Haphazard policy-making routinely traces to the ANC being overwhelmed by corruption and discredited ideologies. But why can’t any of the nation’s other key actors propose a workable growth model? The persistent methodological error is to see SA within an SA context. Might a protracted US-China trade war provoke the global perspective required to identify a high-growth path?

A global perspective would highlight other methodological missteps. For instance, extreme inequality and unemployment distract from focusing on the primary challenge: SA requires a commercially robust strategy to pummel poverty.

The presumption that SA’s 0.5% of global purchasing power is sufficient to fuel sustained high growth is unsupportable. Not being able to tap sufficient purchasing power is the country’s core — and self-imposed — binding constraint. If it were overcome through developing value-added export channels, investors would be too busy investing to attend investment summits. Poverty, unemployment and inequality would all fade.

The Asian model overcomes purchasing power as a growth limitation through prioritising value-added exports — thus accommodating the high household savings necessary to create a large, stable middle class.

Yet SA’s poverty has been rising in recent years and a majority of South Africans get by on about R40 per day or less. Conversely, since 1990 the rate of extreme poverty in East Asia has declined from 60% to 3%. How? Most East Asian and many other countries have designed their economic policies the same way SA created its formidable political constitution: they updated and localised an imported blueprint.

Japan invented the Asian growth model and its first iteration led to Imperial Japan brutally colonising a huge swath of that region. Its second, post-1945, iteration propelled war-devastated Japan to swiftly recover through exporting to the West, particularly to its previous nemesis, the US. Its neighbours copied and adapted Japan’s model, leading to the world-altering rise of Asia.

The Asian model overcomes purchasing power as a growth limitation through prioritising value-added exports — thus accommodating the high household savings necessary to create a large, stable middle class. Also unlike SA’s approach, the Asian model has emphasised importing and diffusing scientific and commercial knowledge.

Joining the Brics (Brazil, Russia, India, China, SA) grouping makes a mockery of what should be the centrepiece of SA’s economic and foreign policies: increasing value-added exports. Brazil has been labelled the world’s most closed economy. Russia sees SA as prey. India is relevant as a benchmark competitor. China mostly imports inputs.

Dozens of former colonies have copied their neighbours and purged historical resentments to sell to western consumers —often through supply chains managed in former colonies, such as Japan. Not focusing on exporting to the West entrenches SA’s pervasive poverty.

The US-China trade spat is likely to be prolonged and intense. Global supply chains are already being reconfigured away from China. Conversely, SA’s favourable trade access to the US was supported by Democrats and Republicans.

The US enjoys what a French president once described as an “exorbitant privilege”. If the US runs, say, a $100bn trade deficit with a country, the US reaps a consumer windfall and the foreign country receives, in effect, 1-billion $100 notes. This has provoked greater resilience to shocks as developing nations bolstered their foreign currency reserves with US treasuries.

SA’s poverty has been rising in recent years and a majority of South Africans get by on about R40 per day or less, says the writer. Picture: ISTOCK
SA’s poverty has been rising in recent years and a majority of South Africans get by on about R40 per day or less, says the writer. Picture: ISTOCK

Japan exploiting this US “privilege” was central to its becoming the world’s No 2 economy. More recently, China did the same. Many nations have exploited this US “privilege”, spurring global prosperity. Excluding sub-Saharan Africa where, as in SA, poverty is rife and rising, trends point to extreme poverty being reduced globally, to about 3% by 2030.

As the global economy became increasingly prosperous and integrated, the essential poverty antidote became good governance. Thus, supranational bodies such as the IMF and World Bank have tied funding to good governance metrics. Conversely, while China’s economic rise was brilliantly orchestrated by Deng Xiaoping and his two chosen successors, its foreign relations strategy overcame its historic isolationism through targeting weak governments with “no strings attached” funding.

President Xi has taken his predecessors’ foreign engagement biases to a lofty level with the most ambitious project ever, the Belt and Road Initiative. The project’s vision seems commendable, but simmering opposition to how it is being pursued has boiled over in recent weeks. Meanwhile, the profound implications for SA’s economic prospects are being overlooked.

As Japan provided the policy leadership that led to the rise of Asia, SA could play a similar role in this region. Instead, prosperity remains a distant prospect for a majority of South Africans due to political elites indulging economic and foreign policy delusions.

The Brics alignment, and job and investor summits, are mere distractions. The National Development Plan lacks a global grounding. SA’s policy-makers must overcome foreign alignment biases tracing to the struggle era, and personality assessments, to realistically assess how the 21st century is unfolding.

Global prosperity has been surging, with China being by far the biggest winner. Now, foreign and economic policy choices by China are undermining development in much of Africa and Asia. SA should be playing East off West to advance domestic and regional interests. Instead, the ANC’s conditioned reflex labels western powers as colonial oppressors to rebuff their legitimate criticisms of SA’s policies and practices.

SA’s policymakers have been subjected to minimal influence from voters, neighbouring nations or highly developed nations, resulting in policies overly accommodative of its party elites, alliance partners and its sometimes predatory former struggle supporters, Russia and China.

The cross-border dispute resolution mechanisms that were developed in recent decades, mostly by western governments, not only helped spur massive increases in international trade but made colonialism economically punitive for would-be colonisers. These western governments then sought to accelerate development in poorer countries through encouraging business people to do business, investors to invest and governments to govern.

China, having judged the West complacent, has sought to exploit the global order in ways that benefit China at the expense of developed and would-be developing nations. Multitudes of scenarios are possible from a long or short trade war — with SA being consistently wrongfooted.

By lending to countries that spurn western pressures to adopt good governance policies and practices, China flirts with high loan losses. By not publicly disclosing debt covenants, Chinese lenders risk newly elected governments of debtor nations claiming such loans were “odious” and therefore not enforceable. If western lenders then lend to them on the back of reforms, other countries indebted to China would be encouraged to default.

Such challenges to international lending practices would have been implausible prior to China’s emergence triggering its desire to reset the world order. Rather than advancing win-win outcomes, this reset is mostly about China exploiting its clout and long-term resolve. In recent weeks various developed and developing countries, from the US to Pakistan, have highlighted negative consequences of China’s engagements across much of Southern Asia and East Africa.

US-China trade tensions are helping to spotlight the dangers arising from China’s hardscrabble negotiating prowess. China is now too significant for other countries to ignore the anti-development effects of its engagement tactics. A new chapter in geopolitics has begun.

For SA to travel a high-growth path, its economic and foreign policies must advance its interests in a manner that is consistent with global realities.

• Hagedorn is an independent strategy adviser.