The problem with SA’s economy

2016-10-09 00:00


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South Africa is by far the most sophisticated economy in Africa. It is the only country on the continent that has a real railway network rather than a few lines connecting the interior to the coast, as is the case with all other African countries.

South Africa’s railway network is estimated to stretch for 20 000km of open line.

We also have the largest electricity-generation capacity on the continent, currently measuring about 42 000 megawatts, with another 12 000MW under construction.

Our 55 million-strong population translates to merely 4.77% of Africa’s total population, yet South Africa has the largest economy on the continent and accounts for 24% of Africa’s gross domestic product (GDP).

Socially, the country has five clearly identified social classes:

. The business elite, whose enterprises produce 75% of the country’s GDP.

. The political elite, who are democratically elected and control the state with a budget of R1.3 trillion.

The business and political elites and the middle class make up 10% of the country’s 23 million working-age population.

. An established class of independent professionals in the for-profit and the nonprofit sectors.

This group comprises more than 400 000 people and includes medical doctors, lawyers, engineers, etc.

. Blue-collar workers, totalling 9 million people. These are the manual workers in the private and public sectors. They make up 38% of the country’s working-age population.

. The underclass and unemployed.

This group is South Africa’s largest social class. Totalling 12 million, they make up 50% of the working-age population.

What distinguishes South Africa from the rest of Africa?

South Africa does not have a peasant class. This, in part, explains the relative strength of our democracy.

Agriculture accounts for only about 3% of GDP and is driven by commercial farmers.

Notwithstanding the relative sophistication of the economy, this is still a developing country. Most of our exports are generated by mining and agriculture, which account for 65% of South Africa’s merchandised exports.

This compares unfavourably with similar middle-income countries in southeast Asia. In Malaysia, for example, exports are mainly from the manufacturing industries and comprise 80.2% of that country’s basket of exports.

Because of South Africa’s underdeveloped manufacturing industries, a large part of the working-age population is excluded from employment.

In Malaysia, joblessness stands at only 3.4%, whereas at least a third of our working-age population is unemployed.

This begs the questions: how did this come about, and what should be done?

Economic reforms – 1830s

The most important and progressive economic reforms South Africa implemented occurred in the 1830s – firstly,
with the abolition of slavery and, secondly, with the introduction of peasant agriculture among Africans in the Eastern Cape and, later, in Natal.

These reforms laid the basis for an economy that would be driven by value addition on the one hand, and a society that would be politically democratic on the other.

This was why the first real democratic Constitution for South Africa was the 1854 Cape Constitution, which did not discriminate on the basis of race. Its only provisos were that a person had to be able to write their name and have £25 worth of property.

Abolition of slavery

The abolition of slavery ushered in a society with the potential to diversify its products by adding value. It freed labour to develop its capabilities and compelled owners of capital to compete for labour.

This meant that, for the first time since the mid-17th century, South Africa had the potential to become a normal capitalist economy.

The abolition of slavery went hand in hand with the creation of peasant agriculture in the Eastern Cape.

Since their arrival in South Africa at the end of the 18th century, the British had entered into a partnership with Frontier Boers to conquer the land of the indigenous tribes in the Eastern Cape – without success. By the 1830s, the British realised that the only way they could bring peace at the Frontier, between the Cape Colony and the independent tribes, was to form a coalition with some of the clans, as well as introduce private land ownership and Western methods of agriculture, such as the animal-drawn plough.

Mining and consumption revolution

These two processes – free labour in the Western Cape, where slavery had been established; and peasant agriculture in the Eastern Cape – lasted for about half a century, between 1834 and 1894.

These reforms were undone by the mining industry and large-scale agriculture – that is, sugar and maize. The two sectors transformed South Africa’s economy into one based on raw material exports.

The value addition focused on manufacturing goods for consumption, primarily to supply the needs of the large immigrant population, which was drawn into South Africa by mining and sugar production.

With the introduction of large-scale mining during the last quarter of the 19th century, free labour was abolished and replaced with the migrant labour system, which persists to this day.

The free labour that arose after slavery was abolished also come to an end at that time, with the introduction of job reservation against coloured workers.

Consumption economy

As mentioned above, the introduction of mining and sugar drew into the country a large number of European, American and Australian immigrants in search of instant riches.

This new Western population had to be fed, housed, clothed and provided with infrastructure to function. This led to the emergence of South Africa’s manufacturing sector.

In other words, the sector was established primarily to produce consumption goods for this newly arrived white immigrant population group. It remains a key defining characteristic of this sector, as manufacturing produces consumption goods rather than an integrated value-add sector that produces consumption as well as capital goods.

As a result, our economy is unable to absorb the working-age population into full-time formal employment.

South Africa and reindustrialisation

We have to restructure who controls political power. Political power today is controlled by a coalition of the black middle class, parts of organised labour and leaders of civil society. Given that it does not own capital, the objective of a coalition is to consume state revenues rather than promote investment.

To industrialise beyond where it is today, South Africa needs a new coalition to control state power. It must include the underclass, who stand to benefit most from the industrialisation of the economy as well as owners of capital.

This is part of a speech made by Mbeki at the Pietermaritzburg Chamber of Business Lean Conference from September 28 to 30.

Mbeki is deputy chairperson of the SA Institute of International Affairs, an independent think-tank based at Wits University.

He is co-author of A Manifesto for Social Change: How to Save South Africa

Read more on:    moeletsi mbeki  |  manufacturing  |  economy

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