MICHAEL HARRIS: Complacent SA is rich in minerals but poor in ambition

SA finds itself in a difficult position. Our established model of development is no longer viable and a credible alternative is yet to emerge. As the world grapples with profound shifts, our challenges relate to a unique set of local conditions.

Since World War 2 sustained periods of underperformance have seen SA fail to realise its potential. In 1960 Portugal was our closest peer in GDP per capita terms. In 1990 it was Chile and Poland. Now these countries are two to three times richer. SA’s pace of change continues to lag expectations.

Most citizens are still denied basic opportunities, and employment, life expectancy and inequality have all fallen back to pre-1994 levels. While the postapartheid period has seen a decline in absolute poverty and a degree of racial integration, the country has failed to make meaningful progress.

Geopolitical paradox

This precarious position is rooted in geopolitics. The country’s natural potential is significant but difficult to harness. Resources are inaccessible, exposed to a marginal climate and remote from global markets. The primary source of wealth is deep in the earth. This leaves the region constantly short of capital.

The pre-mineral economy relied on subsistence agriculture, and the lack of reliable surpluses prevented the emergence of permanent centres of political power. This changed with the discovery of minerals, which required vast amounts of external capital and technology and drove a concentration of resources on a scale that was to profoundly shape SA.

Exploitation of the natural endowment established the power dynamics that persist. The narrow concentration of economic power exerted a strong centralising effect on political institutions and this strained against the country’s ethnic and linguistic diversity, creating an environment primed for elite capture and authoritarian rule.

Dependency problem

SA’s natural endowment has repeatedly saved the country from periods of stagnation. Periodic commodity boom cycles have attracted foreign investment, raised export earnings and injected fresh capital into the economy. While always temporary, these respite have been reliable enough to prevent the development of more sustainable solutions.

Productivity has also remained low, due to market concentration and underinvestment in the labour force. Unproductive, and far from major markets, local manufacturing never advanced meaningfully beyond import substitution and is struggling to maintain domestic market share. Extractive industry remains the main source of foreign earnings. 

Complacency has lowered productivity. For instance, local manufacturing has mostly been replaced by imports, and while our extractive industry represents the main source of foreign earnings, accounting for 40% of exports, it still only accounts for about a tenth of GDP.  The resource base is also changing; depleted reserves, rising costs, constrained demand and water scarcity will profoundly challenge the established economic model.

The result is a trap where mineral export revenue is no longer sufficient, but declining competitiveness prevents export growth. Without a fresh perspective, SA is destined to a futile and infinite labour that is repeatedly overcome by familiar constraints. 

Digging our way out

To escape this fate, the country must find ways to overcome its limitations. However, successive political regimes have failed to implement appropriate strategies. The apartheid state squandered the savings of industrialisation on costly military campaigns and the bureaucracy of segregation, and in 2022 a policy shift to a clear-eyed model of development remains elusive.

Primary industry is in no position to fuel the next phase of SA’s growth. In the short to medium term, maximising foreign earnings from mining and agriculture will be critical for creating economic space. This requires more supportive fiscal and legal regimes as well as a realistic approach to unlocking downstream industries.

However, as the current commodity cycle shows, these efforts will not change SA’s outlook. To break from the established pattern, we must raise productivity and improve competitiveness. This requires new sources of foreign earnings and rising domestic savings, expanding final demand in a way that does not rely on consumer credit. This can only be achieved by selling more products and services to the rest of the world.

A concerted effort is required across the value chain. Industrial competitiveness depends not just on a flexible labour market policy, but also on efficient network industries, a healthy, better-educated workforce, investment-minded management and an enabling trade and foreign policy environment. There are significant structural barriers to overcome in each case.

Services, whether consumed onshore, as is the case with tourism, or delivered for international markets in the form of business process outsourcing, represent a significant growth opportunity that leverages the country’s natural comparative advantages. Across the entire system, the state’s ability to guarantee safety, security and the rule of law remains paramount.

Towards the national interest

South Africans are a diverse people straining against the capital scarcity that results from a rich but challenging natural endowment. This leads to concentration of resources, reduced competitiveness, volatility and elite capture. These competing forces are certain to produce complex outcomes.

It is also clear that SA continues to underachieve. In a land with the most valuable mineral reserves in the world, this is not a matter of means. If a single reason exists, it is that SA’s geopolitical context breeds hubris. Isolated on the southern tip of Africa and without regional rivals, we are not compelled to think about our place in the world.

The current crisis throws the absence of a compelling strategy into sharp relief. The global trajectory presents many threats, but it also contains the seeds of prosperity. The challenge is to locate the country’s interests within this rapidly changing system. It is only through decisive strategic action that constraints can be overcome.

• Harris is a partner at management consultancy Letsema.