South Africa is a country still in transition. Apartheid ended just shy of 25 years ago, and the new democracy is still working to mitigate the effects of almost 50 years of government-sponsored racial segregation and discrimination. The unfortunate reality is that often times efforts to fix one issue create problems in related sectors. Certainly, the country has come a long way since it embraced true democracy in 1994, but the hurdles it still needs to overcome are significant, and it is unclear whether the current government is up to the challenge. As we will see, systemic issues in the government itself make forward progress increasingly difficult.
Land reform has been a priority of the South African government for some time now, as many black Africans had their land seized during Apartheid. The Restitution of Land Rights Act 22 was passed immediately after the country’s new democracy was formed. It sought to return seized lands to their rightful owners or compensate them for the lost value. The lion’s share of those that availed themselves of the act opted for compensation, not a return of their former land holdings. This is important because it sets the stage for the current land reform struggles facing the country.
In 2015, then President Jacob Zuma announced that he was looking to limit individual agricultural land holdings and begin purchasing and redistributing the overages. Initially, this was to be done using a “willing buyer, willing seller” model where landowners were offered relatively fair compensation for their land. This model was quickly abandoned due to overwhelming popular pressure, and earlier this year the new President, Cyril Ramaphosa announced that he would pursue expropriation of land without compensation.
While the move is popular among some South Africans, it was met with unease by others, including the international community, which sees the erosion of private property rights as another example of the sort of government overstepping that has destabilized the country over the last decade. Foreign investment in the country has diminished in response to the threat of government forfeiture. This has worsened other societal ills, including unemployment.
The country’s own banks are nervous about the situation as they’ve loaned billions to the majority white farmers facing land seizures. If the farmers lose significant portions of their income, they will be unable to repay the loans which could start a negative chain reaction inside the banking industry, further shrinking available capital to other sectors of the economy.
While it is unclear is whether the majority of the black South African populace even wants the land being threatened with seizure and redistribution (remember that most citizens who took advantage of the Restitution of Land Rights Act opted for compensation, not a return of their landholdings), it is important that the country proceeds with some form of orderly land redistribution. A fairly significant amount of agricultural land taken by the government without compensation some time ago, which lays fallow at present, could be the first land to be offered to black farmers who have proven experience in farming or who have skills in agribusiness allowing them to run a successful farm business. The model to be avoided at all cost is the redistribution of agricultural land to those who are untrained to work it, as occurred in Zimbabwe and caused the near collapse of the entire agricultural sector. Key members of President Ramaphosa’s Commission on Land Reform support an orderly and carefully-managed process of land redistribution. This being said, the issue is a highly emotional one on the part of numerous black South Africans, and there are calls by some political groups for more radical and rapid reform.
Land reform is a highly-charged issue which requires urgent attention and well-planned action by the government in order to avoid a social crisis.
Government corruption has been rampant in South Africa, particularly in the 10 years under President Jacob Zuma. A very courageous woman, Thuli Madonsela, who served as Public Protector of the country from 2009 to 2016, exposed in 2016 what she termed “State of Capture” which involved Zuma’s collaboration with two Indian-born South African businessmen and brothers, Ajay and Atul Gupta, to siphon off billions of Rands of public funds from the country’s state-owned enterprises (SOEs) and transfer them to Dubai for their own personal benefit. Zuma’s son Duduzane Zuma is also implicated in collaboration with the Guptas. SOEs such at Telkom, Eskom, South African Airways, and South African Broadcasting Corporation now find themselves in financial straits and resources which were intended to renew infrastructure for energy, transportation, resources to support education, emerging black farmers, small businesses, etc. are gone and unlikely to be recovered in any significant quantity. State Capture was not limited to the theft of public money, however. It also entailed rigged procurement practices, nepotism in awarding contracts, and a general culture of dodgy deals to benefit select individuals or companies.
This “selling of South Africa” resulted in rating agency downgrades for South Africa as well as downward pressure on the Rand. Government guarantees and bail-outs of state-owned enterprises, estimated by Standard & Poors to reach R500 billion by 2020, represent 10% of South Africa’s current GDP. This situation weighs heavily on the fiscus and pushes government debt to alarmingly high levels (approximately 55% of GDP in 2018). Recession and higher rates of unemployment are but two of the negative by-products of state capture. It should be added that certain private sector individuals played a role in enabling state capture; therefore, the blame does not lie entirely with the public sector.
A judicial commission of inquiry called the Zondo Commission, led by Deputy Chief Justice Ray Zondo, has been established to investigate state capture, corruption, and fraud in the public sector and to recommend measures to deal with those found guilty. It is too early to measure the results of this commission, but the process provides some hope that the main offenders may be identified and somehow brought to justice.
Unemployment is a major challenge in South Africa today. The causes are myriad, ranging from onerous regulations on businesses, which disincentivize job growth, to a low-skilled labor pool unsuited to a modern economy and weak productivity which thwarts the absorption of a sufficient number of job seekers into the economy. While the number of employed South Africans has doubled since 1994, from 8 million to 16 million today, this apparent strong growth is metered by an increase in population over the same period, from 38 million to 56 million. This translates to a steady increase in the unemployment rate over the last two decades, from 22% at the end of apartheid to 26.7% today.
And far worse figures lurk just below the surface of these statistics. It’s reported that among South Africans between the ages of 24 and 35 unemployment sits at 35.4 percent. These prime age laborers, those that define the near future of the South African labor market, are grossly underutilized. Government programs aimed at increasing youth employment, such as the Youth Employment Services Initiative have largely failed because of poor implementation and overly taxing regulations which work against the initiative’s stated goals.
Education has been a challenge for the country for decades, with public sector schools woefully underfunded. Inequality in educational access across the population hasn’t helped the employment situation. At present, Statistics SA estimates that nearly 75% of South Africa’s labor force is low or semi-skilled. These workers are quickly getting left behind by the global market’s embracing of automation technologies that replace low-skilled workers with AI and robots. If South Africa can’t increase the skill sets of its population while simultaneously making it easier for enterprises to do business in the country, the unemployment situation is likely to degrade further in the coming years.
Two possible solutions could help the situation. The first is to promote a greater degree of entrepreneurism since the weak economy cannot absorb all job seekers into the corporate or government sectors. I have dedicated time to organizations which help train entrepreneurs, and the country has seen a steady increase in entrepreneurism in recent years, particularly in what are called informal settlements or previously disadvantaged areas. Entrepreneurism is a natural complement to the formal economy and opportunities are as vast as one’s ability for imagination and creativity. In rural areas of the country, entrepreneurism is of growing importance due to the absence of many elements of the formal economy and the possible migration of more people to the rural areas in the context of land reform and land redistribution.
The second one is to encourage more vocational skills training. In Switzerland, a country in which I spent half of my adult life, only approximately 35% of the population attains a university education. The vast majority of the population learns vocational skills through apprenticeships, combining classroom study with practical work experience in a wide range of sectors, e.g., banking, business administration, hospitality and food industry, electronics, construction, and civil engineering, etc. Graduates of vocational training are highly respected, and Switzerland enjoys a buoyant rate of employment due to the great diversity of skills its citizens learn through apprenticeships. The current Swiss Ambassador to South Africa, the very dynamic Helene Budliger Artieda, visits South Africa regularly and has approached the Department of Education about the value of vocational skills training for greatly reducing unemployment in South Africa. She has even offered technical assistance from Switzerland on implementing and managing vocational skills training programs, but deeply entrenched systemic issues do not currently allow much flexibility for change or innovation. The challenge remains, therefore, for South Africa to find ways of integrating more of its growing population into the workforce.
About: Carole Hambleton-Moser strategically built and managed Credit Suisse in Cape Town for almost
ten years. Having left the corporate world now, she has merged her enthusiasm for business
with her love of philanthropy and now spends time giving back to the community around her.
In her free time, Carole Hambleton-Moser enjoys hikes with her dogs and friends, and yoga and Qigong to help focus inward and take time for meditative reflection.
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