Why is South Africa Failing?

The question that is being asked seldom attracts a complete answer.  While the reasons given below are not complete, they are more accurate than the Government is willing to concede.

The Government blames all the problems on three main factors:

1. The collapse of the world commodity market.  This is a factor that any competent market observer could have foreseen two years ago, or even longer.  It has been clear for a long time that the Chinese economy was reaching a turning point in its headlong growth of expenditure on infrastructure.  New buildings were being completed and remaining unoccupied, the market for its exports was reaching a peak or even starting to decline, and the centrally-planned economy was showing signs of strain, which were not being addressed, adequately, or sometimes at all, by the government.  In the case of South Africa, the policies of the Government and its inability to restrain the excesses of the trade unions have been having the effect of holding back the ability of South African businesses to capitalize on the boom conditions, and setting the ground for the current economic decline long before it started. 
   Not only did the Government fail to foresee this development, it failed to maximise the benefits to the economy of the boom while it ran, and they frittered away what little cash it produced in pork barrel political investments, hand-outs to the ANC voter base, abjectly poor management of whatever it did, corrupt practices which involved opting for large bribe-producing projects rather than run-of-the-mill maintenance, rather than making the strategic investments, often at small scale, that would help to develop the industrial, agricultural and mining base of the economy.
2. The evil White capitalists, who have withheld from investing the large sums of capital they have accumulated on their balance sheets.  There are three main faults in this reason.  The capitalist system is blamed for not doing what the Government wants it to do, but capitalists will refrain from making investments unless they are assured that the investment will pay off in the form of increased, or at least stable profits in the long term.  The ANC Government has failed dismally in this.  It has, instead, assured the capitalists that committing themselves to the South African economy is an almost sure way of inviting the ANC to raid their fixed assets by means of laws to demand the donation of shares of their businesses or costly employment of unqualified people as Directors, managers or simply employees under the disguise of racial equity, and it has invited the trade unions to hold them up, like highwaymen, demanding ‘protection money’ in the form of excessive wages and benefits demands in order to avoid ruinous strikes and violent confrontations, often leading to murder and arson.  These tactics work, in the short term, because the fixed investment is too valuable to abandon, but they teach the capitalists, who are neither short-sighted nor stupid, that South Africa is not a good place to invest.  Those who can, move to another investment destination, withholding any further non-essential investment in the local economy, and those who do not have this option available to them, simply sit back, to ride out the storm with as little exposure as they can manage, in the hope that a new Government will be in place within the foreseeable future.
   The fact that many of the capitalists are White is a result of a long history, not the least of which is that the European nations that founded the economies of Africa were capitalists for centuries in the past.  They do not suffer the negative effects on investment that the tribal structure of much of Africa remains saddled with, and they have not had to undergo the long learning process that many of the leaders of the ANC do not appear to have completed.  The recent rambling speeches of the State President bear testament to this.  He appears to believe implicitly that the market price for a good is determined by a meeting of all concerned parties, apparently without regard to the realities of input costs, the value of innovation, the scarcity of the good or its components, the price offered by other potential purchasers, reward for risk-taking, or the myriad other factors that go to influence the final price.  Of course, his limited understanding of how the world works is based on the education and brainwashing he received from the Soviet Union and its lackeys, and remains influenced by the Communist ‘brothers’ around him, many of whom continue to hold high positions in Government.  None of these people appear to understand that the ignominious collapse of the Soviet Union was caused, among other reasons, by the failure to understand the workings of the market economy, and not by the nefarious schemings of ‘capitalists’, who, seemingly, had nothing better to do than spend three-quarters of a century in plotting to bring an end to the ‘worker’s paradise’ that was responsible, under Josef Stalin alone, for the killing of sixty million of its subjects and the subjection of hundreds of millions to abominably poor living conditions and education.  Of course, not all capitalists are White.  There are many Black, Coloured and Indian capitalists in the country, and, remarkably, most of them do not support the ANC.
   The belief that White capitalists are all evil is equally without foundation.  Many White capitalists have gone along with the stated motivation of the Government, in supporting the training of the previously disadvantaged, in supporting charities to help the (predominantly Black) poor, in providing assistance to the Police, the Education Departments and to other worthy causes.  Their actions in this regard have been damaging to their own businesses and to their long-term interests, and have been undertaken almost solely to benefit their fellow man, and not in the belief that this benefit would accrue to themselves, except in the broadest possible way.  It is a fact that a large proportion of the donations that have brought about the partial recovery of the AIDS disaster caused by the ANC denial that AIDS was a disease (remember Thabo Mbeki’s humiliating speech that ‘AIDS is a syndrome, and syndromes don’t cause diseases’, and the equally humiliating pronouncement by his Minister of Health that onions and garlic cured AIDS, not to mention the comment by Jacob Zuma that he showered after having sex, and so could not have contracted the disease?) is provided by the (predominantly White capitalist) United States, and that 60% of US citizens regularly make voluntary donations to charities.  Neither Whites nor capitalists are inherently evil, nor is the United States, as propounded by Zuma’s idol, Robert Mugabe, and hinted at by Zuma and many of his stooges.
3. The unwillingness of the Press and other media to support the ANC, confounding every attempt by the noble ANC, the champion of the people, to bring an understanding to the mass of South African voters of the benefits of ANC actions and policies.  Unfortunately for the ANC, the free media has within it many astute, educated and knowledgeable people, who are able to pick out of those actions and policies the likely unrealised potential effects of what they are doing and plan to do, as well as to come to the truth of the many acts that the ANC seeks to conceal under the many words which shower on the public to withhold from the public what is really happening.  The media are, if they are truly free, the champions of the public, the poor and ignorant ANC voters as well as the jack-booted evil White capitalists.  They are able to take a transcript of a Jacob Zuma speech and point out to the public the abject lack of understanding and comprehension contained in it.  They can analyse the probable results of a proposal, such as the recent one by the Minister of Water Affairs to steal the privately-owned dams of White farmers in the Northern Province and distribute the water contained in them to ‘the poor’, at the almost certain cost of the demise in short order of the farmers who built those dams, at high cost to themselves, to ensure that they are able to survive the sort of drought conditions that now pertain and that were foretold at least several years ago, without the ANC Government doing anything to forestall the almost certain results.  Bringing this knowledge to the attention of the public is their duty, as it is of the Government, and the fact that they are critical of the Government in doing that is not disloyalty, as the ANC claims, but the unbiased performance of that duty.  The fact that the ANC is shown to be lacking, in foresight, in intelligence, in moral standards and in the expected level of integrity in the performance of their duties is the fault of the ANC, not of the media.

The truth of the matter is that there are many reasons behind the collapse of the economy.

The collapse of the commodity markets is a factor, but this was a probable event, able to be understood and acted against in the decades prior to the present.  South Africa failed miserably to take advantage of the boom conditions while they pertained, because the Government saw the private business sector as a cow to be milked as much as possible, without making provision for the future.  It encouraged the wildly excessive demands of the labour unions, because the increased affluence of the workers was sold by the ANC as a direct result of the efforts of the ANC.  It was not.  It was a result of the success of the capitalists who had built those businesses to the level of success they enjoyed, offering increasing numbers of jobs to a poorly-educated and –trained workforce, and making up the deficiencies of those workers at the cost of the investors.  Those businesses were operating in the real world, where the price of an ounce of platinum is determined by the forces of supply and demand, not by negotiating by unequal partners across a table, and where supply is determined by whether a mine can produce those ounces of platinum at a cost that will enable the company to reward the capitalist investors for the risk and the time they wait for the reward, and the demand is determined by how many ounces are needed by the users, by the cost of alternative ways to meet the need, and by how many ounces can be purchased at a particular price.  There are no secret negotiations involved in the process, no bribes being passed under the table, no consensus of like-minded parties, only the setting off of needs, demands, supply and costs to reach a coldly-calculated value.  There is no space for consideration of the needs of the ‘poorest of the poor’, for the wish to placate a demanding Government or trade union.  If the cost is too high, the sale will not be made, the production will reduce and, with it, the demand of the labour required to produce.

Part of the cost of production is every element of direct and indirect cost that is required to make that production.  The direct costs include wages, benefits to labour, levies to Government at all levels, including the compulsory payments to the Companies Office, to the Ombudsman, to the adjudication of labour disputes, to Sanral for toll fees, the cost of electricity paid to Eskom and incurred by the need to have and operate stand-by generators when Eskom fails to supply, for fuel to transport the products out and the raw materials in, including the levies paid to Government, for SETA levies, to provide for the training of the potential workers to the point where they might become productive, and all such similar costs.  The indirect costs include the loss of earnings on the shareholding transferred to non-productive shareholders under the BBEEE schemes, as well as the loss of earnings caused by unjustified strikes in support of demands for excessive wages and benefits. 

Contrary to Government view, the cost of transferring a shareholding to a Black shareholder, even if it is paid for at an agreed price, is the loss of earnings to the original shareholders who would have earned that share of the profit.  If a company earns R100, and a shareholding of 26% is transferred to a Black shareholder who played no part in bearing the risk or the capital outlay of setting that company up and putting it in business, then the original shareholders have lost R26 per year.  Paying them a price of R260, probably over five or ten years, is far from adequate compensation for the profits and capital growth they expected, and even paying interest of 30% p.a. would, in most cases, not compensate for the loss.  If that investment is coupled with representation on the Board by persons who would not, in the ordinary course of events, have been chosen for that role, it compounds the problem, because the original shareholders, who have clear ideas of where the company should go, now have to accommodate the wishes and desires of people who, in most circumstances, have little understanding of the business and, probably, considerably less capability to make the business succeed than the original shareholders.  If they were the equal of the original shareholders, the chances are that they would have set the business up for themselves!  Again contrary to the deeply-held belief of the ANC, a business is not a training ground for less-skilled operators, certainly not at the top management and Board levels.  That is a fact that is implicit in the fact that progression to those top ranks has always been accompanied by years of exposure, development of skills and capabilities and experience.  The ANC has attempted to upset that natural order by the legal requirement to bring in people at top level who have none of those qualities, and the result has been a catastrophic collapse of the competitiveness of South African businesses, accompanied by the brain-drain of skilled Whites, who could have sustained those businesses but who have seen the writing on the wall – qualified Whites have no future in South Africa.  They have taken their skills, knowledge and experience to foreign climes and, understandably, have seen that their South African competitors are now soft targets.  The foreigners who might have added their capital and skills to the country have also recognized that, unless they are Chinese, Russian or Guptas, they are seen by the ANC Government as legitimate targets.  They have seen numerous examples of the Government bodies working in illegitimate and internationally unacceptable ways to squeeze them, and they have pulled back from the country to await a more honest and more perceptive Government.  The losses to the ‘poorest of the poor’ have been huge.  Tens of thousands of jobs have been lost directly, and hundreds of thousands of potential jobs have evaporated, along with the substantial foreign exchange earnings they would have brought.  The development of the economy has been reversed over the twenty-one years that the ANC has been in power, taking a country that was the hope of the world to put it in the category of most corrupt, least effective, ratings-degraded, Zimbabwe-style basket case economies.

Another profound reason for the current failings of the South African economy is that the ANC believes that a country can be operated in a political way.  Businesses need firm rules within which to operate, not a constantly changing set of conditions that are unclearly defined and subject to the whim of a dictator-style Minister.  A business cannot be an ANC-style democracy, where every decision is debated ad infinitum and then agreed, probably too late, to accord with the whims of an uneducated majority.  A business needs decisive management which is capable of assessing the objective facts and making decisions, and then putting them into effect.  It cannot take into account the desire to mollify an undefined body of the ‘poorest of the poor’ – that can only be taken into account in the way that the taxes of successful companies and businesspeople pay.  Building houses for the workers and their large families, supporting the education of their children, meeting a ‘corporate social responsibility’ that has nothing to do with the objectives of making a legitimate profit all fall within the responsibilities of the employees and the Government, particularly in a country in which many businesses are hanging onto survival by their fingernails.  The surest way to bring an economy to its knees is to foist all of the Government’s wish-list requirements on the people who are making the economy work.

Another reason for the continuing failure of the South African economy is the substantial amount extracted from the economically productive sector by means of taxes, levies, fees, increased costs of property taxes, electricity and water (in order to subsidise the non-productive sector, including the social grants, the free education at university level for the tens of thousands of matriculants who would otherwise have gone on to the unemployment roll), the massively-expanding Civil Service of overpaid and underperforming persons, and other disguised Government take.  The fact is that the money that the Government extracts from the small productive sector to redistribute to the poor – another way of saying that it bribes the voters to support them at the cost of the taxpayers – would, in normal circumstances, have been applied to development of the business, with a small proportion being peeled off to reward the investors who took the risks and provided the capital, knowledge, contacts and skills, which reward would have provided reassurance to potential investors, local as well as foreign, that South Africa is really open for business.  The more the Government take, the less will be the new investment and the slower the development.  And of course, as the development and investment fades, the economy declines, and the actions of the top politicians become more erratic, more determined by the desire to grab what they can while it, and they, are still there.  The extent to which that is happening can be readily gauged by the intensity of the Government’s desire to ensure that the media toes the Government line, that the investment funds remain in the country, by compulsion if necessary, and that the businesses that remain effective are brought within the control of the regulations that bleed them.

Probably the largest single reason why the South Africa economy is failing is that the Government’s focus is on its voter base, the ‘poorest of the poor’.  In a business, the concentration of top management must be on the business activities that produce the most profit, with attention being given to those that cost the most.  The same applies to an economy.  The Management of the economy cannot afford to place its greatest effort on the sector of the economy that produces practically no taxes, the lifeblood of a Government.  The greatest effort should be applied to maintaining and fostering the growth of the sectors of the economy that presently, and in the future, provide the greatest contribution to the GDP.  That attention, if competent and up to the task, will continue to support the flow of taxes to the Government as well as providing the jobs to the people, whose income will supplement those taxes.  In time, those activities will trickle down to the lower levels, enabling those who now receive an adequate education to enter the fields of the economically active, contributing to the fiscus and dragging their comrades along with them.  This process may be supported by programs designed to accelerate it, by tax concessions and other incentives to enhance it, but it cannot be the central focus of Government thinking and action.  Like it or not, the poor contribute very little to economic improvement, and the best ways to improve their lot is not to subsidise them, but to find ways to motivate them to work their way out of poverty, using their skills, abilities and self-motivation to achieve for themselves what the ANC has failed so completely to do.  The fact that they may well decide to cast their vote in favour of a Party that is pro-business (NOT anti-poor) is a factor that should motivate the Government in power to maximise the success of that process, but never to support it to the detriment of the economic activities that make such self-rescue possible.  The obvious way to do that is to prove an excellent education (rather than finding excuses why the poor education is becoming worse) and relevant technical training, to make the youngsters able to earn a living immediately, rather than making it possible for them to continue their schooling by means of ‘progressing’ to the next grade by the simple expedient of failing twice in a grade, or giving them free university education as a means to postpone their coming onto the labour market for four or six years, while they hold back the education of those who are able and willing to succeed.  Best of all, adopt policies that reward effort and ability, and, wherever possible, drop any notion that someone is ‘entitled’ to something merely by virtue of his or her presence.