Research and Policy Brief: Two Scenarios for the Future of South Africa

Tuesday, January 15, 2013 - 15:13
In this research and policy brief, the author looks at the challenges facing South Africa and the reasons to be optimistic about the country’s future

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Extremely insightful - Thank You for sharing.
At no point since 1994 has the South Africa Institute of Race Relations (SAIRR) confronted more against and pessimism about the future of the country than we saw in 2012. At briefing after briefing we are asked if South Africa is headed the way of the north-African uprisings or Zimbabwe. The same sentiment is reflected in newspaper columns and reports both here and abroad. Perhaps it is partly the SAIIR’s contrarian nature, but in many respects we are now more optimistic about the future than at any point in the last decade.

What follows below is an explanation of how we think and how that thinking has resulted in two very different scenarios of where we will find ourselves in 2024.

We were not always optimistic. In fact for much of the period between 1994 and 2007, we were very concerned about the direction South Africa was moving in even as those in business, politics, and the media around us appeared not to understand our concern. Now that these parties are very concerned we have become more upbeat and again few people seem to understand why.

The years 1994 to 2007 were a period where organised business, organised labour, and the President’s office came together as a powerful nexus creating the façade of a stable and well-managed country. However, any analyst who cared to probe beneath that façade could not help but be alarmed at what they encountered. Poverty increased over the period 1994 to 2001. The number of unemployed people more than doubled over the same period. Most crime levels, with the prominent exception of murder, would peak around the period 2001-2003. Infant mortality rates had increased for the first time since the mid-1980s. Life expectancy for black South Africans was in decline. The rapid increase in access to education for black South Africans had slowed since the boom period of the 1980s and 1990s despite the fact that only 50 percent of the black age cohort was making it to matric and only 30 percent were passing.

It was also clear that changes to the structure of South Africa’s Gross Domestic Product (GDP) would have a detrimental effect on future job creation and therefore political stability. Manufacturing, mining, and agriculture where seeing their dominance in the South African economy usurped by the relatively more highly skilled services sector. However, it was clear that the education system was not improving quickly enough to meet future skills demand. The outcome had to be the state of structural and permanent unemployment that we now confront. 

Yet when we tried to raise some of these concerns we ran into walls. The government’s reaction was blanket denial of any problems. On matters from poverty, to unemployment, to crime, and most prominently HIV and AIDS the problems we identified were dismissed as the fantasies of a racist imagination. Business had little interest in rocking the boat and the door was firmly shut to funds or resources to investigate policy shortfalls.

It was obvious therefore by the early 2000s that the nexus of organised business and labour, together with the relatively new Thabo Mbeki presidency, had set South Africa on an unsustainable economic trajectory that could not possibly last for long. The end for that nexus came in 2007 when Thabo Mbeki was defeated in the 52nd congress of the African National Congress, forcing his resignation as president of the country. With his axing, one leg of the three-legged pot fell off and the pot itself, which previously had seemed so stable, fell over.

More significant than the change in political leadership that followed was that, contrary to most analysis and opinion, South Africa became a more open society. Gone almost instantly was the blanket denial by government of the many social and economic problems faced by the country. Today, it is only too common to hear cabinet ministers and senior civil servants publicly speak to failures of the government itself. It is necessary to think for a moment back to the days of denying that AIDS even existed to appreciate the significance of this change. To a limited extent business also found its voice although mostly in the closed confines of boardrooms. The media and much of civil society, many of which had suspended their critical faculties throughout the Mandela and Mbeki years, woke up to the fact that South Africa confronted some pretty serious problems and started to write and talk publicly about addressing these.

What this overall change in attitude means is that the government, and many in business and the media, are now willing to concede that things are not as stable as the façade presented over the first 15 years of South Africa’s democracy suggested. This explains largely why the current government is starting to realise that its policy mix must change if it is to secure its political dominance.

Putting further pressure on the need for change is that the government is running out of money and its supporters are running out of patience. South Africa’s budget deficit, when measured as a proportion of GDP, has under Jacob Zuma’s administration reached (and at times exceeded) levels recorded in the 1970s and 1980s when South Africa’s apartheid government came under the political and economic strain that forced it to reform. Likewise, the deficit on the current account has reached levels that keep ratings agencies analysts awake at night.

Significantly, pressure for change is also coming from the supporters of the ANC themselves. The ANC’s share of the potential vote has fallen from 55 percent in 1994 to just 38 percent in the 2009 election that brought the Zuma administration to power. Protest action against the state has increased very rapidly over the past five years. The police reported dealing with four protest actions a day in 2011 while the consultancy Municipal IQ reports a tenfold increase in major ‘service-delivery’ protests since 2004.

We have argued at length that the protests arise not from the failure of the government’s service-delivery efforts but rather from the success of these efforts. This is a complex and counter-intuitive idea and needs some explanation. Enormous gains have been made in the provision of free or subsidised water, electricity, and housing. Our research shows that these gains have been so impressive that we might comfortably describe service delivery as a great policy success of the ANC in government. There can be little doubt that the policy resulted in a revolutionary improvement in the basic living conditions of poor people as corroborated by Living Standard Measure data. If you think we are mad in this assessment consider that for every shack constructed in South Africa since 1994, twelve formal houses were built in the country. If this is a statistic that confounds your understanding of the ANC’s delivery performance then it is perhaps necessary that you reassess what you understand to have changed in South Africa over the past 15 years. 

However, far from securing political stability these successes placed increasing pressure on the ANC. There are two reasons for this.

Thefirst is that if it were true that delivery had failed then the ANC could fix its delivery capacity, which should see the protests and unhappiness at the government’s performance evaporate. However, if we are right and the ANC has delivered as well as it realistically could then it has no delivery ace up its sleeve to curb the protests and instability that South Africa confronts. It has therefore come under much pressure to change policy away from redress and redistribution towards growth and employment if it wishes to remain in power.

This leads to the second reason, which is that increasing people’s living standards, as the ANC has done, is a politically dangerous thing to do. The reason for this is that it raises expectations about future improvements. These cannot be met through further delivery but only through job creation and income growth. Where these rising demands are not met protests and instability must result. It is for this reason that the world’s most successful dictatorships, whether in Maoist China, Stalinist Russia, or present day North Korea, go to great lengths to intentionally depress the living standards of their people.           

South Africa’s fundamental problem is that its government has done a great deal to increase the living standards of poor people but has no means, whether through education or labour market access, to allow those same people to continue climbing the living standards ladder.  The ANC and the government it leads are therefore in a wholly unsustainable position if they wish to retain their political dominance in South Africa.

Significantly, there are now many leaders in government, the media, and civil society who will admit to this fact. The list of problems South Africa confronts, which depresses so many people, has therefore become the very thing that will drive policy change in the country. It is for this reason that we are able to be cautiously optimistic about future prospects for the country.

Of course there is still the question of how the government will react to its untenable position. We are not naïve to think that this reaction may lead South Africa out of the woods. In fact, it may very well initially compound our problems before they get better. It is for this reason that when looking into the future there are now two broad scenarios that our Unit for Risk Analysis sketches for its clients and subscribers.

The first is a story of a Long Dark Night. Here an obstinate government presses ahead with failed interventionist policy despite all evidence suggesting that such interventions are doing more harm than good. Here the attitude in the government is along the lines that the private sector has refused to transform and we are damn well going to force them. There are four behaviours, flags, or road markers to watch out for that indicate if we are drifting into this scenario:
  • The first is that employment equity and empowerment regulations are tightened;
  • The second is that labour market regulations are tightened;
  • The third is that constraining legislation is proposed for the media, civil society, and the judiciary; and
  • The fourth is that grandiose state-led social and economic projects dominate the policy environment.
This is a troublesome scenario that is likely to result in seven specific outcomes:
  • The first is that protest action takes off exponentially;
  • The second is that South Africa lags in the savings and investment figures achieved by comparable emerging markets;
  • The third is that long-term average GDP growth levels are constrained to under 3.5 percent;
  • The fourth is that the unemployment rate remains stubbornly high at around 25 percent and increases in periods of particularly low growth;
  • The fifth is that the budget and current account deficits reach unsustainable levels;
  • The sixth is that a weakening rand, higher wage settlements, and increased administered prices cause inflation to exceed its 3-6 percent target band; and
  • The seventh is that the ANC sees its electoral majority slip to below 60 percent in 2019, leading to the party's losing the 2024 election.
The second scenario is of a New Dawn for South Africa. Here the increasing demands on the ANC, and its declining resources to meet those demands, serve as a catalyst for policy reform. The reformists within the party, building largely on the blueprint laid down in the National Development Plan, seize policy control of the ANC and bring about a series of initially unpopular changes that do, however, have the long-term outcome of securing that party’s future in power.

In this case there are four behaviours, flags, or road markers to look out for:
  • The first is a move towards the deregulation of labour markets;
  • The second is steps towards a watering down of employment equity and empowerment requirements for investors;
  • The third is the abandonment of large-scale state led industrial and social policy such as a state owned miner or steel maker and the National Health Insurance scheme; and
  • The fourth is the maintenance of conservative fiscal and monetary policies such as inflation targeting.
Such a scenario should put South Africa within reach of achieving the following six hard outcomes:
  • The first is that investment and later savings rates begin to pick up;
  • The second is that, subject to favourable global circumstances, GDP growth is able to average in excess of five percent of GDP;
  • The third is that at this level of GDP growth unemployment should be in sharp decline;
  • That in turn leads to a decline in protest levels and dependency on welfare;
  • Increased GDP growth and investment generates the revenues and business activity to contain the budget and current account deficits; and
  • Increased revenues mean that the government is able to meet demands for social support, which will remain significant in any scenario over the next two decades.
We do not assign probabilities to scenarios as this would defeat their purpose and turn them into forecasts. Rather, we urge our users to assign an equal probability to all scenarios. At the same time they should use the road markers we identify to guide them as to the direction South Africa is moving in. While the temptation has been to see our first scenario as more likely (based largely on events observed in South Africa in 2012) this is a dangerous and potentially misleading approach and we warn against it.

The reason is that the world changes very quickly and often in unexpected ways. For example in the early 1980s, when most analysts were predicting violent revolution for South Africa, we were predicting a negotiated settlement based on a research methodology not dissimilar to the one we employed in sketching the two scenarios above. While many observers said we were naïve, 20 years later the last leader of the National Party was the tourism minister in an ANC government.

Despite current efforts to strengthen Black Economic Empowerment and labour regulations, many new grandiose state-led projects, and efforts to undermine access to information, there is also much hard evidence in favour of our second scenario. Its blueprint exists in the National Development Plan drafted under the Zuma administration. Also under the Zuma administration, the ANC has identified the need to limit cadre deployment at local government level. Again under the Zuma administration, the government has compromised on banning labour brokers.

Further, and of enormous significance, is that there are many small clothing factories in KwaZulu-Natal that operate outside of minimum wage laws and to which the government is turning a blind eye. A little example like this is always more significant than it appears at first glance as it indicates a government starting to compromise on some of its policies. When that starts to happen it is only a matter of time before the government starts to compromise on more and more in an effort to retain stability. This point is best made by my senior colleague, John Kane-Berman, who notes how it was Jaap Marais, formerly of the Herstigte Nasionale Party, who cautioned John Vorster in 1968 that allowing Maoris to tour with the All Blacks was the beginning of a slippery slope that would lead to “a black man marrying your daughter and sitting next to you in Parliament”. Marais was right and in compromising on the ideology of racial separateness Vorster was unintentionally putting in place the conditions that ultimately led to the negotiated settlement of the early 1990s.  

It is with good reason, and based on a sound research methodology, that we are able to be more upbeat about the future of South Africa than we were 10 years ago. Certainly, we have reason to be more positive than almost any corporate board or audience we are invited to brief as we realise that a window of opportunity has been opened to change South Africa for the better. The ANC is in an impossible position and will have to change to avoid the electorate changing it in the 2024 election. Dramatic change is therefore inevitable for South Africa. Managed carefully and skilfully this is a process that can deliver a more prosperous and stable society.

- Frans Cronje is deputy chief executive officer at the South African Institute of Race Relations (SAIRR). This research and policy brief first appeared on the SAIRR website.
Author(s): 
Frans Cronje