Reindustrialisation, as well as diversified trade partners and dismantled apartheid spatial patterns, will get South Africa out of its socioeconomic mess. Photo: File
South Africa’s racialised capitalist system has been anchored on the minerals-energy-complex (MEC) since the 19th century. This economic structure is organised around fossil-fuel energy, segregated spatial development, market sector concentration and cheap black African migrant labour. The mining, energy, agricultural and upstream sectors linked with mining constituted the core sector drivers of the MEC.
The structural composition of the MEC has been altered slightly since the country’s democratic transition in the early 1990s because of macro-economic policy shifts and full reintegration in the global political economy.
The most significant change is financialisation and the central role played by financial markets in South Africa’s economy. Several literature sources analysing the post-1994 economy draw attention to positive and negative policy outcomes associated with this trend. Additionally, the growing introduction of digital and low-carbon technologies in all sectors aims to disrupt the traditional MEC economic logic.
Our country is classified as a middle-income nation in various global indexes. But it still exhibits the structural socio-economic fault lines associated with economic path dependencies of lower income countries — deindustrialisation, low productivity, systemic inequality and uneven spatial development. South Africa should speedily implement strategic policy steps to avoid the negative socio-economic consequences produced by the path of dependency.
First, place rebuilding the industrial base of the country at the centre of macro-economic policy planning and implementation. Fiscal, monetary and trade policy strategies should complement this objective in several ways. This requires improved policy coordination and political will to place reindustrialisation socio-economic indicators such as manufacturing growth and domestic value chain linkages at the apex of development outcome assessments. A narrow focus on GDP growth without disaggregating overall sector drivers underpinning economic growth should be avoided.
Second, South Africa requires a growth path that emphasises creating demand in the economy. This is essential for two reasons: a demand-led economic development trajectory reduces inequality and addresses free market failures. A good starting point is connecting our social wage expenditure on housing, education, health and public infrastructure with clearly defined industrial policy targets.
These linkages will create employment, support localisation, enhance skills development and drive aggregate economic demand.
An additional lever for raising demand is addressing South Africa’s astronomical wage disparities. Several labour market analyses point to race and gendered pay income gaps that impede economic growth and development. Interventions such as the minimum wage, sectoral determinisations, Companies Act and Employment Equity Act amendments are useful policy options for addressing wage inequalities.
Third, our country needs to diversify trade partnerships and deepen its connection with African regional trade networks. The shift towards economic nationalism globally puts countries that are overly dependent on one or two export markers at greater risk. Thus, it is imperative to adapt to changing international political economy trends so that South Africa’s national development goals can be achieved.
There are several opportunities for trade diversification that should be explored by policymakers. These include the African Continental Free Trade Area and Brics trade strategies, which present opportunities for technology transfer, integration into global value chains, investment attraction and employment creation.
But South African trade policy negotiators must avoid the narrow East versus West trade partner categorisation that misses the political economy nuances in trade treaties or agreements. For example, several actors assume that trading with partners in the Global South will automatically produce positive socio-economic returns. The empirical evidence on these trade relationships counters this assertion.
Last, it is important to dismantle colonial and apartheid spatial development patterns. The transition to democracy has not addressed this matter adequately and it needs urgent attention. Recent debates on redesigning rural and township economies are useful because they shift the dominant paradigm, which reduces governance in these areas to service delivery and maintaining the law.
We need to rethink and broaden conceptions of development in municipalities so that they are based on industrial diversification, local value chain creation, increasing access to public goods and protecting global commons.
This requires local economic development planning that is not solely dependent on household rates and taxes. Municipalities should diversify revenue sources and create economic development planning around sectors that produce the following socio-economic outcomes: enhanced job creation, skill development opportunities, technological upgrading and increased local manufacturing.
Dr Khwezi Mabasa is a lecturer at the REAL centre: University of Witwatersrand.