Is South Africa in a crisis?

Johannesburg, South Africa

Johannesburg, South Africa

The recent Progressive Professional Forum hosted by Deloitte at its KwaZulu-Natal office in Durban saw robust debate surrounding the economic challenges facing South Africa and unearthed a multitude of challenges and possible solutions to the country’s financial woes.

Keynote speakers at the PFF Colloquium were recently elected chairman of the African National Congress (ANC) for KwaZulu-Natal, Sihle Zikalala, and UKZN political economist, Professor Patrick Bond. Although the two disagreed on whether or not the country was in political crisis and was heading towards becoming a failed state, they identified similar economic challenges.

Zikalala, in stating categorically that South Africa was not in crisis, also noted the progress made by the ANC since 1994. He said that South Africa needed to engage in a “social contract” that was binding on government, the civil service, labour and the private sector to solve the country’s problems. Key issues that needed to be addressed, he noted, included the fact that unions resorted to strikes as a means of upstaging competing unions rather than as a last resort and the large salaries and increases going to top executives and heads of parastatals whilst those further down the line languished in poverty.

He said South Africa was running short of “morals and professionalism” and emphasised that there was a need for working both efficiently and effectively if the country was to be productive and ensure it was manufacturing quality products. “We must ask ourselves if we want to be a welfare state or a developmental state,” he noted, adding that government could not afford to support all people and that people needed to be independent in order to free up more funding to address essentials such as improving education and skills development.

Zikalala explained that the economy had structural weaknesses as it was reliant on mineral resources rather than industrialisation and growing manufacturing which would result in job creation. Localisation and beneficiation of raw materials needed to be at the top of government’s agenda with everyone wanting to invest in the country having to establish a manufacturing plant. Only finished product should be taken out of the country.

Lastly, he pointed out that the economy continued to be controlled by white males and, to a lesser extent, the Indian business community. He said that the percentage of economic wealth going to the African population in the province was shrinking. “Those who are better off should share with those who have less to ensure that they can be incorporated into the economy,” he suggested.

Zikalala concluded that there was a need for a shift in the ANC’s focus. “ANC policy has been based on foreign investment and nothing else. Since 2005, we started to debate the South African economic roadmap. The second phase must be characterised by radical economic change.”

Bond stated that he believed South Africa was at risk of becoming a failed state. He agreed that the economy remained in white hands, saying that large businesses were “getting away with financial murder” as they repatriated profits and removed wealth out of the country thanks to government’s relaxing laws governing the outflow of money.

He showed that 23% of the country’s GDP was flooding out of the country – a fact that he described as one of the greatest threats. Much of this outflow was as a result of large corporates such as De Beers and South African Breweries shifting their listings to other countries and taking the wealth accrued during the apartheid era with them.

Other problems identified by Bond included high unemployment, crime and corruption, severe levels of inequality and militancy, dysfunctional state-owned enterprises, the fact that companies tended to hold on to their profits rather than re-invest them, the high debt levels in the country and the Chinese, who had excess capacity, dumping cheap products in South Africa thereby destroying the livelihoods of local manufacturers.

He also challenged key infrastructure projects including Transnet’s investment into ferrying coal to Richard’s Bay which he predicted would become a “crazy white elephant” and the expansion of the container port in Durban (to create the Durban Dig Out port) which he said encouraged and would increase “importing junk” that would destroy local industry.

Stringent debate that followed these presentations also unearthed concerns about gender equality in the provincial economy, the failure of current methods of skills transfer, a need to create sustainable businesses rather than businesses that only lived off government tenders and the fact that South Africa was effectively “exporting jobs” as companies down sized, failed to grow or even closed down because they were unable to compete in global markets.