The first – a summary by the Economist – is a useful overview, but the second, looking more closely at the economic prospects, is really worrying.

Martin

Source: The Economist

Why South Africans are fed up after 30 years of democracy

After a bright start the ANC has proved incapable of governing for the whole country

A child kicks a football in front of a mural of Nelson Mandela, in Soweto, South Africa
photograph: ap

May 2nd 2024ShareListen to this story.

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Almost 30 years ago, on May 10th 1994, Nelson Mandela was inaugurated as South Africa’s first black president. A fortnight earlier he and millions of other black South Africans had voted for the first time in their lives. Internationally, the joyous scenes were seen as further proof, following the fall of the Soviet Union, that the world was moving in a democratic direction after a dark 20th century.

As South Africa prepares for its seventh multiracial general election on May 29th, it can be proud. That vote will be free and fair. The liberal institutions established under Mandela are bulwarks against abuses of power. Millions of black South Africans have marched from apartheid into the middle class.

Yet after three decades of freedom, most South Africans say they are dissatisfied with democracy and would ditch elected governments if an autocrat could do a better job. There is more socialising across racial boundaries, but the share of South Africans saying race relations have improved since 1994 has fallen sharply since 2010.

The reason is simple. After steady progress in the first 15 years, most South Africans—and therefore, since they are 81% of the population, most black citizens—no longer see their lives getting better. On average, incomes have stagnated since 2008, unemployment has risen from around 20% to more than 30%, and power and water cuts have become more frequent. Corruption has seeped into every layer of the state. Only 15% of 257 municipalities get clean audits from the relevant watchdog. It is hard to be thankful for democratic freedoms when you are jobless and living in your grandmother’s house.

Understanding why South Africa’s dream has clouded is crucial if Africa’s largest economy is to find its way. Alas, a fatalistic explanation has taken root among academics, commentators and left-wing politicians. This view holds that the deal struck in the early 1990s to end apartheid was a sham: it won black people political rights, but not economic freedom. Mandela, in other words, was a sell-out who ushered in a “new apartheid” in which a black elite was co-opted by whites.

There are many reasons why this is wrong. First, it gives too little credit to Mandela’s courage and canniness. He was a skilful politician who stuck to his red lines, winning majority rule while avoiding civil war. Anyone who spends 27 years in prison for his cause is an unusual sort of sell-out.

It also ignores the good the African National Congress (anc) did with its newly won power. Under Trevor Manuel, the finance minister from 1996 to 2009, sensible macroeconomic policies underpinned steady annual gdp growth averaging 3.3%, more than double the rate of the next 14 years. Using the proceeds, anc-led governments replaced millions of shacks and mud huts with decent homes that have water and electric lights. Welfare benefits made poverty less grinding.

Another reason is that fatalism allows the anc to shirk responsibility for its worst decisions. Corruption, glossed over by Mandela and Thabo Mbeki, his successor, exploded under Jacob Zuma, president from 2009 to 2018. Cadre deployment, whereby civil servants are appointed on the basis of fealty to the anc, not merit, has eviscerated bureaucratic capacity. In another case of ideological folly, the anc has increasingly pursued policies that focus on the redistribution of wealth in ways that actually hinder its creation. These include so-called “black economic empowerment” policies and boosting the bargaining power of unions. The anc’s own policies are the reason why South Africa is still a society where perhaps a quarter of people live well and the rest are desperately poor.

The danger over the next 30 years is that politics becomes ever more zero-sum. Populist parties are race-baiting and exploiting poverty. But there is also a resilience to South African politics, forged in the fight for liberty. Apartheid left a wariness of racially or tribally charged politics. The transition helped entrench consensus and pragmatism. Elections have brought some accountability: the anc now has a majority in only two of the eight largest urban areas. Democracy may have been a disappointment so far. But, in 2024 as in 1994, it offers the potential for renewal. That is Mandela’s enduring gift.

Big companies ditch this hopeless backwater

When even big business calls it quits on South Africa, we have to accept that the economic outlook is poor.

Small businesses are fragile. They’re vulnerable to all sorts of unanticipated headwinds, and don’t have deep balance sheets to ride out stormy economic weather.

Big businesses, on the other hand, are robust. They have deep pockets. Their planning horizons stretch years, if not decades, into the future. 

Unlike small fry, the big fish are able to cosy up to governments, both to win lucrative tenders and to sway laws and regulation in their own favour and against their competitors. They’re the ‘cronies’ in ‘crony-capitalism’, and the ‘capitalism’ in ‘state-capitalism’. 

Large companies aren’t supposed to just get out of a country because the going has been a little tough, lately. They’re supposed to be able to look to the long-term upsides of perseverance.

Unless, of course, there are no long-term upsides. Then they become canaries in the coal mine, indicating that the future is bleak.

BHP

It is with considerable foreboding, then, that we need to digest the news of major multinational companies upping and leaving South Africa.

The BHP Group, a large multinational mining and petroleum company, made a takeover offer for its rival, Anglo American, on condition that the latter first ditches its South African platinum and iron ore businesses.

That the grand old man of South African mining would be worth acquiring only if it ditched major South African businesses tells you all you need to know about the state of the economy 30 years into ANC rule. 

One investment analyst told News24: ‘Look at Kumba, it has suffered significant rail issues among other challenges. How valuable is a mine if you may not be able to rail your production to the port? BHP wants to predominantly be in tier-1 mining jurisdictions, and South Africa unfortunately does not currently qualify as one.’

Another said: ‘…the bigger picture might be that they just don’t want South Africa. This should be a wake-up call for us.’

Shell

Hot on the heels of this news, City Press broke tidings (from unnamed ‘insiders’) that Shell, the oil and gas major, has also had it with South Africa, and will announce its plans to leave South Africa this week.

Having fallen out with its black economic empowerment partner, Thebe Investments – founded by Nelson Mandela, Beyers Naude, Walter Sisulu, Enos Mabuza and Vusi Khanyile – the company confirmed that after 120 years, it will exit its downstream business in South Africa, which encompasses refining, transporting and selling fuel through some 700 service stations.

Leaving the country would cost many thousands of jobs and billions in economic activity, however.

Bonang Mohale, a former chairman of Shell Oil Products South Africa and former vice president of Shell South Africa Upstream BV, who also once headed Business Leadership South Africa, and is now Chancellor of the University of the Free State, Professor of Practice at the Johannesburg Business School (JBS), Chairman of both the Bidvest Group and SBV Services, and a member of the Community of Chairmen in the World Economic Forum, did not hold back, however.

He told City Press that the ‘truly sad, tragic and regrettable’ move reflected low confidence among business leaders ‘due to the challenging economic environment’.

‘The writing was already on the wall when all four of the major refineries stopped operating’, he told the paper, ‘mainly due a persistent lack of regulatory certainty and policy stability’.

He said other international corporations, some of them household names, were also in ‘a rush to leave South Africa’, adding: ‘This is just the latest in a trend of companies ditching South Africa, primarily because of self-inflicted harm and the own goals we continue to score. All the economic indicators demonstrate, beyond any shadow of a doubt, that the country’s in very deep trouble.’

Volkswagen

Besides the BHP offer for Anglo, he pointed to Volkswagen as another example. 

Despite the government’s automotive industry ‘master plan’, which is the jewel in its industrial policy portfolio, the company’s brand chief, Thomas Schäefer, on a visit to the country late last year, expressed concern about the future of the company’s South African operations, and poured cold water on the prospect of building electric vehicles in South Africa.

He told Reuters: ‘Eventually you have to say, why are we building cars in a less competitive factory somewhere far away from the real market where the consumption is? I’m very worried about it … We’re not in the business of charity.’

An exit for Volkswagen would pour on the misery for South Africa’s automotive manufacturing ambitions. The current ANC ‘master plan’ was prompted by the departure of another global giant, General Motors, which pulled out of South Africa in 2017 after more than 90 years.

Decline

These stories add to a broader trend of decline in South African mining and manufacturing, and in South African business in general.

We saw in a recent column on industrial policy that the country’s manufacturing output as a share of GDP has shrunk from 21% of GDP in 1994 to 12% of GDP in 2022.

In 2023, it was reported that mining output fell further below pre-pandemic levels. And those pre-pandemic levels already signified an industry in decline.

The number of companies listed on the JSE Stock Exchange is another indicator. Out of 586 companies at its post-democracy peak in 1998, the exchange lost 60% of its listings by 2022, to end that year on 237. Per capita, the chart looks even worse, having declined from 14.9 listings per million people in 1998 (and 21.5 in 1988), to a mere 4.5 per million in 2020.

Forecast

That large companies are giving up on South Africa can be interpreted as an economic weather forecast.

It tells us that they do not believe there will be a change of government in 2024, and that the ANC will continue to govern, albeit perhaps as the leading party in a coalition.

It tells us that they do not believe that there will be a substantial improvement in South Africa’s economic policies, no improvement in its investability, no improvement in its infrastructure, transport and utility challenges, and no improvement in its business climate. On the contrary, they likely expect these to get worse.

It tells us that they do not foresee any of this changing in the foreseeable future, and perhaps not even after the next election in 2029.

That big names are getting out of South Africa suggests we’re in for many stormy years ahead.

We don’t have much time left to make a dramatic improvement in the country’s management. If things don’t change soon, South Africa will simply sink into obscurity as just another hopeless backwater where only the brave or foolish do business, or worse, become a case study of economic failure alongside some of our best struggle allies.

We can’t run a country on memories of liberation and dreams of rainbows alone.