SHAWN HAGEDORN: Separate challenges require separate remedies

Only failed states have youth unemployment crises as severe as ours, yet none of our leaders offers workable remedies. Why?

The many credible public recommendations for improving our economy can’t create nearly enough jobs. Nations go to great lengths to avoid our ultra-elevated level of sidelined young adults because the risks compound as remedies become ever more elusive. One in 10 have stopped looking, as barely a quarter of our young job seekers succeed. Such circumstances eventually favour predation and thwarting laws. 

Its failed economic stewardship threatens the ANC’s electoral viability. Rather than exit the Union Buildings and face criminal prosecutions, flaming social unrest can lead to the constitution being extinguished. “In case of fire, break glass” becomes “in case of electoral non-competitiveness, break constitution”. 

Domestic growth

Is it reasonable to think that by increasing domestic growth we can spur adequate job creation? No, facts and mathematics both pummel such faith-based delusions. Early along the path to having the world’s most entrenched youth unemployment crisis, this ceased to be an option.

Two decades ago our five years of about 5% annual growth reduced unemployment imperceptibly. Over the last decade and a half it has ratcheted sharply higher. Yes, corruption played a significant role, but focusing on that distracts from solution-orientated analysis.

Some CEOs gush about this country’s potential. Yet per capita income peaked when we hosted the 2010 Fifa World Cup and its long-term trajectory is now flattened by most of our young adults lacking prospects to achieve even a smidgen of their potential.

Downward spirals do not self-correct; they accelerate. Median forecasts point to economic growth lagging workforce expansion throughout this decade. The obscenely high number of young South African adults who are becoming permanently marginalised will keep rising for many years. Moderately reducing the less-telling youth unemployment rate can’t change this.

Exporting

Not prioritising value-added exporting when sanctions were lifted meant the margin of error for creating ample jobs and broad prosperity was razor thin. While commodity exports could lighten the load, per capita income needed to sustain strong growth alongside households avoiding imprudent indebtedness. We did neither. 

Given the dismal trajectory of our per capita consumption, investment-led growth must spur exporting. Increasing commodity exports is helpful but experience demonstrates that this won’t directly, or indirectly, unleash robust job creation.

Access to foreign capital was the near- and medium-term constraint binding SA’s economy in the 1980s. Today it is access to adequate consumer purchasing power. Our policies and debates have lagged.

Our youth unemployment crisis can only be meaningfully mitigated by increasing value-added exports, but our anticompetitive policy regime deters investors from funding such initiatives. Both capital intensive projects and localisation policies are attractive to patronage-focused governments but, beyond commodity exporting, they lack durable compatibility.

Investment-led growth initiatives should not be abandoned but a new path must be developed to spur large-volume job creation. As the objective will be to reward labour, not capital, neither big business nor the patronage-focused ANC would be inherently motivated to drive such efforts.

Managing capital will remain critical yet even a sovereign debt default is vastly more manageable than having a majority of the next generation become permanently marginalised. We shouldn’t stop worrying about our government’s creditworthiness nor the health of our corporate sector. But we must abandon the wishful thinking that making these sectors healthy will trigger adequate job growth. It won’t.

Integrating

SA needs to follow the dozens of countries that create large numbers of jobs through integrating into global supply chains. That does not mean we need to own the customer relationship or manage many nodes. Such control-minded thinking creates more unnecessary hurdles. Today’s high-growth countries supported entrepreneurs carving out many small value-adding export niches. Honda began by selling piston rings to Toyota. Foxconn is the dominant manufacturer of iPhones but doesn’t own the customer or manage the brand.

Integrating into global supply chains doesn’t suit our governing party, whose political support is patronage induced. The ANC’s cronyism encourages labour legislation and various other policies and practices which, for investors in value-added exporting operations, undermine SA's attractiveness. 

Yet technological and demographic trends demand that Sub-Saharan Africa be integrated into the web of global supply chains. As the pace of change accelerates at an accelerating rate, the premium placed on youth will compound. As with the rise of Asia, entrepreneurs will overcome geographic mismatches between the largest consumer markets and the largest concentration of underutilised young workers. 

Neither our public nor private sector leaders will focus on integrating young South Africans into the global economy as they focus on capital. Elected officials should be highly motivated to avoid a destabilising level of youth unemployment, but ours aren’t and we mustn’t presume that our constitution will endure.

The push for investment-led growth is sensible, but it makes rewarding capital a condition for increasing employment. This can’t spur adequate job growth due to severe political shortcomings. A frequently voiced reaction has been that the politics must be fixed and then job growth will follow. But plausible plans to fix our politics and adequately create jobs are lacking. Our best path is to follow countries such as Italy and Brazil, which show that economic dynamism can exist amid modest political capacity.

The correlation between job creation and GDP growth has become haphazard for high unemployment countries that aren’t focused on value-added exporting. Our economic debates must acknowledge this to provoke multipronged, workable solutions.

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