By Cees Bruggemans, Chief Economist of FNB.
Who exactly are we (and does it matter)?
In daily conversation, the confusion about South Africa’s economic identity often shines through, as struck me again at a major economic conference last week. This matters as regards expectations about what can be delivered, and what is needed policy-wise.
——————-
Foreign audiences are inclined to designate us as an ‘Emerging Commodity Producer’ given our African location, our large surplus labour reservoirs and our fabulous mining endowment.
And yet that is to confuse us with Barbara Streisand and Robert Redford of a generation ago in “The Way We Were”.
Our heyday as emerging commodity producer was probably in the century incorporating 1860-1960 during which South Africa’s mining riches were systematically identified and brought on stream.
That was the period of explosive growth, planned urbanization and infrastructure development, followed up with the drive to early industrial maturity.
The point is that this heroic episode already lies two generations behind us, even if large parts of Africa are only today entering into this exciting stage of development – Angola, Mozambique, Nigeria, Ghana – a long and VERY diverse list, in which many of our companies are today participating with great relish.
——————-
My own favourite description of South Africa, already some years old by now, is as “Emerging Aussie”.
Our hot development days have been long overtaken by industrial maturity, but unlike Aussie we still have huge low-productivity labour reservoirs.
These reservoirs promise still substantial ‘emerging’ growth potential, if only we can get our act together. Give it time.
Meanwhile, unlike Aussie and some other commodity producers who are fully capitalising on the accelerated Asian catch-up growth of recent decades and are fully geared of still doing so for another generation (or two) to come, South Africa seems to be somewhat differently preoccupied when it comes to its natural riches.
We no longer seem to have our infrastructure story quite together (imperative for a mining export effort) and we seem to think it much more fun to focus on redistributing mining rights and prospecting licenses rather than getting on with actually exploiting the stuff.
So whereas Aussie has doubled its mining effort and is set to double it again, we seem mainly otherwise occupied. That detracts from our potential ‘Aussie’ reputation (giving hints of unraveling our traditional mining reputation, another hint we no longer have our act together). Give it time (to do what?).
——————-
Those that have emigrated, and a few still hanging on, have a far more pessimistic view of our current and future abilities. They describe us as being like a ‘Submerging Zim’, a nightmarish prospect, some elements of which seem to be present.
——————-
It is unsettling that the large diverse ‘emerging’ class of countries today is showing much more steady structural progress (and much higher average growth) than we do.
Another contrast is that their ‘structural’ inflation keeps steadily coming down, on its relentless convergence with already developed rich countries.
In contrast, we are like a recurring decimal, a stuck gramophone, as our inflation refuses to budge much from the mid-single digit range after two decades of our own steady progress ended in an orgy of public tariff increases, excessive political aspirations, high labour costs and commodity inflation.
Only our growth is more like Aussie at 3%, but for the wrong reasons, for we ‘underperform’ our labour potential while Aussie suffers perennial labour shortages and needs to import labour to keep outperforming.
——————
If the world is confused about our identity, so probably are we.
We also like the ‘emerging’ designation so full of promise in today’s fast catch-up growth world, except:
- our productivity growth is low
- our industry mature and hesitant in expanding as risks appear intimidating
- our low-productivity labour reservoir large but only very slowly being absorbed into the modern sector.
Our features should potentially make us a booming ‘emerging market with commodity producer flavours’.
But we seem genuinely clueless about doing so, despite talk of 5% growth (six years ago), 6% growth (three years ago) and 7% growth (today) while stuck in 3% territory.
Some deeply fear the potential for Zim-like submergence.
Our ruling elite tend to make this off as afro-pessimism and beneath their dignity to take seriously, but then they don’t dwell in the service-poor squatter settlements or in security-poor neighbourhoods.
But one can’t argue with daily potholes, blackouts, non-functioning traffic lights, horrific urban and rural crime, squatter squalor, education and health care failures, dysfunctional munis, rail transport shortcomings, or the apparent Wild West of mining rights and prospecting licenses.
——————
So, who are we really today and what are we becoming?
We are industrially mature like Aussie, but we aren’t fully exploiting our natural mining advantage like her (or like Canada, Brazil, Russia, Chile and others).
We are not absorbing our huge labour reservoirs anywhere near as fast as other similarly placed parts of the world are doing now as a matter of course, as the true fuel for a rapidly industrializing and urbanising catch-up story.
We are submerging like Zim in some crucial respects, but thankfully not in others, keeping our dented reputation at least partially afloat.
Our mature economy has important shortcomings, allowing comparisons with labour market rigidities in the lesser performing parts of Europe and Latin America.
But thankfully we also still have a very entrepreneurial core with great flair, comparing with the best on the global stage, whether Asian, American or European, and underwriting our productivity gains.
So, basically, we are a very complex hybrid, best described as a very slowly emerging, mature commodity producer with some Zim aspects and labour features reminding of under-performing European regions yet carried by still considerable pockets of excellence marked by exceptional dynamic entrepreneurial flair.
Something you still want to buy into, if selectively and something you may want to flee from if poorly positioned.
Source: Cees Bruggemans, First National Bank, November 17, 2010.
