South Africa presents a beguiling picture to tourists – mostly. First-world hotels and roads. Efficient air travel. Fashionable restaurants. Extraordinary game parks. Startling scenery.
It also has a business friendly government and ranks 41st out of 189 countries in the World Bank’s “Ease of Doing Business” rankings. (It’s ahead of Qatar, Oman and, of course, Italy and Greece – but that’s easy.) It would be higher on the rankings but getting electricity is tough – despite the fact that South Africa already generates half the electricity generated in all of sub-Saharan Africa. (But, here’s the catch. Sub-Saharan Africa as a whole — 48 to 52 countries depending on what countries one includes — generates less electricity than Spain.)
But South Africa has more significant problems that limit its growth. From 1993 to 2014, annual GDP growth averaged 3.16 %. But population growth remained high, insuring low per capita income growth. Given the country’s extraordinary income inequality, a legacy of both apartheid and the rush to “Africanization” that followed, poverty is still rampant.
Three factors limit South Africa’s economic growth at levels significantly below sub-Saharan Africa’s average – the country’s public enterprises, the labor movement, and the devolution of power to local municipalities.
State owned enterprises are grouped under the umbrella of The Department of Public Enterprises. All power generation, rail freight transport, South African Airways and other companies are controlled by DPE. The ministers have been underwhelming. The companies have been job providers and money losers. But President Zuma appointed a new minister in May 2014, a woman – Lynne Brown. She has promised that “heads will roll” at South African Airways and is widely expected to bring some dynamism to the other state controlled “elephants.”
The labor movement is also a drag on the country’s growth. Under the apartheid regime, many African workers were actually paid more than in other African countries in an effort to quiet labor unrest. When apartheid ended, workers naturally expected to be paid even more. One result is low labor productivity.
Another problem with South African labor is their powerful spirit of opposition to authority – previously the apartheid regime and now to the companies, whether state owned or not. A five-month strike of platinum workers recently ended. One week later, the National Union of Metalworkers of South Africa went on strike. NUMSA has pulled its members from firms supplying the auto industry and construction companies building new power generators. General Motors shut down its plant. Construction across the country is coming to a halt.
The government, however, has no legal means of intervening in these strikes and no means of bringing about any labor peace. Labor cost and unrest is a major problem.
The third great challenge facing the country is the democratic reforms following the end of apartheid. The constitution devolved power to the country’s nine provinces and 278 municipalities. All well and good. The problem is the lack of talent and corruption at the local level. Monies are allocated and somehow manage to disappear when they reach the local level with no noticeable contribution to their intended use. Since many of these municipalities are home to the poor Africans who have not significantly benefitted from the end of apartheid, anger and crime is rampant.
In May, President Zuma responded by appointing a new minister, Pravin Gordhan. He served for over five years as minister of finance and is widely known for his competence and incorruptibility. He knows what needs to be done and he knows how the system works and how to work the system. His appointment will show whether or not any improvement is possible.
Until South Africa makes progress on these three problems – the mismanagement of the state owned enterprises and the municipalities and labor unrest – its growth will lag and its people dissatisfied, seeking scapegoats. The government seems to have a new appreciation of its challenges.
But the surest way to bringing about change would be to oust the African National Congress, in power for 20 years, since the turn to democracy. That appears unlikely to happen any time soon. In the 2014 elections, it was returned to power with 62.15% of the vote.
Marvin Zonis is Professor Emeritus, Booth School of Business, The University of Chicago.