South Africa is at the crossroad and this time it’s serious!

In the course of our tumultuous history, South Africa has been at a crossroad many times. Why should this one be any different, you may ask? After all, we survived colonialism, the Boer War and Apartheid, so what’s the big deal?

The big deal is that on previous occasions, we have always had a compelling economic case which made it worthwhile waiting for the country to choose the right road after trying all of the wrong ones. This may no longer be the case.

In the 17th and 18th centuries we were the original “Ultra City”. We would sell our produce to desperate ship captains and, given the lack of options, I have no doubt that these entrepreneurs had full pricing power. To the more adventurous European, you could immigrate to the Cape where you could buy a farm in the beautiful Franschoek Valley at a snip of the price of a European farm. This potential investor also did not have to worry about a hostile local population as they had been harshly dealt with; or bureaucracy as King III was still a long way in the future. This made the Cape a viable economic alternative worth investing in, despite the rough seas.

In the 19th century, another crossroad was looming, British Colonialism and the Great Trek. Suddenly diamonds, and just as suddenly, gold. To quote Jan Smuts “it was as if God had emptied his pockets over South Africa”.

With the height of colonialism clashing with the first flush of Afrikaner Nationalism, the crossroads beckoned again. But this was a war worth fighting for; to the winner went the spoils, the richest diamond and gold fields in the world. An uncomfortable peace followed an agreement that kept everyone mildly unhappy. South Africa became a British colony with Afrikaner political leaders; the former owned the mines and the latter owned the farms. Nonetheless, the gold made it worth the pain.

After WWII, the emboldened Nationalists decided to charge into the crossroads yet again. Going against a world in progress, they chose to disregard logic with predictable results. Through the days of sanctions, low intensity civil war and isolation, the prize remained the mines. Not only gold but now also coal, platinum and anything else shiny. Money has no conscience and the investors hung around through the worst of times in the hope of exploiting these assets once the dust settled.

If by some kind of divine intervention, sanity suddenly prevailed and 1994 arrived. It was a great time to be alive. The global economy was booming and South Africa held the promise of a new market without the shackles of the past. We were also the gateway to the last new economic frontier in the world, Africa; and had well established industry, telephones, roads and railways. We also had world-class financial institutions and a functional stock exchange. Surely this would be the simplest crossroad navigation ever?

This is where the story gets messy. We not only took the wrong road, we made a U-turn, got lost and now we have run out of petrol.

Rather than building on the inherited foundation by making it easy to do business, our new government chose to spend crucial resources on making business in South Africa as difficult as possible to do. As the pile of red tape mounted, so the industrial base began to erode: clothing, shoes, vehicles and food; one by one our industries collapsed. We became consumers instead of producers.

In the past decade, our government has ruled out manufacture as a way to grow our economy with the triple cocktail of labour legislation, ownership restrictions and unreliable electricity supply seeing to it. The free market is resourceful, but it does not control the courts, the army or police force, and when the state intervenes in business, fighting is not an option. This only leaves flight and foreign companies “flee” without us knowing about it; they simply never invest here.

The government, as with the Nationalist Party, has chosen to charge into an economic crossroad of its own making; without checking the brakes, the speed or a map first but this time there is no compelling reason for any investor, foreign or local, to wait for an outcome.

So the country has dipped into negative growth. Organised labour has brought our mines to its knees and we have reopened the spectre of land grabs. If there is a light at the end of this tunnel, it may very well be an oncoming train.

Is there a solution? Wait for the next post…


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