JOHANNESBURG—Decades of misrule by the African National Congress (ANC) have caused state services to essentially collapse in South Africa, pushing millions of people into poverty and despair, and possibly setting the scene for widespread social unrest in the near future, according to a new report from the Growth Lab at Harvard University.
According to the October report of the International Monetary Fund’s World Economic Outlook, the South African economy grew by just 0.9 percent in 2023 in terms of GDP. Ethiopia, Ivory Coast, and Rwanda recorded growth in excess of 6 percent; Kenya’s economy has grown by 5 percent so far this year.
The report is the product of two years of intensive research by a group of economists led by Growth Lab founder and international development economist, Ricardo Hausmann, in collaboration with the South African government, local economists, non-governmental organizations, academics, business associations, and civil society groups.
It notes: “The underlying capabilities to achieve sustained growth by leveraging the full capability of its people, companies, assets, and know-how remain underutilized.
“Three decades after the end of apartheid, the economy is defined by stagnation and exclusion, and current strategies are not achieving inclusion and empowerment in practice.”
The report finds that South Africa is far from achieving its goals of inclusion, empowerment, and transformation, and that new strategies and instruments will be needed to do so.
It says: “Two broad classes of problems undermine inclusive growth in the Rainbow Nation: collapsing state capacity and spatial exclusion.”
“Spatial exclusion” refers to the fact that millions of black people remain confined to the impoverished townships created by apartheid, far away from workplaces and employment opportunities.
The report says the ANC’s mission of bringing more black South Africans into the economy, especially through its policies of affirmative action and black economic empowerment (BEE), has failed. Largely because the party’s policy of “cadre deployment” has undermined it.
The ANC uses cadre deployment to reward loyalists with top positions in government and state-owned enterprises, instead of filling the posts with industry experts.
South African economists and opposition parties say the practice has destroyed the country’s parastatals, including its national electricity provider, Eskom, and its transit authority, Transnet.
Most are now wracked with corruption and by bankruptcy, increasingly reliant on multimillion-dollar government bailouts to operate.
Long, debilitating blackouts are common; rail transport is at a near-standstill. Ports operate at half-capacity, costing the economy billions of dollars in lost exports.
Instead of helping more black people out of poverty, and creating a bigger black middle class, the report suggests that ANC policies have simply served to enrich a small black elite, further entrenching inequality in the most unequal society in the world.
The ANC, under South Africa’s first black president Nelson Mandela, came to power in 1994 after decades of white-minority apartheid rule. It was a time of hope and promise, says Mr. Hausmann’s report, but that positivity has been replaced by fear and despair.
The report’s abstract sets the tone: “It is painfully clear that South Africa is performing poorly, exacerbating problems such as inequality and exclusion.
“The economy’s ability to create jobs is slowing, worsening South Africa’s extreme levels of unemployment and inequality.
“South Africans are deeply disappointed with social progress and dislike the direction where the country seems to be heading.”
It continues: “Despite its enviable productive capabilities, the national economy is losing international competitiveness.
“As the economy staggers, South Africa faces deteriorating social indicators and declining levels of public satisfaction with the status quo.
“After 15 years, attempts to stimulate the economy through fiscal policy and to address exclusion through social grants have failed to achieve their goals.
Instead, they have sacrificed the country’s investment grade, increasing the cost of capital to the whole economy, with little social progress to show for it.”
Iraj Abedian, chief economist at Pan-African Investment and Research Services in Johannesburg, told The Epoch Times it would be a mistake for President Cyril Ramaphosa’s government to “laugh this study off,” like it does others.
“The Growth Lab is one of the world’s leading centers of development and economic thought. The report’s content won’t be news to most South Africans, but you can bet that ratings firms, and lending institutions and investors will take it deadly seriously,” Mr. Abedian said.
“Its importance lies in the fact that it offers intelligent confirmation of what domestic analysis has been saying for years: South Africa is sinking, and the trouble has been inflicted by the poor performance of government and its inept policymaking, and little else: not the COVID pandemic, not white capitalists, not global inflation, not by Western meddling, not by the war in Ukraine.”
He described Mr. Hausmann as “formidable” in the realm of global economics, and his report as “extremely important.”
“He isn’t a Western critic; he’s an independent mind and he’s spent a lifetime studying what’s best for developing economies,” said Mr. Abedian.
Mr. Hausmann, Venezuelan by birth, is Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University. He’s former Chairman of the International Monetary Fund—World Bank Development Committee and served as chief economist at the Inter-American Development Bank.
He has previous experience analyzing Africa’s second-largest and most industrialized economy.
Mr. Mbeki never got a chance to implement ASGISA’s recommendations.
In late 2008, he was ousted by Jacob Zuma, who then allegedly embarked on almost a decade of plundering state coffers. During the so-called “era of state capture,” Mr. Zuma appointed cronies to key positions in government, and services crumbled.
After ANC leadership elections in 2018, he was replaced by Mr. Ramaphosa.
But the erosion of state capacity, and other crises such as unemployment, now the highest in the world at around 35 percent, have continued to worsen.
One of ASGISA’s recommendations was that the South African government “liberalize and encourage high-skilled immigration” while simultaneously “stopping and reversing the emigration of high-skilled whites.”
ASGISA also said the ANC’s black economic empowerment (BEE) rules should be reformed.
It described the regulations as too prescriptive, and too focused on “ownership” and “control” of the economy.
Hausmann et al noted: “There is substantial anecdotal evidence that BEE rules may be sending a negative message to both young white university graduates and those in senior management.
“In addition, BEE rules are increasing the demand for high-skilled previously disadvantaged South Africans at a time when they are already facing very high and rising demand.
“To the extent that this tightens the skills constraint at the top, it lowers the demand for lesser-skilled workers and thus widens income and opportunity disparities among the previously disadvantaged.
“Encouraging the retention of all high skilled South Africans and the attraction of foreign high skilled persons will be crucial to limit wage inequality and facilitate the creation of jobs for the less skilled and thus achieve shared growth.”
ASGISA warned that BEE was in danger of entrenching inequality, noting: “There are many economic, social, and political advantages in creating a black entrepreneurial class.
“But elements of BEE as currently envisioned, by requiring equity transfers, imply an open-ended tax on existing and new capital.”
It warned that BEE would force companies to employ black people who did not have the requisite skills for senior management, and that firms would be more interested in “complying with a fixed set of requirements rather than innovating in strategies to promote empowerment.”
But, instead of retaining the skills of white professionals, the ANC has done the reverse, with strict affirmative action regulations shutting the employment door to them.
Research indicates that skilled white South Africans are emigrating in numbers last seen in the early 1990s when it looked like the country was heading toward civil war.
Legislation has also made it extremely difficult for skilled foreigners to find employment in South Africa.
Mr. Hausmann’s latest report for his Growth Lab says the deeper causes of collapse in South Africa stem, in part, from “ideological gridlock” within government, “which has prevented critical decisions from being made in time, as has happened repeatedly in both electricity and rail.”
The report suggests that South Africa is failing largely because of the ANC’s ideology “that prevents society from contributing to supply societal needs; for example, by limiting private, provincial and municipal power generation.”
It says there’s been a dramatic rise in political patronage in South Africa.
“Together, these interacting causes of state collapse have created a vicious cycle where talent becomes harder to attract and retain in government, yet talented public servants are needed to restore and rebuild state capacity.”
The report adds that state ineptitude, corruption, and business-unfriendly policies driven by the ANC’s communist and union partners, have “removed many of the competitive advantages that made South Africa the continent’s most industrialized economy.”
Mr. Hausmann and colleagues conclude that the ANC’s failure to end “rigid apartheid zoning,” exacerbated by its failure to provide adequate housing to the poor, is another major constraint on economic growth.
This means that South Africa’s black majority remains “spatially excluded” from the economy, as they reside in areas that exclude them from job opportunities.
High transport costs, made even higher by the government’s refusal to scrap increasingly high fuel taxes, are preventing development.
The study notes: “High transport costs [direct costs and time costs] create a wedge in the South African labor market that reduces employment.
“We ... find strong evidence that formal jobs are limited because long commutes from low-density areas in and around cities make transportation costs and reservation wages high, while low residential densities prevent the development of a thriving informal economy.”
For an adequate level of development to begin to take shape in South Africa, the report recommends that the ANC immediately ends its policy of cadre deployment.
“An example would be broader civil service reform that changes the appointment of civil servants especially for more technical positions into a more merit-based system rather than one that is overly influenced by politics,” the report says.
It adds that “civil service rotation” across the country should also be considered.
“By recruiting talent nationally and deploying individuals in multi-year appointments across geographies, South Africa may be able to better bridge gaps in capabilities across municipal governments over time,” it states.
“For example, the experience of India in developing a prestigious civil service system—[for example] its Central and State Engineering Service—is illustrative of what such a system can look like.”
Mr. Hausmann and his fellow economists urge the government to allow private companies to generate electricity, so as to ease South Africa’s energy crisis.
The ANC has been blocking this because it doesn’t want to lose revenue from one of its most important cash cows, in the form of national power company, Eskom.
To mitigate the loss of income from Eskom because of power outages, the government has been increasing the price of electricity, thereby forcing citizens to, in effect, pay more for less electricity, according to energy experts.
The Harvard report also recommends that the state relax “overly restrictive building and zoning regulations that greatly limit the development of denser housing” in cities.
“South Africa’s national and provincial policies can incentivize a revolution in urban regulations that would allow city centers to ‘build up’ and become centers of safe, accessible housing,” it says.
ANC spokesperson, Mahlengi Bhengu-Motsiri, told The Epoch Times the party would study the Growth Lab report with an “open mind,” before commenting further.
