Saturday, 22 April 2017

Radical Economic Transformation in South Africa: How Radical Are You Prepared to Be?

South Africa has reached a tipping point, and change beckons. Anathema to some, in particular the upper middle classes, this change goes by the name “radical economic transformation”. Until now, the full weight of the sentiment underlying the push for more radical intervention in the South African economy was not taken as seriously. It was the language of the ultra-left Economic Freedom Fighters, who pursued a radical agenda that they had once sought to reintroduce to the centre of ANC politics when they were still members of the ANC Youth League (i.e. before they were expelled from the ANC). After they were kicked out they took the fight to the ANC, eating significantly enough into the ANC’s vote to help the ANC’s main opposition – the Democratic Alliance – to victory in three of the country’s major metropoles (the opposition took four, but relied on their support to take three i.e. Johannesburg, Pretoria and Nelson Mandela Bay).

Yet the reason why radical economic transformation is now being talked about in every home across the country is that it is the stated new policy direction of the ANC. In a bid to survive its disastrous presidency, the ANC has opted to take the wind out of the EFF’s sails and present themselves as prepared to make a return to their core values as a movement. They have recognised the widespread societal discontent with the lack of adequate transformation, economic upliftment, access to services, social mobility and the conditions of poverty and near-poverty that the black working classes have been relegated to in the new South Africa, and have now decided to do something about it. There is no doubt that there is a sincerity behind this push for a new set of economic policies, yet the question regarding what radical economic transformation entails in practical terms remains a matter of debate.

For this reason, many commentators have been quick to dismiss it as yet another amorphous term that has been deployed to fool the masses into casting their votes for the ANC at the next presidential elections in 2019. With a steadily decreasing portion of the national vote under Jacob Zuma – a presidency that took a wrecking ball to the tripartite ruling alliance, as well as to the state and state owned enterprises and companies, leaving the country wracked with uncertainty, economic decline, unemployment, rampant corruption, the highest inequality in the world and widespread discontent – it is reasonable to make the conclusion that the new rhetoric is simply political spin that has been designed to ensure that power remains within the hands of the ruling party. Indeed, some have referred to this new turn of events as the “Zanufication” of the ANC, in reference to neighbouring Zimbabwe.

On closer analysis, however, it is easy to see that what is actually transpiring is that a new debate has been initiated, a debate wherein significant contestation around what kind of (radical) economic transformation is required to restore faith in the role of government and the state, as well as the kind of economy and society that South Africa aspires towards being. Simply put, South Africa has entered a moment in which a new reformation of sorts is in the offing. It is potentially the most significant turn that the country has taken since it became a democracy in 1994 and proceeded to deregulate and liberalise its economy in 1996.

The public debate on what kind of radical economic transformation trajectory to adopt has only just begun, but it is worth tracking what is central to the nature of the key arguments that have emerged. And with the push for radical economic change being an idea that has long resided with the South African left, in one form or another, it should come as no surprise that the majority of initial contributions have emerged from left thinkers and commentators. The centre-left are also weighing in, but their contributions have yet to emerge in the same numbers as the traditional and far-left have.

Yet there is one key observation that can be made about all of the currently floated ideas of what radical economic transformation should be, that is; they are all largely redistributive in nature.

The far left – such as the EFF – propose nationalising the mines, banks and the South African Reserve Bank; notions that send tsunami level shock waves through the private sector, as well as speculative international investors and global markets. It proposes using the country’s key resources and assets, in addition to taxes, directly – through government – for the good of the people. It smacks of the socialist politics of Latin American leaders such as Evo Morales and Hugo Chavez, which aimed to nationalise land and resource bases in service of social equality imperatives.

The traditional and centre left propose using the large South African state as a vehicle to create a new class of black industrialists who will be able to obtain a more significant share of the ‘pie’ (i.e. the South African productive economy) i.e. through allocating state-led projects mainly to black business. This remains a redistributive trajectory as it is not entirely certain that businesses that are nurtured through state funds will be able to transition into competitive markets within the private sector with ease. Indeed it may well prove to be the case that they end up fighting each other off in the quest to establish monopolies over state projects and tenders instead.

Even the traditionally liberal politics and conservative economics of the official opposition – the Democratic Alliance – has swung towards the left and reinvented itself as a more social democratic party. Recently on television I saw the leader of the opposition – Mmusi Maimane – speaking from a podium that had a message attached to it, one that ensured the public that the DA would protect its social grants. This while its now embattled ex-leader – Helen Zille – was waxing lyrical about the supposed ‘benefits’ of colonialism and the need for a meritocratic economy in South Africa.

There is no doubt that there is a need for significant redistributive reforms to the South African economy. Given South Africa’s historical injustices, as well as its current high levels of socio-economic inequality – an inequality that clearly delineates primarily along racial lines – it is no doubt that the colonial, postcolonial and post-Apartheid era dispensations share common fundamentals at the systemic level. Inequality is so deeply rooted within our very systems of governance, that relying purely on markets and trickle-down economics, with mild social democratic reforms, is bound to result in disappointment.

Yet it is not enough merely to discuss radical economic transformation in the context of redistribution alone. It is entirely unavoidable to talk about the radical economic transformation of an economy without asking what is going to drive the engine of the economy i.e. its productive capacity. Simply put, what kind of production will grow (i.e. I am not referring to growth here in the sense of GDP growth, but in terms of the productive economy), and who will be buying what we produce?

In a sense, a redistributive set of reforms assumes that the engine of the economy is okay the way it is. Metaphorically speaking, a redistributive agenda only addresses the ‘power’ coming from the ‘engine’ of the economy. It redistributes the ‘power’ but does not ask whether the engine requires an overhaul. In doing so, it is doomed to difficulty, frustration and failure. An economy needs to produce competitively and usefully in order to remain relevant within regional and global markets. It needs to be thinking about the engine that drives it as much as what that engine produces.

And real economic engines are ones that not only produce, but innovate. They innovate new offerings and capture and grow their markets. They do not simply capture the state and grow on the basis of its offerings alone (i.e. such as large state-led procurement and infrastructure deals). It is in this sense that I pose the question that is the title of this piece, namely, “How Radical Are You Prepared to Be?”

The use of the word radical implies a complete break from the norm, and not a mere perpetuation of it; something that changes the fundamental nature of the existing system. With this in mind, it is clear that if we are not addressing the question of what kind of economic engine our country is transitioning towards, then we are not being radical about economics; we are merely being radical about social equality i.e. we are using the economy to achieve social equality as an end in itself; we are not attempting to change the fundamental structure and of the economy in a significant way.

Industrialisation, which is desperately needed in the current South African economy – primarily to alleviate high levels of unemployment – will not happen by itself. It needs the help of government and the state to help shape it. Whether in capitalist, social democratic or socialist and communist regimes, governments and the state play a key role in shaping the economy in general, and the productive economy in particular. Ensuring that the work force are employed, is always a top government priority.

For example, in all the emerging positions on radical economic transformation, we have heard very little being said about the criticality of the proposed nuclear power deal – the largest in the world at 9,6 GW – that is estimated at one trillion rand, but which will likely triple or quadruple over the course of the project. Some comments are made here and there about the potentially crippling effects of the debt that the deal may incur on current and future generations, and potential to significantly weaken sovereignty as a consequence of issuing ill-advised guarantees for foreign loans, but the key danger that the deal presents to the economy has largely gone un-mentioned.

That is, the danger that the nuclear deal presents to the capacity of the engine of the economy to significantly innovate and evolve has gone un-mentioned. Simply put, if such large amounts of funding are guaranteed by the state for large-scale bulk infrastructure nuclear builds – which have extremely high upfront capital costs – then the nuclear deal will effectively crowd out other significant investment opportunities in the energy sector in South Africa.

In particular, South Africa will likely not feature as a participant in the growth of the renewable energies sector in particular, a sector that has unprecedented growth, speculative investment and employment creation profiles. For example, according to Fortune Magazine solar and wind energies are creating jobs 12 times faster than other industries[1]. Speculative investment into the renewable energies sectors has now long been 4-5 times as much as that going into fossil fuel technologies, indicating that should we make the choice to diversify the energy sector through a renewable energies trajectory, we would likely attract much needed foreign investment as well.

With such a large African market on our doorstep, one that desperately requires small to medium scale energy solutions to meet the needs of its most vulnerable and poor – many of whom live in slum and informal settlements that lack access to bulk infrastructures and service provisions – it makes eminent sense to be putting significant effort into growing renewable energies solutions in South Africa and innovating offerings of its own to take out to the rest of the continent. Moreover, we have the economic base – i.e. reputable service and manufacturing sectors – through which to catalyse expansion into new, emerging African markets.

Renewable energies can be implemented at small and medium scales, create orders of magnitude more employment than conventional bulk energy infrastructures, and can stimulate a range of value-chain related industries such as energy savings management companies, small scale maintenance and installation entrepreneurships, and skills development and training agencies. They are the natural starting point for the radical transformation of the productive economy in South Africa i.e. the heart of the engine itself, its energy sector. 

Historically, the South African economy has been understood as clustering around a ‘minerals energy complex’, off which its manufacturing base was later established (most of which was strongly linked to the mining sector, as well as the availability of cheap energy). My contention would be that a truly radical approach would seek to diversify the energy sector and open it up to a broader range of entrepreneurs, organisations and agencies within South African society itself. 

Research and studies suggest that South Africa only need consider the need for nuclear energy between 2025 and 2035. It makes no sense to be desperately attempting to tie up a nuclear deal with; (1) guaranteed escalating costs and possible national bankruptcy, (2) a Russian company that has overcommitted and under-delivered/faltered entirely on a number of smaller scale projects around the world, (3) a potential to tie South African consumers and producers into potentially higher future energy costs (especially if the Russians absorb most of the upfront capital costs) than would otherwise be the case if a competitive, evolving energy market were in place (i.e. some renewables have reached parity with conventional energy sources and will likely become more cost effective as they go to scale and new innovations emerge), and lastly that it would crowd out the space for innovating new systems, product and service offerings that can be leveraged to open up markets on the continent and play a critical developmental role at the same time.

The energy sector is the most sensible entry point to seed the transition of the South African economy i.e. by drawing on both offerings within the information and green technology sectors to establish the foundations and capacities to establish a competitive production and innovation base within the South African economy i.e. to upgrade its ‘engine’ so to speak, so that it can access new markets, most of which lie on its doorstep. With a well-established tertiary sector in place (i.e. services), South Africa has the distinct advantage over others on the continent, and can use this to its advantage in making inroads into markets across the continent.

Moreover, from a developmental perspective, it can help seed a developmental transition that could well eventually underlie an “African Renaissance” in the process. By addressing the four main sectors that affect African household budgets, that is; the costs of water, transport, energy and food, it can help stabilise household budgets in the medium to long terms by decreasing their vulnerability to exogenous factors (e.g. scarcity/cost of fossil fuels), as well as dampening monopolisation and rent-seeking through ensuring diverse competition in the sector.

In this vision of radical economic transformation, a revolution in renewable energies will be followed by the full suite of available green and sustainable technology options, systems and built infrastructures. From mass public transit systems, to waste and water recycling, reviving old industrial zones, to permaculture and agro-ecological sector offerings, the potential for seeding new growth is indisputable.  And the next new market for these offerings, according to most global corporates and agencies, is right on our doorstep. And given the challenges we face in our country, it is likely that the innovations we produce will prove useful across the rest of the continent.

If our industrialisation strategy is to compete on the same terms as China or India, the large ‘factories’ of the world, or with North America and Europe i.e. the developed nations, then we will likely succeed in achieving only marginal growth, if any. We simply cannot compete with them at what they do. We need to compete with them by linking into the new offerings that have emerged and growing our capacity to innovate solutions that fit the African context more suitably i.e. for example, offerings that are decentralised, low tech, easily maintained, cost effective (i.e. low cost, innovative financing schemes), reliable, robust and so forth.

While it goes without mention that a redistributive agenda is entirely necessary when we talk of radical economic transformation in South Africa, it is also critical to recognise that without taking aim at the engines of production in the South African economy, we will not achieve any significant restructuring of the actual economy.

It also goes without saying that the rampant and deep corruption that has come to characterise the South African state and government has to be addressed before any kind of future can be reasonably entertained, but other authors have addressed this comprehensively and I have chosen not to focus my energies on reiterating the obvious. Rather, my goal with this piece is to raise the question of what a truly radical new vision of the South African economy would be, and how central and critical the role of the productive economy is in achieving that vision.

We will remain doomed to a future of ‘second-rung’ economic activities should we not take this opportunity to go beyond mere redistributive reforms and seed the potential for economic diversification through harnessing new growth offerings. For decades there has been a consistent mantra; that significant industrialisation is required to take the South African economy forward, and that it would need to diversify significantly to achieve this. That opportunity is now on our doorstep, should we approach it in a half-baked manner, and fail to conceive of a truly radical vision – one that is not only socially radical, but is radical in terms of economic transition – then we would have failed to leapfrog ourselves into the most significant emerging economies, ones that will increasingly dictate how the 21st Century unfolds. It will be a ‘revolution without a renaissance’, and that, in effect, is a revolution that is incomplete.

If there is to be upheaval, uncertainty and radical change, then let that change be constructive and productive, let it be change that brings us closer to being the kind of society that we aspire to being, the kind that is set out in the constitution, and reflects a deeply held set of shared beliefs about what kind of society we should be. Let that change result in tangible benefits for those in society who need it most, and in a manner that the whole of society can celebrate the improvements in quality of life that result from it. Let this opportunity not be squandered by short-sightedness, dogmatism and ignorance of the vast changes that the globe is going through; we need to work with both what is out there, and what we have, in order to bravely forge a new future for the generations to come. Let that be the guiding principle around which radical economic transformation is conceived of and put into practise, lest we end up doing more of the same and end up with nothing new.

[1] See:

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