Massive fail for South Africa

2017-07-26 06:03

THAT the ANC’s leadership mostly sought party unity from its so-called policy conference should greatly trouble all South Africans. That it hasn’t reflects a sparse appreciation that SA’s poverty and lack of growth drivers trace directly to policy failures.

When Nelson Mandela was released from prison, signalling apartheid’s demise, extreme poverty was well above 50% across sub-Saharan Africa (SSA) and East Asia. It has since fallen to just over 40% in SSA while plummeting to under 10% in East Asia. Today, a majority of South Africans survive on incomes near or below the World Bank’s definition of extreme poverty, $1,90 (about R25) per day.

East Asia’s success at nearly eliminating dire poverty is mostly explained by China’s move to embrace capitalism while integrating into international supply chains. Consequently, over half of the people who haven’t escaped extreme poverty live in SSA. Considering its advantages, SA stands out as the nation least effective at reducing poverty.

Since 1990, the portion of the global population living in extreme poverty has dropped from over a third to less than 10%. As capitalism first gathered momentum 200 years ago, it was the inverse of today as 90% of the global population was then very poor.

SA’s policy debates routinely sidestep why some nations struggle perpetually while so many others prosper. The plummeting of global poverty required decolonisation but that guaranteed nothing. The poorest countries today are in Africa and they, along with many successful economies, were colonies. The world’s massive poverty alleviation mostly reflects good governance, industrialisation, capitalism and value-added exporting. As traditional manufacturing employment is contracting globally while becoming more skill-intensive, combining the other three components is essential.

SSA’s resource wealth encourages poor governance and this leads to pervasive poverty amid narrow wealth clusters. In SA, our failings can be traced to governance issues.

Patronage systems rely on creating many unsustainable jobs, tying the job holder’s fate to senior cronies. SA’s massive patronage has been funded through exporting commodities, government borrowing, taxes, regulations and looting. SA’s tax base was unsustainably enlarged through ballooning household debt without the needed expansion of sustainable jobs. Remedying this is crucial.

SA’s household indebtedness and scant job prospects impede domestic consumption. Meanwhile, commodity demand suffers from the shift to a services-led global economy. Thus, unless value-added exports are increased, poverty will rise. As the ANC is more vulnerable than it was a year ago, its dialogue more often welcomes terms such as “growth” and even “competitiveness”.

Focusing on inequality misses the point. SA has so many poor people because the country is awful at managing poverty alleviation. Improving education outcomes is desirable but, as said recently by Ricardo Hausmann, a globally renowned poverty expert, education is not what restrains SA.

Reducing private-sector concentrations would be good but the main problem with monopolies is corruption at state-owned enterprises. High-volume poverty alleviation means selling value-added goods and services to markets with profound purchasing power. For SA this would require policy shifts to support competitive exporting. Communists and cronies don’t get such policymaking right.

The pace of global poverty alleviation has accelerated in recent decades due to three main factors: technology defeating distances, global trade reforms and more affluent countries to target with value-added exports. It is wrong to think that SA cannot rapidly reduce its poverty or that it won’t get worse without sweeping policy reforms embracing global realities.

SA’s policies are far too hostile towards business. Today, good governance committed to business-friendly policies drives poverty alleviation.

The ANC’s policy conference did not herald new awakenings and solution-focused debate. The emphasis was on managing factions to maintain the status quo. As long as there is little awareness of how to achieve poverty alleviation, propaganda will substitute for problem solving. — Biznews.

• Shawn Hagedorn is an independent strategy adviser.

• Biznews.com was founded and is edited by Alec Hogg. Twitter @alechogg and @biznews.com

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