How South Africa’s elites are stunting the economy and democracy

Moeletsi Mbeki
By Moeletsi Mbeki

Deputy chairman of the South African Institute of International affairs, an independent think tank based at Wits University in Johannesburg.

Posted on Thursday, 29 July 2021 19:17, updated on Saturday, 31 July 2021 00:38

LONDON - MAY 15 2015:Nelson Mandela sculpture at the Royal Festival Hall in London.Photo via Newscom/cewitness064688/Rafael Ben-Ari/

It has been 27 years since South Africa held its first democratic election achieved after centuries of political struggle. But many South Africans have lost interest and no longer bother to vote.

For many, democracy has proved to be a mirage. This calls for a review of South Africa’s governance. Are we really a democracy or a form of stunted democracy?

Nationalist policies, first by the Afrikaner elite and now by the African National Congress (ANC), have entrenched the socio-economic structures of colonialism and held back the economy.

The main contradiction in South Africa’s political economy is the struggle between the backward looking and self-serving nationalism of the ANC, which ostensibly tries to right past wrongs, and our forward-looking companies which calculate that today’s investments will yield future profits.

African nationalists want business to pay them now for pain suffered in the past; business wants to invest now for profits tomorrow. In this clash of the elephants, ordinary people suffer.

One cannot understand an economy by reading textbooks; one must know the political context in which it operates. Nationalism is an ideology of the elite, driven by a sense of grievance for being excluded by a dominant group; in our case by British colonialists and later, Afrikaner nationalists.

Before the 1994 elections, the African nationalist elite was excluded from political power and from owning property. To fight these exclusions the African nationalist elite mobilised other aggrieved social groups.

In South Africa, the African nationalist elite comprised African, Coloured, and Indian professionals, traders, intelligentsia, and leaders of faith-based organisations. It mobilised the working class, peasants, youth and students to fight against exclusion from the country’s wealth.

South Africa’s economy was not created by Afrikaner or African nationalists. Its backbone remains the exploitation of the country’s vast mineral resources through cheap, largely migrant, black labour in a system run by British capitalists in the late 19th century when they established the mining industry.

After Britain relinquished political control of South Africa in 1910, the country has been dominated by nationalism; first Afrikaner nationalism between 1910 and 1994; and by African nationalism since 1994.

African nationalist agenda

The top priority for African nationalists in 1994 was to democratise the political system. Democratisation was used to outlaw racial discrimination against Africans, Coloureds (mixed-race people) and Indians. Democratisation opened up jobs for all races in the public sector.

It compelled the state to provide education, healthcare and social services that had disproportionately been supplied to whites. The state also helped meet the pent-up consumption demands of the African elite and its allies, suppressed for over a century.

As the African elite had been excluded from ownership of land and houses for centuries, property rights were a low priority. The African elite didn’t oppose capitalism, a point Nelson Mandela made repeatedly. It was opposed only to excluding Africans, Coloureds, and Indians from becoming capitalists.

Mandela argued that nationalisation, as envisaged in the Freedom Charter, was not intended to create a socialist economy but the opposite. It should open the economy to all South Africans by breaking the stranglehold over economic opportunities by white-controlled cartels and oligopolies.

Another low priority for the African nationalist elite was companies’ profitability – to the extent that it depended on cheap black labour and exploitation of the country’s mineral resources.

Democratisation challenged relations between business and African nationalism. There had been conflicts between business and Afrikaner nationalism but less threatening as the Afrikaner nationalist elite were property owners, having some common interests with business.

Facing African nationalism, business felt politically threatened. Democracy concentrated political power in the hands of the black majority that business had been party to exploiting.

Far from creating stability, democracy in South Africa left business feeling exposed to asset seizure and onerous taxes by the politically powerful but propertyless African nationalist elite. There was no credible opposition.

Soon business said its fears had been confirmed by rising corruption among the African governing elite and mismanagement, especially in local government and the state-owned enterprises. These included the companies that provided electric power, rail and air transport as well as services such as broadband, public broadcasting and the post office.

Democracy imposes other direct costs on business. The new African nationalist rulers expanded the numbers and rewards for public sector jobs. The public service ballooned, its remuneration overtook that of the private sector at many levels.

Figure1 – Compensation of General Government Employees – 2015

According to the Organisation for Economic Cooperation and Development (OECD), the salary bill for state employees in South Africa, at more than 14% of GDP in 2015, is the highest in the world. Other countries at a similar level of development paid public employees 5% – 7% of GDP.

This consumption-driven spending was made possible by the new African nationalist elite taxing business and the professional classes as well as ratcheting up public debt and creating credit.

It transferred vast resources from production in the real economy to consumption by households and by the state; household consumption rose sharply as a proportion of GDP.

This reallocation of resources to consumption resulted in stagnation of gross fixed capital formation in the economy which had been stuck since the late 1980s at about 19% of GDP. This held back growth and ageing capital equipment was not replaced. There were some interludes of strong growth – from 2004 to 2008 –  but it was driven more by higher commodity prices than confidence in South Africa.

The political changes of the last 27 years have weakened the economy, leading to stagnation and de-industrialisation. Among the consequences are capital flight, emigration of skilled people and levels of violent crime close to those in countries at war.

Outlook for South Africa’s political environment

For the last 110 years the National Party (NP), formed in 1914, and the ANC, formed in 1912, dominated South Africa’s politics. Both parties were founded on nationalism, a grievance ideology protesting exclusion by the British colonial authorities.

Unlike the ANC, the NP was a party of a propertied class, in particular Afrikaner landowners, professionals and the Dutch Reformed Church establishment fighting for the inclusion of the Afrikaner elite into all aspects of British colonialism, especially the mining industry. In its conflict with the British, the Afrikaner elite was crushed in the Anglo Boer War of 1899 – 1902.

After that defeat, the Afrikaner elite concluded that to survive as an elite they had to collaborate with the British. Despite protestations to the contrary, the NP religiously promoted two primary British interests in South Africa: control of its minerals and the Cape Sea Route.

The ANC was a party of non-propertied professionals, traders and intelligentsia, whose forebears had sporadically joined with the British in the 19th century to crush indigenous communities in return for a share of the land and livestock captured during these wars. Later they obtained citizenship rights under the 1853 Cape constitution, aspects of which were extended to Natal.

After the discovery of mineral riches in the late 19th century, the British government turned against the African elite as well as African peasants, collaborating with British mining companies and later with the Afrikaner elite. This dispossession triggered the African elite to embrace nationalism importantly assisted by African-Americans through their African Methodist Episcopal Church (AME).

It took a hundred years of struggle for the African nationalist elite to gain control of the state if we date the dispossession of the African elite from the passing of the Glen Grey Act in 1894.

At the end of such a titanic struggle, the ANC – the party of African nationalism – emerged triumphant under Nelson Mandela. It swept the first democratic election with over 60% of the vote which it increased in later years to nearly 70% in the 2004 elections.

It soon became clear that the NP had no future. It dissolved with some of the members joining the ANC, and others the fledgling Democratic Party (DP) which had managed only 1.7% of the vote in 1994. This merger culminated in the formation of the Democratic Alliance (DA) that emerged after the 1999 elections as the official opposition with 9.5% of the national vote.

In the 2019 election, the ANC got 57.5% of the vote while the DA managed 20.7%. This voting pattern seems to indicate that the DA is not a credible competitor to the ANC for national leadership. This is confirmed by deeper analysis of the sections of the electorate that vote for either party.

Research by Ipsos, a leading market research company, found that the two largest home languages of DA voters are Afrikaans and English. They account for 82% of the DA national vote. Afrikaans and English home language speakers are however only 25% of the South African population. The two languages of main ANC voters are Zulu and Xhosa which make up 49% of ANC voters. These language groups however jointly make up 38% of the total population of South Africa.

Leaders of the DA are resigned to the fact that on the basis of the major constituencies that support them – Afrikaans and English speakers – they can never beat the ANC. Leader of the DA, John Steenhuisen, recently announced that the DA would enter into a coalition with the ANC, presumably as a junior partner, if the ANC should lose its majority. All this tell us that the ANC will continue as a governing party for many years. But what are the implications of this political outlook for the economy?

Nationalism and South Africa’s economic development

The expected long reign of the ANC reflects South Africa’s tradition of long periods of single party dominance. The NP first got into power in 1924 in coalition with the Labour Party.

It lost power only in 1994 apart from briefly losing power to the pro-British United Party led by Jan Smith; the NP’s leader James Hertzog wanted South Africa to stay neutral in the Second World War against Nazi Germany. Some senior figures in the National Party, such as John Vorster were openly pro-Nazi.

The shift from the political dominance of the NP to the ANC raises the question of what nationalism has done for the development of the South African economy. What will be the ANC’s impact on the economy if it continues in power for the foreseeable future?

South Africa is the most unequal country in the world. It has some of the highest unemployment rates in the world. This is the legacy of 110 years of African and Afrikaner elite rule. Why should inequality and unemployment change if African nationalist rule continues?

Figure 2 – Social Structure of South Africa – 2014

The following diagram shows us the structure of the stunted society that nationalism built in South Africa. There is nothing like it anywhere else in the world.

The elite is made up of people in the public and private sectors who earn more than R60,000 a month and number 105,000; the middle class earn between R11,500 and 60,000 a month and number 2,310,000; blue-collar workers earn less than R11,500 and number 9,005,000; underclass and unemployed earn undetermined amount and number 11,756,000; independent professional and NGOs number 432,000.

The use of the state by South Africa’s elites during the last hundred years achieved one important outcome: it constrained the ability of the economy to develop to its full potential.

The insatiable demand for cheap black labour by the Afrikaner elite and their allies and partners in the mining sector, while it enabled some economic development to take place, in agriculture, mining, urban and rural infrastructure, it, however, hobbled the broader and deeper social development of South Africa.

Job reservation and discriminatory education policies condemned South Africa to lower skill levels of development in areas such as extractive industries, assembly, construction, public sector administration, and trade.

This has meant South Africa lacks the skills base of the Asian Tiger economies. Instead, it has come to depend on the Asian Tigers for capital goods, telecommunication equipment, computers, transport equipment, consumer electronics, white goods, and many other manufactures.

South Africa’s relationship with South Korea is as an importer and consumer of its sophisticated manufactured products; in turn, South Africa supplies South Korea with unprocessed or semi-refined mineral products.

The African elite freed the labour market from apartheid and facilitated negotiations between management and labour in the normal operations of firms. Yet it continued to hobble economic development by diverting, via the tax system, much of the surplus from investment to consumption; especially consumption by the African elite and middle class to equalise their consumption to that of the white middle class and upper-middle class.

The state’s public education policies under rule by the African elite continued to undermine social development by experiments such as outcome-based education and the lowering and manipulation of pass rates.

Most importantly, the African elite disincentivises entrepreneurship among blacks with policies of black economic empowerment and affirmative action. There are hardly any new significant companies in South Africa.

Today, South Africa has rightly been described (by the late Prof Sampie Terreblanche) as an enclave economy that primarily services the consumption needs of its relatively small black and white middle class and upper class; at the same time, much of the population is locked into unemployment, underemployment, poverty, and underdevelopment in rural and urban areas due to low investment levels in the economy as a percentage of gross domestic product.

There is no reason to presume that the ANC government would do things differently if it continued to rule for another 27 years or even for 50 years.

Figure 3 – Comparison of GDP of South Korea and South Africa

South Africa’s top exports to South Korea are ores slag and ash; iron and steel; pearls, precious stones, metals, coins; mineral fuels, oils, distillation products. Top imports into South Africa from South Korea are machinery, nuclear reactors, boilers; vehicles other than railway & tramway; electrical, electronic equipment; plastics.

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