptionally be justifi ed or even required in order to avert serious disadvantages for the country’s economy and the well-being of the nation. The National Industry Strategy for 2060 can make a contribution towards shaping a South African market economy which has a viable future. South Africa’s National Industry Strategy 2060 must have a united central fi eld of action which focusses on strengthening agroprocessing, manufacturing of automotive industry components and renewable energy components and of key enabling technologies such as modernisation and mechanisation, digitisation, artifi cial intelligence and battery cell manufacturing. The other main fi elds of action must be strengthening industrial SMEs; mobilising more venture capital for risky investments such as infrastructure and industrial development; advocating open markets and access to markets for South Africa’s start-ups and scale-ups; promoting and maintaining access to and mastery of technologies within our diversifi ed sectors; improving the general policy environment – for example, energy prices, taxes and welfare charges – and revisiting state aid to SMEs and competition law. A competitive industry is a core element of South African commerce and thus part of the way forward towards a shared identity of a fl ourishing, social, sustainable and modern South Africa – and the rest of African markets. South Africa is expected to support the development of a long-term industrial development strategy comprising concrete measures to continuously improve and permanently boost the competitiveness of the South African industry. It needs to be rooted in the national industrial strategies that can lead industrial development and growth. The African Continental Free Trade Area offers employment and entrepreneurship opportunities for youth, but policymakers and development organisations must take steps to ensure the agreement reaches its full potential.
The AfCFTA has what it takes to tackle these challenges by creating more jobs and entrepreneurship opportunities for young men and women. Africa is the youngest continent in the world, with a median age of 19.8 years and 65% of the population under age 25. A third of all youth are expected to be living in Africa by 2050, which could be usefully linked with the industry strategy in that the youth could be a resilient human capital aiming to produce global materials resources. This way, Africa could produce 70% of its own products and food consumed by the continent. Manufacturing stands to benefi t the most under the AfCFTA and forecasts indicate that it could create up to 16 million new jobs. South Africa is expected to take the lead in driving the evolution that will help bridge the youth employment gap and redress structural poverty and inequality.
MIYELANI MKHABELA
FOUNDING DIRECTOR AND CEO
ANTSWISA TRANSACTION ADVISORY
