The following speech was delivered by Herman Mashaba, President of ActionSA, at the German-African Conference of Parliamentarians in Berlin, Germany.
Looking back on the South African economy since 1994, it is difficult not to become disheartened.
The initial optimism we felt in the 90s with the reopening of the South African economy to global trade saw us make sustained gains at first. Economic growth reached almost 6% prior to the 2008 global financial crisis.
Unfortunately, the financial crisis brough that period of growth to an end as it coincided with the election of a new president in 2009 in the form of Jacob Zuma – a man now facing 783 counts of fraud and corruption after leading a systematic project of state capture for 10 years.
Under his tenure, growth rates declined consistently over the subsequent decade, dipping below 1%. And that was before the COVID pandemic.
The impact of low economic growth on the South African population has been devastating. At the end of 2021, unemployment reached a staggering 46%, leaving almost 12.5 million South Africans without jobs.
Even more concerning is the disproportionate impact on young people, with 77% of those below the age of 25 unemployed. This cohort accounts for those school leavers who are unable to pursue tertiary education, many of whom are effectively left without options and hope.
I mention these gut-wrenching statistics to emphasise the dire state of the South African economy, and the magnitude of the problem we face.
There is no doubt that external shocks like the financial crisis and COVID were devastating for the South African economy. But, the long-term downward trajectory must be explained against the political mismanagement of the economy.
Importantly, one cannot achieve inclusive growth without addressing the systemic failures of the government that led my country to this point.
For that reason, today I would like to speak to you less as politician than as a businessman with decades of experience and hindsight. Long before I entered politics, I was an entrepreneur that built a successful multinational business despite the oppression of apartheid.
It is with this experience in mind that I would like to focus on 5 of the biggest obstacles to sustainable growth in South Africa: policy uncertainty, draconian labour laws, poor quality education, collapse of the rule of law, and a lack of ethical leadership.
Firstly, policy uncertainty.
I am a firm believer that no business can flourish in a state of anarchy. Investment decisions are based on a cost-benefit analysis that weighs the risk of an investment relative to its potential reward.
When there is policy uncertainty – whether regarding the protection of property rights, energy policy, mineral resource extraction policy or monetary policy – it makes the calculation of risk more difficult, which ultimately deters investment.
In a competitive global economy where investors are free to shop around before deciding where to establish new offices and production facilities, it goes without saying that corporations will select locations that will minimise risk and maximise returns.
This requires a firm commitment from government to investors, especially foreign investors, that their business interests will be protected for the foreseeable future. Without this kind of commitment, made in good faith, the possibility of a mutually beneficial relationship is bound to fail.
Secondly, draconian labour laws.
Like policy uncertainty, investors are weary of draconian labour laws and labour unions with too much power.
There is no doubt that unions play an important role in protecting workers’ rights, and guard against the worst forms of exploitation. It is therefore important that they have a seat at the table.
But, they cannot have veto power to protect the employed at the expense of the unemployed – not when 46% of the population are without jobs.
Unfortunately, this is exactly what has happened in South Africa. The ruling party is beholden to trade unions because of the political power they wield, resulting in economic decisions that ultimately compromise the welfare of society.
For example, failing state-owned entities are propped up by government, costing billions in taxpayer funds every year. This money would have been better invested in basic infrastructure that increases overall economic productivity.
To attract investment and form part of global supply chains, African countries need to appreciate that they must strike a healthy balance between workers’ rights and ensuring sufficient labour market flexibility to respond to market forces.
Thirdly, I believe that economic growth is constrained by poor quality of education.
Looking to the Asian Tigers and European economic powerhouses like Germany, their success is often correlated with massive investment in quality education, notably in maths and science. This is central to innovation in an increasingly post-industrial global economy.
An abundance of cheap labour is no longer sufficient to compete against other investment destinations – increasingly what matters is the level of skill and productivity of that labour force.
A country like South Africa is a long way off from sending everyone to university. In the absence of tertiary education, at the very least the basic education system should equip young people with marketable skills or vocational skills to gain meaningful employment.
Unfortunately, in South Africa the basic education system has undermined the notion of meritocracy and lowered standards to artificially inflate pass marks. That result is that while more young people pass their Senior Certificate, their knowledge is worth less to the marketplace.
How can we expect a workforce of young people that pass high school with a meagre 30% grade to compete against countries that have invested heavily in education? It’s not possible.
To fix the economy and empower young people to find jobs, we must start by investing in good education and a curriculum that serves to empower young people with skills they can use for upward social mobility.
Fourthly, we need to restore the rule of law.
In the same way that economies cannot flourish in a state of a policy uncertainty, they cannot flourish in a state of lawlessness and chaos.
Restoring the rule of law is crucial to establishing investor confidence not only in South Africa, but in the broader African context where scenes of civil unrest and violence are perceived internationally as the African way.
As the Mayor of Johannesburg, I spent too much time addressing the safety and security concerns of investors wanting to setup shop in the city, but afraid to do so because of its reputation as a criminal capital.
If we want to establish Africa as a stable investment destination, we must entrench a culture of unwavering respect for the rule of law and take a zero-tolerance stance on corruption.
Finally, I want to reflect on ethical leadership
At the root of all the issues I have mentioned is a lack of developmentally-minded ethical leadership that will make the difficult decisions that are necessary for sustained economic growth.
Too many leaders in Africa – like Zuma in South Africa and Mugabe in Zimbabwe – did more to benefit themselves than those they were elected to serve.
The results are there for all to see. Zimbabwe, once the breadbasket of Africa is now a shadow of its former self, while in South Africa corruption cost us a third of our GDP over the last decade.
In contrast we can look to Paul Kagame in Rwanda, and see what strong leadership can achieve. In 2019, prior to the pandemic, Rwanda had a growth rate of almost 10%; South Africa’s was 0.1%.
Leadership matters. If we want Africa to prosper, we must foster a culture of ethical leadership that is committed to socio-economic development and public service.
So where does this leave us?
I have never been one to give up hope or throw in the towel. Africa is rich in natural resources and has a large and young population that can fill the productivity gap left by aging populations in post-industrial countries.
This presents an opportunity if we can harness these resources and steer them towards the desired developmental agenda.
To do so we need to ensure that we can offer foreign investors policy certainty and stability; labour flexibility; a skilled and productive workforce; respect for the rule of law; and ethical leadership committed to long term development over personal gain.
If we can achieve this, we can build a mutually beneficial relationship between African and European countries. We have seen this in South Africa where BMW and VW set up production facilities. But equally, we have not been able to attract more automotive manufactures because of the many challenges they face.
Ultimately, I believe that to strengthen these long term relationships, African countries must take responsibility to get the economic basics right. If we can get this right, then Africa can establish itself as a preferred investment partner for the Europe, and serve as a reliable contributor in global supply chains.
I would like to conclude by thanking our hosts the Konrad-Adenauer-Foundation and the Hanns-Seidel-Foundation, supported by the Africa working group of the CDU/CSU group in the German Bundestag, for taking the initiative to convene this German-African Parliamentarian Dialogue.
It inspires me to see Africans and Europeans engaging about how we can work together to achieve mutually beneficial and inclusive growth. Africa is a continent of great potential, but unlocking that potential is easier done together than it is done alone.
We should not approach Europe as an adversary, but instead embrace it as a partner on the road to prosperity.
There is an African proverb that says “if you want to go fast, go alone. If you want to go far, go together.”
My hope is that in partnership with Europe, we can go both fast and together.