Dr Duncan Clarke, chairman and CEO, Global Pacific & Partners, is one of Africa’s foremost economists. Born and raised in what was then Rhodesia, now Zimbabwe, he has a reputation for forthright opinions. Stephen Williams talked to him about South Africa’s economic prospects.
Dr Duncan Clarke began our conversation by describing the way the South African economy is currently structured and managed. He calls it “an underperforming model, which could be improved but within the context of what drives the politics, probably isn’t going to change”. In his opinion, many of the thinkers in government and the actors involved have come with ideas from the past that are outdated and inappropriate. “They tend to have a very heavy anchorage in ideological preferences which are rather impractical. In practice, many of these people have never really been involved in business and have no understanding of how economic evolution can take place,” Clarke avers. “I think they have inflated the state system.”
In the place of a state system that involves dominant monopolies such as Eskom, Transnet and South African Airways, which in his view have become relatively inefficient entities that are high-cost burdens, Clarke thinks the government should open up the economy to independent private power producers, create a truly competitive airline industry and conduct similar reforms for a whole range of other economic activities.
“The state has become over-dominant in South Africa,” he says matter-of-factly, “and this is one of the imposed conditions that seek to allow a dead-weight mass to continue at greater and greater costs to efficient higher rates of gross capital formation, for investment and savings. It is this undermining of the growth rate that leads to the continuation of South Africa’s huge unemployment problem. “There is only one way to resolve the unemployment problem and that is to stimulate high rates of net, real growth, and GDP per capita each year on a continuous basis of five, six or seven per cent.
“If growth doesn’t match the benchmark requirement, you are going to go backwards, which is exactly what South Africa has been doing. So I will say, to some extent, that they have planted the seed for … well, I don’t say ruin … but I do say deconstruction for the moment. The ruin could come later.” This gloomy prognosis is symptomatic of the reason why there is a growing sense of despair within the country, which arguably may not be that evident to South Africans themselves but is clear to the regular visitor. And as many observers have noted, there is a sense that the ruling party has simply failed the majority of South Africans.
Clarke says that the cost to the country of the government supporting inefficient entities has led to the erosion of the supply of public service delivery and public goods. “They are diverting resources into activities that should be undertaken by private industry and commercial market participants who have the sources of funding where they can absorb the risk and get more efficiency,” he argues.
Continuing, Clarke hints that “South Africa is de-industrialising, and losing its economic weight within sub-Saharan Africa, within SADC, and certainly within Southern Africa. Its relative share of GDP in comparison with the USA or any other country is on a downward slope.”
Summing up, Clarke says that he does not see his concerns being addressed any time soon, nor the structure of current policies and implementation being updated. “Therein lies the problem,” he adds. “I think [South Africa] is on a declining path. Even though relative GDP might grow by 2%, or whatever it might be, it is losing its traction, effectively, against a number of obvious development benchmarks. The volume of GDP is dropping.
“For example, the vast majority of mineral investors in the world that come every year to South Africa to attend the Mining Indaba, aware that the country has a treasure trove of an estimated $2.5 trillion of mineral resources lying untapped, will be looking elsewhere, and there are good reasons to do so with South Africa’s labour costs, low productivity, strikes, and a poor rate of return.
“In addition, there is increasing talk of nationalisation, and that is not going to encourage the next guy to step up with a billion dollars to invest!”