SHAWN HAGEDORN: How foreign policy kills prospects of the jobless

On June 16, Youth Day, one of the most prominent headlines on the Business Day website was: “SA won’t change foreign policy for trade benefits, says Pandor”. Why would the country with the world’s most severe youth unemployment crisis not make job-creating trade the centrepiece of its foreign policy?

The ANC routinely prioritises its near-term interests over longer-term national interests. Our business leaders have also been accepting of the party’s various antigrowth policies, such as “localisation”, while simultaneously working with the ANC to promote investment-led growth. Yet exiting SA’s unemployment trap requires rapidly growing value-added exports.

International relations & co-operation minister Naledi Pandor’s statement can be reasonably interpreted as “the ANC won’t change its foreign policies to focus on job creation”. Nor would it be unfair to drop the word “foreign”. The ANC’s response to our youth unemployment crisis is to debate sub-subsistence payments.

How a society provides for the next generation is the ultimate gauge of its political economy. Our youth unemployment rate is more than 60%, and adding discouraged job seekers it is nearly 75%. The situation is far worse than this suggests, as many of these people — this decade’s school leavers — will never be meaningfully employed.

The legacy of apartheid doesn’t explain our youth unemployment crisis, nor our persistent inequality. Barely 5% of our school leavers are white, and we have the world’s highest income inequality even if white incomes are excluded. There are now more high-income SA blacks than whites.

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Our 1990s’ political transition provoked the belief that by coming together as a nation we could achieve broad prosperity. Meanwhile, a new global era had arrived. Competitiveness compounded as cross-border collaborations multiplied. Disruptive technological innovations arrived ever more rapidly. Global poverty plunged, while vulnerabilities percolated in economies that resisted global integration, such as SA and Russia.

When our per capita purchasing power peaked more than a decade ago, it was woefully insufficient to achieve anything resembling full employment. There are reasons why the sayings “the customer is king” and “cash is king” are popular. We can’t noticeably reduce unemployment without dramatically expanding access to purchasing power. Most South Africans are stuck living as hand-to-mouth peasants.

To put a meaningful dent in the unemployment backlog the economy would need to be at least a third bigger. Instead, forecasts make clear that economic growth will struggle indefinitely to keep up with population growth.

As economic development expert and Nobel laureate Michael Spence said on a podcast recently with the Centre for Develoment & Enterprise’s Ann Bernstein, all successful, high-growth economies leverage the global economy’s demand, technologies and openness. His use of “demand” refers to purchasing power.

Spence prefaced his making those key points by apologising for stating the obvious. But the basics he considers obvious are ignored by our policymakers, business leaders and public commentators.

Purchasing power

Sanctions were lifted long ago, and it seemed we were integrated into the global economy. However, the true measure for global integration is not the diversity of imported products available to a country’s consumers. Rather, it is the portion of a country’s young workers who add value to exports.

Most of our younger workers are unemployed, and few of those with jobs add value to exports. Changing this is mostly the job of entrepreneurs. However, our efforts to support entrepreneurs are mostly focused on them succeeding in the domestic economy. This accomplishes little as it ignores that our binding constraint is access to purchasing power.

Neither investment-led growth nor entrepreneurial initiatives can noticeably mitigate our unemployment crisis if the customers being targeted are South African. Our purchasing power has long been stagnating at a level that is woefully inadequate to absorb each year’s school leavers. The situation is greatly worsened by high household debt burdens mixing with low worker productivity. While we ignore Spence’s insights, the backlog of never-have-been-employed young adults bulges further.

We can tell ourselves that SA’s deposits of certain strategic minerals make us globally important. Yet the Democratic Republic of Congo, which is ahead of us in that regard, is a war-torn region with pervasive poverty.

The world keeps evolving in ways that don’t suit the preferred narratives of our policymakers. Russia and China challenging the rules-based global order is providing the extra push necessary for Western countries to deter imports from countries that are reliant on dirty energy. There is little likelihood that demand for our platinum group metals will offset this.

But even if our revenues from commodity exports were to ratchet steadily higher, that wouldn’t put a dent in our unemployment crisis either. Our political economy has settled onto a path whereby it would lead to higher income inequality and higher grants for, among others, millions of healthy young adults who lack paths to becoming productive members of society.

It seems odd that a country with sophisticated financial markets would have the world’s most severe youth unemployment crisis. But is it? We didn’t look to surgeons to guide our response to the pandemic, yet our economic views are shaped by capital market economists. Surgeons don’t focus on how viruses mutate and financial services economists don’t focus on job creation. That is government's responsibility.

Policies that encourage investment-led growth will invariably benefit our corporations, but they won’t noticeably affect the youth unemployment backlog unless the focus shifts to sharply expanding value-added exports. This requires sharp pivots in our economic and foreign policies. Pandor makes it clear that this isn’t under consideration.

• Hagedorn (@shawnhagedorn) is an independent strategy adviser.