The South African economy has been moving in reverse for some time now with The economy contracting by 0,1% in the first quarter of 2024, dragged lower by manufacturing, mining and construction and simultaneously, inflation running at 5,2%. The result is a staggering and stalling economy.
While there are some positive indicators, with fuel prices reducing a little, and electricity supply now uninterrupted by power outages for over 145 days, these are still not translating into growth, and Africa’s Largest economy creates a much wider influence than just a local impact as is being felt in Southern African States.
The unemployment rate, recently announced, was a further indicator of the economic woes of the country – hitting a record high at 33,5% or roughly 8,4 million unemployed and this in particular affects women and younger age groups. The Unemployment rate hits as high as 45% when looking at the under 25-year-old age group.
There is a dire need for South Africa to change course from its socialist centralist controlled economic policies and it is here where there seems to be an issue with the government failing to make corrections that will help create an environment for economic growth.
The South African (SA) government seems stuck in its romantic notion of the Asian developmental states, that are so often used by the national government, as an example of the success of central planning, yet this is not close to reality. Singapore, South Korea and Japan were far from the socialist, centrally planned states that the central planners in government would like us to believe.
Rather, the three nations above became successful because they leveraged the skills of their people in a vibrant free market, utilising policies that enabled competition, and the growth of big businesses.
In his opinion piece below, Nicholas Woode-Smith, of the Free Market Foundation expands on what he believes is required for growth to be revived.
What should South Africa do?
The Asian Tigers aren’t a good example for South Africa to emulate. Our cultures, histories and global contexts are entirely different. But there are lessons we can learn from the Asian Tigers, as well as advanced economies like those in the United States and Europe.
Economic freedom is inextricably linked to the prosperity of a country. And while inequalities may exist in some of these societies, it is better to be poor in a rich country, than poor in a poor country.
Of the top 10 freest economies, six are also in the top 10 GDP per capita rankings. While GDP per capita is not the most reliable economic indicator, it does give a basic indication of how well an economy is performing. When you expand the list of countries ranked by economic freedom, while comparing it to lifestyle indexes, economic indicators and just general knowledge about those societies, the findings are clear. The freer the country, the richer, happier and more prosperous it becomes.
South Africa needs to embrace economic freedom. Not the type of neo-Stalinism that the Economic Freedom Fighters espouse, but a genuine love for free markets.
To accomplish this, policymakers should not be pushing for more redistribution, more regulation and more red tape. Rather, the government should be embracing a policy of cutting back legislation that has held back economic growth.
Affirmative action and race-based policies like Black Economic Empowerment (BEE) have been proven to not help the genuinely deserving or even those who need it, but rather only serve to enable corruption and stifle employment and the growth of businesses.
If BEE, race quotas, procurement requirements and the host of racialised legislation that infects this country were to be eliminated, investors would flock to our shores. Employers would no longer be afraid to grow their businesses and employ additional staff without fear of violating quotas.
Labour regulations need to be lessened as well. Unions are over-empowered in this country, with a practical free seat in the government. Unions are important for defending the rights of workers, but they don’t help the unemployed. Unions must not be given as severe protections as they currently are – and should definitely not be a part of government.
Strike and protest culture, pushed by unions, needs to be stifled – with legislation allowing businesses to keep running with replacement workers without fear of violence.
Additionally, it must become easier to hire and fire workers, to incentivise businesses to take a reasonable risk hiring young and unproven employees without fear that they will be unable to fire them if they prove inadequate.
Parastatals and incompetently run government services should be privatised, allowing a vibrant and competitive free market to replace their function, and provide a much needed alternative to the malaise which is state-ownership.
In essence, South Africa needs to embrace a radical free market, which will enable the generating of wealth, the creation of jobs, and the growth of prosperity for all South Africans. All we need is for policymakers to act rationally, put their long-dead ideologies aside, and embrace what has worked for the richest countries in the world.
About the Author: Nicholas Woode-Smith is an economic historian, policy analyst and author. He has written extensively on South Africa’s policy framework and economy and is a Free Market Foundation Associate.
