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EDINBURGH — When Nelson Mandela became president in 1994, South Africans were brimming with optimism about the future. The country has vast mineral and human resources. But, instead of post-apartheid leaders ensuring that South Africa would ratchet up the league table of countries with the best economic growth, as China managed to achieve when it shook off the legacy of Chairman Mao from the 1980s, South Africa’s political heavyweights focused on self-enrichment. Years of corruption and mismanagement have taken their toll, with economic growth in steady decline since 2000. Now that the ANC, under President Cyril Ramaphosa, is talking about weeding out the corrupt, the country has another chance to be transformed into one of the world’s economic engines. Marius Oosthuizen, who specialises in business strategy, outlines how business interests are intertwined with national interests. The GIBS specialist sets out a plan for South Africa to gain competitive advantage with a view to becoming a rich nation. – Jackie Cameron
By Marius Oosthuizen*
What is South Africa’s Future Strategic Competitive Advantage?
Every nation, to succeed, must identify that which sets it apart from all others.
In the case of Singapore, it was their geostrategic positioning between a developed West and a developing East. By harnessing labour and later human capital development, they succeeded in positioning the country as a hub for shipping, and later finance and services, transforming Singapore from a fishing village to a global power-house. Today Singapore is ranked 4th on the Global Financial Centres Index which assesses five key areas of business environment, financial sector development, infrastructure factors, human capital and reputation.
In the case of South Korea, they too unlocked their geostrategic and human capital potential, within 60 years, becoming the 12th largest economy globally. They did this first through labour intensive manufacturing in textiles and footwear and later through heavy industry in steel, ship-building and then petrochemicals and electronics.
There are of course many other cases we could learn from, but these are interesting because they are relatively small nations both by population, 5,6 million in the case of Singapore and 51 million in the case of South Korea, and by land mass. But, both nations have in spite thereof risen through the ranks and become economic success stories. In both cases the defining feature of their success was the structural transformation that took place in their economy. In both cases this was brought about through a set of common features, including;
- Policy reforms aimed at opening the country to foreign markets.
- Export-oriented policies that enable local manufacturing.
- Improvement in the business environment, thereby attracting foreign investors.
- Importantly, policies incentivising investment in innovation.
- Investments in education development to produce a high-skilled workforce.
- In the case of South Korea, land reform with compensation, to level the playing field as a starting point in asset ownership.
In both cases the state gave priority to economic development. This meant that as the economic pie grew, so did the distribution of wealth, which gave rise to a higher median income. Today, according to the IMF, Singapore has the seventh highest nominal GDP per capita ahead of the US. South Korea is now among the G20, is ranked 12th by GDP after Canada and Russia.
The lesson for South Africa is that a combination of state planning and private entrepreneurship, harnessing low initial wages, improving education outcomes, and a disciplined labour force producing goods and services for exports, were the stepping stones to economic emancipation. Only later did a shift from labour to capital-intensive industries occur. In both cases a pattern emerged of close cooperation between the state and large often family-owned conglomerates, making the orchestration of economic development possible.
Coordination, focus and investment were the keys to their success.
Critics point out that both of the these nations were under authoritarian rule for the early decades of their development, and Singapore today is really a one-party city-state. I concede that authoritarianism likely simplified the otherwise complex political environment in which the aforementioned reforms took place. However, I would argue that the potential for entrepreneurial activity increases alongside democratic gains, which places South Africa in a better position from which to start a similar evolution.
What do these lessons offer South Africa as we face a general election? They speak directly to the personalities, parties and institutions that characterise our national milieu.
They address the African National Congress (ANC) and make the case that the party cannot hope to achieve economic emancipation if it cannot run Eskom and Transnet effectively, or if it cannot create policy coherence and certainty and if it cannot discipline it’s alliance partners and the public sector labour unions in particular. If corrupt ANC members capture the state owned enterprises (SOEs) for greedy gains, they erode the industrial foundation of the country. If the National Education, Health and Allied Workers’ Union (NEHAWU) is allowed to capture places of higher learning by pursuing short term worker interests, they erode the foundations of our future workforce. If the party captures parliament and other organs of state through factional cadre deployment, it erodes the foundations of the entire national system, leading to irrational decisions, such as the choice not to charge or recall former President Jacob Zuma earlier, thereby discarding an entire decade of national development.
These lessons address the labour unions such as the National Union of Mineworkers (NUM), and the Association of Mineworkers and Construction Union (AMCU) and show that their choice to strike for months on end is not a choice between higher or lower wages, but a choice between precarious jobs today and no jobs tomorrow. Unless we make labour decisions in the context of economic constraints, especially in sectors exposed to global commodity cycles, we simply sacrifice future prospects on the alter of short-term gains, dressing up economic short-sightedness as labour militancy.
Finally, the lessons from Singapore and South Korea are instructive for business in South Africa. The key lesson is that the interests of each business is intertwined with the national interest. How would you like to own a company like Discovery or Capitec or Shoprite in a future version of South Africa where unemployment is 5% and GDP has doubled every decade for 50 years? Imagine the gains to be created from an economy growing at above 5% and a workforce earning and spending, not a pittance in the form of social grants, but a living wage.
Most importantly, there are lessons for the people of South Africa. Firstly, that economic emancipation is a decades-long process, and does not happen overnight. South Africans can rightly expect to be rich in 2050 if we get our act together in 2020. Secondly, that developing ourselves, through education, and applying ourselves, through labour and innovation, are critical to the recipe for success. We cannot simply look to “the government” or “big business” to solve our poverty, unemployment and inequality problem. Third, and possibly most importantly, we cannot allow our national elites to fail us any longer.
When politicians lie and steal and make bad policy choices, we lose. We lose time and money.
When labour unions strike and debilitate our schools and hospitals, we loose the battle for education and productivity.
When business leaders collude, either with each other or with corrupt officials, they betray our trust and steal our future.
After the coming elections we need to get serious about our future as South Africa. Even as we prepare to vote, we need to ask ourselves, which party is most likely to implement these reforms? Which political leaders, not leader but leaders, are going to make the tough policy choices and fight the factional and stakeholder battles to remove the bottlenecks to our success? Which civil servants are going to arrest the institutional decay in our schools and hospitals and build the universities and colleges to help us unlock our potential as a people? Which business leaders are going to align the national interests with their business interests, and make the investments in infrastructure, education, factories and the like that we need?
It is often said that South Africa suffers from a trust deficit. I wonder if that deficit is not a red herring, distracting us from our real problem, which is a fat-cat elite, preoccupied with their narrow interests and thereby, failing to unite us around our national interests.
So what is South Africa’s future strategic competitive advantage? It is, if we so choose, our ability to take our natural resource endowments, our coastline, climate and geographic proximity to the global south, our historic ties to affluent western nations, and our miracle success story of democratic liberation, and leverage them as a platform for innovations that meet the demands of the young, urban populations of the new world. It is our economic and cultural openness, which if harnessed alongside a dogged focus on self-betterment, will set us apart in the developing world.
I can see a South Africa in 2050 where there is a budding renewable energy sector in the Northern Cape, and a flourishing tourism node in the Eastern Cape alongside a diversified manufacturing sector for Auto 2.0, a agro-processing revolution in the North West and Free State and a high-end manufacturing boom in KwaZulu-Natal. I can see Gauteng serving as the business services and knowledge hub of Africa, and Limpopo and Mpumalanga as a seedbed for mineral beneficiation. In such a future, the greatest portion of Eskom’s revenue is from the delivery of energy projects to growing African economies north of us, similarly Transnet facilitating the manufacturing of logistics infrastructure on behalf of African neighbours. It is a future where South African universities are in alliances with multiple global institutions, rallying researchers around innovation for sustainability, and doing so in partnership with businesses that recognise their stake in Africa’s future.
The Koreans made the ships to meet China and Singapore’s growing demand and later created the electric appliances used by hundreds of millions around the world. South Africa can become a maker-nation too, but only if we get serious about getting out house in order.
- Marius Oosthuizen is a member of faculty at the Gordon Institute of Business Science, University of Pretoria, South Africa. He teaches leadership, strategy and ethics, and heads up the Future of Business Project that uses strategic foresight methods to explore the future of South Africa, Africa and BRICS.
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