There’s nothing sentimental about globalisation and South Africa cannot afford to pass up an opportunity to steal ahead of competitors. With the Asian Tigers fumbling and Latin America headed for trouble, South Africa’s time has arrived.
In the wake of the emerging market crisis in 1997/1998 South Africa emerged robust compared with its emerging-market peers. It was saved by a sophisticated banking system that avoided the sort of bad lending that toppled the tiger economies.
Thailand, Russia and Indonesia are names that strike fear into investor hearts and they taint all emerging economies. They are associated with stereotypical Third World venality and it’s too easy for fund managers to strike out every emerging market irrespective of merit.
While the tigers and Russia struggle to restore credibility, South Africa has less to worry about. In Europe South Africa needs to keep an eye on Poland and the Czech Republic. In Latin America, a natural funnel for more adventuresome American investment, South Africa is about to get a massive break. Only Chile is a competitor to be wary of. The other two main rivals, Argentina and Brazil, are getting double black eyes.
Brazil, with a per capita gross domestic product slightly lower than South Africa’s $6 800, has run out of electricity. It’s not a stunt to emulate California but the result of poor planning and fiscal laxity.
Power is being rationed in populous regions. Economic growth forecasts for this year have halved to less than 3% in the wake of efforts to slash consumption by 20%.
Brazil’s unfolding crisis is most visible in foreign investment. The country has enjoyed far more foreign direct investment than South Africa, but the flow is set to shrivel from more than $30-billion last year to less than $20-billion this year. South Africa must take that money.
Likewise Argentina. After a remarkable recovery from debilitating inflation that ran into thousands of percent until the early 1990s, it is mired in another economic bog. Faced with a vicious downward spiral, the government has squeezed its way from one tight spot into another by arranging a $30-billion debt swap.
While the deal will initially ease the annual debt load, total debt has risen $2,26-billion equivalent to nearly 10% of total debt. That’s a frightening price for short-term relief that is only postponing a default of Russian proportions.
South Africa must press home an attention attack. Sell the world a picture of sublime stability. The deficit is low; inflation is modest despite a depreciating currency; growth has been steady if unexciting.
South Africa does not deserve to be labelled an emerging market with such a great record. But there are irritants that will leave that label firmly pinned. Firstly, Aids is the headline item on TV and in newspapers. Second, privatisation needs a firecracker you know where. Third, when there is the faintest whiff of corruption, the individuals involved should feel naked under the glare. Fourth, the insane labour regime must be overturned. For as long as unions are coddled, South Africa will not attract serious foreign investment. Fifth, race quotas need to be rethought. Affirmative action has failed wherever it has been implemented. Sixth, lower taxes. High marginal taxes at low thresholds strangle growth. Seventh, remove exchange controls. Lastly, get foreign policy fixed. No more kow-towing to dictators.
That’s the way to get South Africa noticed and wealthy. There’s not a lot of time left.