Why SA’s economy underperforms – shocking data laid bare by ‘Time Travelling’ economic analysis.

South Africa features in Charlie Robertson’s recently released book, The Time Travelling Economist: Why Education, Electricity and Fertility are key to escaping poverty. We asked the author, whose day job is chief economist of the world’s leading emerging markets specialists Renaissance Capital, to unpack his masterful analysis of what drives economic growth by comparing countries over extended periods. In this interview with Alec Hogg of Biznews, Robertson uses numerous examples to explain what bedevils the South African economy – using the three key economic factors to explain part of SA’s massive underperformance in the past half century. A sobering assessment by an independent thinker – and grist for the mill of the Western Cape independence lobby. A must listen.

Charlie Robertson on the three issues that put a country like SA on the path to progress

South Africa’s particularly special and every country is unique. But South Africa is more unique than most on these issues. So the first first one was adult literacy – there was a theory written in the 1960s, that countries couldn’t industrialise until at least 70 to 80% of adults could read and write in any language.

What’s the second thing you’ve got to have if you’re going to move into a factory from subsistence rural farming? What do you need next? You need to have an electricity supply in that factory. And this is where it feeds into the fertility rate. And the fertility rate is very important because high fertility countries don’t take off. High fertility countries where you’ve got five or six kids per woman on average on a site per woman, because that’s the way we count it. Obviously, men have played a role in this. High fertility families don’t have savings at the end of the week. And that means there’s no savings in the bank. And that means banks don’t have any cash to lend to businesses for infrastructure, for electricity. And so the cost of borrowing to build electricity becomes extraordinarily expensive. And that’s what’s holding back most of sub-Saharan now.

South Africa’s really, really interesting because South Africa has always been – well for 150 years or more – two countries. If you go back to 1900, there was a survey done, I think it was 1897, actually, but there was a survey done of adult literacy. And for the white population, it was over 90%. So you’ve got this very literate population, which today, given the long lack of this importance of education today, the white South African population ought to be roughly that income level, 15, $20,000 ahead per capita GDP. But the black population had a literacy rate of about 7%. That would tell us that per capita GDP should be about $2,000 for the black population in South Africa and about $20,000 for the white population because of the different education rates. 100 years ago and this long lag on education, we see again and again countries around the world make such a powerful difference. So you’ve got two very different economies going on because of a legacy of education that goes back over a century.  

On why SA has been the biggest underperformer in emerging markets for the last 30 years

What’s interesting to me is the countries that have done worse. In Latin America, for the last 40 years, Argentina, Brazil, Mexico have underperformed the average of all countries in the world. But in emerging markets, the country is underperforming the most since 1980. Worst of all is South Africa. And I can’t explain that in the book purely on the basis of literacy or electricity or fertility rates. I do think the quality of education is an argument, which is much more difficult to measure. But we’ve seen World Bank reports telling us there are significant problems in South Africa that might be part of it. And there has to be an element around the quality of governance. Are ministers and governments able to do the stuff that’s much harder to compare or measure? Is your industrial policy better? Is your excise duty too high? Are you giving enough export promotion support? You know, all the things that China has done a very good job at. Or is your currency weak enough to support a strong export base? Those are then much more difficult questions to answer. But somewhere in that group has to be the explanation for why South Africa has been the worst underperformer in emerging markets for the last 40 years of growth.

On the election in 2024

I do think it’s going to be a very, very interesting election. And the question is, which coalition comes out of that? And that depends, again, on the way people are going to vote and to what extent it’s the EFF or the DA or something. I think that the difficulty about that Soviet model, that Soviet thinking is, is it can actually make a big difference. I point this out in the book as well to get out of rural subsistence poverty. If you follow Lenin’s prescriptions of education being extremely important and secondly, electricity being extremely important, the communists do quite a good job of getting you into the middle income place. Where they fail is when people start to have savings, when the middle class starts to have savings, they don’t want a government that stifles it anymore and decides how it should be allocated, but it’s very little savings. Okay, maybe there’s a case for it, but when you’re middle income status, it becomes very, very unpopular to do that. And this is why communism tends to give up and China becomes effective. So I would still probably argue that South Africa’s better future is sticking to this private sector capitalist approach, but with some political recognition that you need to carry the population with you if you’re going to keep enough support for it.  

On the risks of investing in SA

The thing with markets is we’re always trying to price in the bad news and the good news. And sometimes you make the most money investing in places where there’s a huge amount of negativity and people have given up hope and it’s then when there’s something which could be an election in South Africa in ‘24, there’s something which gives you some hope, but actually sees prices move the most. The difficulty, I think, is the people have already had that with Ramaphosa’s first victory. And there was this belief that he was going to be a big force for change. He had the bad luck of Covid striking, which hasn’t been great for any country. So I think markets are going to be sceptical going into the next election. And therefore, South African asset prices are going to be on the weaker side. But the thing which is concerning me more, though, is the debt buildup that we’re seeing, the budget deficit buildup that, I think, threatens to take South Africa towards some of the debt problems we’ve seen in other middle income countries that shouldn’t have had problems, like Lebanon, like Sri Lanka.

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