Terence Corrigan | Poor investment environment undermines SA's G20 voice - News24

Terence Corrigan
Due to South Africa's poor economic environment over the years, Terence Corrigan argues that South Africa's claim to global influence will become ever more untenable and the country's G20 chairmanship could be its swansong.

High-profile international positioning appeals to South Africa's government, so it will be relishing its just-commenced term as chair of the G20. For the coming year, South Africa will be primus inter pares in a colloquium that represents some 85% of the global economy.

Under the theme of "Fostering Solidarity, Equality and Sustainable Development", South Africa has big visions for its incumbency. Bigger, probably, than its capacity to see them enacted.

The G20 was a response to the fiscal crises that hit the world in the 1990s, the motivation being that in a rapidly globalising economy, the perspectives of rising powers needed to be heard.

At the time, South Africa's participation in the G20 was premised on its energetic diplomacy and its objective weight, not least in the size and sophistication of its economy. It could stand alongside a group of other economies from the Global South with burgeoning populations and exciting future possibilities. South Africa's input on the trajectory of globalisation mattered.

Does it still?

While there have been winners and losers, it is the world's middle-income countries that have been the prime beneficiaries of globalisation.

The numbers bear this out. The World Bank shows that as an aggregate, growth in the world’s middle-income countries has for decades outperformed that of their high-income and low-income counterparts – maintaining real GDP growth rates in excess (typically significantly so) of 4% since 1990.

More pertinent is the record of investment. The middle-income group has seen a sharp uptick in the quantum and rate of investment it is receiving. In 1990, fixed investment as a proportion of cumulative GDP was around 27%. This steadily increased in the following years and exceeded 30% in 2007.

This level has been maintained ever since. Fixed investment, note, is an especially important measure since it denotes the commitment of resources to future productivity, of infrastructure or the assets and plant that create wealth. It signals confidence in the economic future and lays the groundwork for progress to come.

South Africa, while a middle-income country itself, has performed poorly on these measures.

Growth over this period has fallen far short of the average, especially since the 2007-2008 global financial crisis. From this point, South Africa's growth has come in at roughly half the middle-income average. In fact, in only six years since 1990 has it achieved a growth rate above 4%.

On investment, South Africa's performance is below mediocre.

In the post-1990 period, only in one year – 2008, on the back of the commodities boom – did investment exceed 20% of GDP. Since 2019, it has stuttered along at less than 15%, less than half the average of its peers, and half of what the National Development Plan envisaged as necessary. Remarkably, South Africa's investment performance relative to GDP underperforms the high-income and low-income averages too.

Bluntly put, South Africa is falling behind.

Vietnam makes a revealing comparison. In 1990, its economy was about half the size of South Africa's. Today it is some 14% larger. It has gone from one of the world’s poorest countries to middle-income status over a mere four decades.
So, what has gone wrong?

The wins of globalisation accrued to those that were able to leverage the sourcing of value-added products from higher- to lower-cost environments.

Less developed countries that took advantage of this had an unspectacular, but solid value proposition: overall stability, competitive labour costs, satisfactorily capacitated workforces, passable infrastructure.

As these economies took off, entrepreneurs could seize the opportunities created, and bureaucracies became more adept at managing the requirements of increasingly sophisticated economic systems. This virtuous cycle has seen some economies achieve unprecedented economic transformations. Investment – foreign and domestic – is attracted to jurisdictions where returns are possible.

In governance terms, it was a matter of providing workable foundations ("good enough governance") and developing value-adding capacity ("good governance"). Once established, a further driving role for the state ("developmental governance"), along the lines of South Korea or Taiwan, might be feasible.

South Africa has failed to achieve this. It has been bedevilled by serious (and escalating) failings in its foundations.

Crime is estimated to cost the equivalent of 9.6% of GDP, and infrastructure is under severe strain – not only a multi-decade power disaster, but crumbling roads, dysfunctional rail, inefficient ports and an expanding water supply crisis.

Much the same applies to the value-adding functions of its governance. These are essential for a sophisticated economy or one which aspires to more than merely being a supplier of raw materials to foreign shores. Yet South Africa's education and skills pipelines produce outcomes inferior to those of poorer and less developed counterparts.

The regulatory system is burdensome, changeable and unpredictably applied. More seriously, it is often prescriptive and punitive rather than facilitative in operation. Many who staff state institutions have little understanding of business, and scant interest in it. This has created a governance system geared to serving the convenience and priorities of a compromised state bureaucracy, rather than the efficient operation of markets and those operating within them.

Frankly, in South Africa, governance is neither 'good' nor even 'good enough'.
A drive through Johannesburg, the country's commercial capital, is enough to remind one of the decline. A more extreme perspective can be seen in the catastrophic state of, say, Lekwe Municipality, where a food processing company literally needed to build its own water treatment plant. It's hard to imagine such an environment exercising much of a pull on those with capital.

Ironically, even as South Africa performs indifferently on these lower-end functions, a disproportionate amount of attention is paid to those on the extreme upper end, with the state positioning itself (nominally) as a driver. This is the terrain of "developmental" governance, industrial policy, picking winners and "empowerment". The consequences of this have been dire.

SA’s untenable global influence

The state lacks the ability to make this work – even if these were worthy policies – and the upshot has been a mix of policy capture, rent-seeking and incoherence. The state of the steel industry is an example and has been copiously analysed.

The reality is not that South Africa confronts challenges, but that it has engineered them into its economic life. As one businessman put it: "You can do something about individual problems. Security, infrastructure, all of that. You just can't do much when policy is deliberately arranged to act as a truncheon against you."

Together, all this has degraded the prospects for investment and the country's very economic future.

And it is these realities – not the state's posturing vis-à-vis Israel, its sympathy for Russia or its alignment with China, still less a failure to "explain” itself properly – that are corroding its place in the world. It risks ceasing objectively to matter.

Should this course continue, South Africa's claim to global influence will become ever more untenable and the country's G20 chairmanship could be its swansong.

Terence Corrigan is project and publications manager at the Institute of Race Relations.

https://www.news24.com/news24/opinions/columnists/guestcolumn/terence-corrigan-poor-investment-environment-undermines-sas-g20-voice-20241207