Frans Cronjé: As the 1910 Union disintegrates, only upside for SA’s middle class

This article was first published by The Common Sense.Key topics:South Africa’s union strains amid weak growth and declining state capacityState failure drives rise of private enclaves replacing public servicesCountry may fragment into de facto enclaves reshaping investment outlook.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Dr Frans Cronjé for The Common Sense.At an existential level, South Africa is facing a choice between union and fragmentation – and the 2024 election results, as well as those later this year and in 2029, might be read as a referendum on the decision on union in 1910 as much as anything else. Understanding the implications of the results that “referendum” is key to making any long-term decisions about your future in South Africa.South Africa became a union on 31 May 1910. The South Africa Act of 1909, passed by the British Parliament, merged the two British colonies (the Cape and Natal) with the two Boer republics that had been defeated in the 1899-1902 war (the Transvaal and the Orange Free State) into a single self-governing dominion. This unification was driven by the need for a centralised administration of the economy and society.The union has held for more than 110 years because throughout there was a relatively strong central authority in Pretoria – a strength both forced upon the country until 1994 and then achieved by democratic mandate thereafter.But that mandate is now fracturing, and beyond the short-term questions of what that means for election results and economic indicators, there is the longer-term question of what it means for the union – and whether that union is sustainable at all, and then, if it is not, what comes in its place..Read more:.Putting the service back in public service - Terence Corrigan .Start with whether the union is sustainable. This newspaper has argued at length that South Africa is in many respects not a multicultural society in as far as that culture reflects the collective values of people. Unlike the divided West, South Africa, despite its history, continuing economic inequalities, and the amount of populist incitement in the legacy media, shows a remarkable commonality of basic values that puts a good seven to eight out of every 10 of its citizens in a camp of conservative-leaning centrist pragmatists who agree on most of the core policies needed to make the country a success. From a public opinion perspective therefore, sustaining union is certainly possible.The extent to which South Africa’s politics have fractured, thereby fracturing “the strong central authority of Pretoria”, is not therefore a reflection of a fundamentally divided society but rather a consequence of the very poor economic performance of the past 15 years. The fixed investment rate, the definitive number underpinning growth, jobs, and living standards, has been stuck at around 15% of GDP for more than a decade. How appalling a performance that is is hard to overstate. South African emerging-market peers are at twice that number. South Africa’s rate of economic growth is just a quarter of that of its peers.As a consequence of stagnant living standards, matched by demonstrable failures in state capacity, confidence in the state has deteriorated to a point where more and more communities have to co-opt for themselves what were once the functions of that state. This is a phenomenon that cuts across socio-economic strata and can be seen from gated golf estates to the rising influence of traditional leaders in parts of the country and the rising influence of the taxi industry and gangs on urban peripheries.The state fails, its authority slips, and the most powerful local community actors take over to fill the vacuum. Ideological state planners hate this but the more they kick back against, it the faster they accelerate the process, because it is usually overzealous and ideologically motivated state interference, often in pursuit of the ideal of a “development state” itself – the dream of the ideologues, who created the failures that forced communities to take charge of things themselves. The process at work can be seen in everything from security arrangements in rich and poor communities alike to private healthcare (out-of-pocket spending by poor people is a major trend there) to how freight is transported around the country, electricity generated, and even aspects of diplomacy conducted (some people have a done a very important job in helping to shore up South Africa’s key foreign relations and thereby retain external confidence in the country). The effect of all this is however, unavoidably, for the society in practice to begin to fracture – even as a common well of values remains.Contrary to warnings about elite privilege and inequality and the like, the gated middle-class enclaves, business parks, and residential estates are a very fortuitous thing. These cause South Africa to retain far more of the country’s capital base, skills base, entrepreneurial base, and therefore tax and employment base than might otherwise have been the case. Wrongly, they are derided as outposts of elitism when they are in fact critical to holding the stability of the broader economy and society together. South Africa is quite unique among emerging markets in the extent of the phenomenon, with the upshot that the country is not exporting its capital and skills to the extent that might otherwise have been the case.The effect, in turn, is to buy the country’s politicians time to sort out its politics – significant skills and capital are sticking around regardless of how long that takes.An argument developed in our firm that we regularly put to investors is that the strength of the enclaves is proportional to the weakness of the state – and that this will likely remain true to an infinite degree. What that means is that if the state is a bit weak, the enclaves will be a bit strong. If the state is very weak, the enclaves will be very strong. And if the state descends into real chaos, the enclaves will be unbreakable.From that follows the unusual conclusion that South Africa has no more severe downsides for well-to-do middle-class people. Either the politicians get to reforms that shore up the economy and restore the union – the benefits of which will be vast and universal. Or they fail at that, and the middle classes who choose to remain will have a viable option of how to do that – the macro benefits of which will be to fend off the worst excesses of poverty and desperation while holding out a perfectly plausible baseline from which to one day rebuild the union if the politicians every get far enough down the reform road to enable that.Should it be that the politicians never get there, the implications will be for South Africa to crystallise into a de facto federation of middle-class, rural, and peri-urban enclaves..Read more:.South Africans go off-grid as state fails to deliver basic services.Collectively, the middle-class enclaves will, as a network, represent one of the most exciting emerging markets anywhere in the world while providing their inhabitants with very high standards of living. This is a point we have stressed at length to investors who, frustrated at the government, have had to dig deep to find reasons to remain invested in the country. There is even an argument that in competition with each other, and with other emerging markets, the effect of the fragmentation may be to lift economic competitiveness and therefore investment and growth indicators even for the broader macro-South African economy.The rural and urban-periphery enclaves will be pretty brutal environments, in which civil rights will have been steeply eroded for the people who don’t have the political and leadership ties from which local authority will flow. This is why, while necessarily hedging on enclaves, it is important to continue to work towards the success of union, but that is the only short- to medium-term option that millions of poor South Africans have to improve their lives.A misnomer is to think of the enclaves as “lines on a map” or formal declarations of independence. That is most unlikely, at least for a generation. While nothing at an official level will have changed, the enclaves, especially post-crystallisation, will mark an effective end or at least suspension of the idea of union..Read more:.Ivo Vegter: Minority enclaves vs. free society.Shrewd families, businesspeople, and investors looking to position themselves for a competitive and prosperous future in the country would do well to begin factoring the enclave phenomenon into their country strategies..This article was first published by The Common Sense and is republished with permission.

Frans Cronjé: As the 1910 Union disintegrates, only upside for SA’s middle class

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