State needs to control key economic assets to benefit all

SA should be inspired by the global successes of the “Eastern Tigers”. Countries such as Hong Kong, Malaysia, Singapore and Taiwan continue to experience significant industrialisation and economic growth. These nations have, to a great degree, eradicated poverty and ushered in an era of unprecedented economic development through deliberate industrialisation.

The latest to join these countries was China, whose economic growth continues to shock the world. According to the World Bank, since reforming its economy from about 1979, China’s GDP has averaged almost 10% per annum, lifting millions of people out of poverty.

One thing these countries have in common is a commitment to the developmental state approach to economic planning. Recent literature demonstrates that numerous factors shape a developmental state. These include ideology, competence of the state, and the relationship between the state and its social partners in pursuit of its developmental goals.

SA is moving in the opposite direction, and the signs are there for everyone to see. Veteran ANC intellectual Joel Netshitenzhe argued in 2015 that a developmental state could save SA from the economic stagnation it finds itself in. This was aligned with the governing party’s posture in policy documents in 2005 and 2007, and its elections manifesto of 2009 and subsequent polls, where the ANC outlined key areas where building a developmental state would help it achieve its objectives.

This developmental approach is the route that was followed in developing most of the industrial infrastructure we have in SA today, even though some of this has been vandalised, some is still underutilised, and some has been sold to the private sector. For SA to see tangible economic progress the country needs to drive development through the strengthening of local institutions and full exploitation of local resources for the benefit of local people. 

For any developmental state to function it ought to be able to marshal everyone in one direction. This depends on the ability of the state to be able to ensure everyone is behind a vision and programmes to attain developmental objectives and provide what Netshitenzhe calls “ideational leadership or hegemony”. Achieving developmental goals can be negatively affected if these interests are not managed properly. This means a significant proportion of society needs to be convinced that this is the right direction for SA.

Developmental theory indicates a positive correlation between a state-driven development economy and significant economic spin-offs. This is evident more in industries where state ownership in fast-developing nations has proven to contribute positively towards a strong manufacturing base, which later on can be privatised based on the economic conditions of the time. Examples of this can be found in China, Japan, Taiwan, South Korea and Brazil, among others. 

It is clear that in these countries most of the industries that are internationally competitive today were projects that were driven initially by the state through state ownership of the value chains, either in part or in full. For SA to expand its industrial base we need to introduce a state player in the value chain and follow the same practice other countries have followed, particularly developed economies during their early days of development. Some contemporary developing economies still follow this path. However, this must be informed by the structure of the SA economy and the most practical approach should win.

Building internal linkages in an effort to create employment and strengthen the domestic industrial base needs focused policies that are patriotic and backed by science and the needs of the nation. It has been proven in the past 24 years that development is faster when the state is deliberately capacitated and actively involved. 

Government must invest and mobilise capital into the most promising industrial sectors with the potential to grow the economy. In the democratic dispensation this approach might sound far-fetched due to the way state organs have been allowed to be led by incapable people — unlike in the East Asian developmental states, which emphasised meritocracy. By failing in this area SA has limited its chances of becoming a developmental state and made it difficult to experience the achievements and returns of the East. 

The 2022 budget speech demonstrated strongly the economic status of our country. That is one with an emphasis on social transfers from the state due to increasing social grants as well as poor quality education and healthcare. The sooner the country emphasises quality education, the sooner it will produce the skills needed by the developmental state.

As argued by former statistician-general Pali Lehohla, key government entities such as the Council for Scientific and Industrial Research, Mintek, and Eskom played an important role in developing the industry SA has today. However, misalignment of policy departments or entities such as the departments of mineral resources and energy and public enterprises and Eskom needs to be addressed so that policy implementation is not stalled due to confused reporting lines in the implementing agencies.

In addition, the actions of some departments in the current government on the energy transition as well as the somewhat modest approach in turning around state-owned enterprises resemble a Thatcherist approach more than that of a developmental state. 

When Margaret Thatcher was elected UK prime minister in 1979 she introduced economic reforms that changed the trajectory of the British economy. Fundamental to her policy was privatisation of key state-owned assets. Yet today the UK is calling for increased state involvement in energy generation as the current high global energy prices are affecting ordinary people in Europe. 

Thatcher deregulated electricity generation as a means of allowing competition and encouraging entrepreneurship in the sector. Many other state-owned firms were privatised during her tenure, including British Airways, British Steel, British Gas and British Airports.

Many SA commentators appear to favour privatisation of strategic sectors of the domestic economy, who see  Thatcherism as the solution to the much-needed economic reform. Has our democracy matured enough to sustain everyone, including the poor, if the state loses its grip on key assets of our economy? The consequences of these actions will surely be felt in the future, whether good or bad.

The department of mineral resources & energy and energy has taken strides in developing the oil and gas industry, acquiring the gas pipeline from Mozambique. Central to this is building a national oil company to take up opportunities within the oil and gas, as articulated in the Operation Phakisa — Oceans Economy programme. Recent large discoveries of oil and gas in the continent and region, particularly within the Orange Basin off the coast of the Northern Cape and Namibia, provide an opportunity for SA to tap into oil and gas resources. 

Economic realities and the structure of the SA economy point to a need for more revenue for the state to maintain its social welfare status. Revenue from natural resources has been demonstrated to be a vital component of the economy. Over the years the country has benefited from the exploitation of resources such gold, diamonds and coal. However, the depletion of some reserves and the volatility of minerals prices require government to have a fallback plan in the medium to long term.

A quick win for the SA government would be finding a comprehensive way to develop SA’s oil and gas resources for the benefit of the majority of the South Africans, who are currently experiencing soaring fuel prices, hunger and unemployment. This must not be at the expense of a strong push for renewables and the introduction of new, cleaner technologies in fossil fuel production. 

• The authors are economists at the department of mineral resources & energy. They write in their personal capacities.