City of Cape Town

Leadership Development Proposal

Arnold Smit

Date: 07/03/2012

Advocates for Change: How to Overcome Africa’s Challenges

Edited by Moeletsi Mbeki Presented by: Prof Andre Roux

We Read For You: March 2012

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Architects of Poverty

A diagnosis of Africa’s problems…

Colonising country

Colony

Raw materials

Manufactured goods

Colonial period: Mercantilism

From…

Ex-colonial powers

Newly independent

nations

Raw materials

Indigenous manufacturing sector

Post-colonial challenge/hope

Skilled, healthy labour force

to…

But….

Asia has forged ahead

while

Africa is marking time/ stagnating

Africa’s malaise

The fundamental proposition

The making of a failed African state

Zimbabwe: from

rebirth to near death

The de-industrialisation of South Africa

The post-apartheid elite, BEE and globalisation

The failure of regional

integration

Africa is not Europe

Africa needs a new democracy

Bourgeois revolution

required

SA’s elites

From English commercial elite to the

Black elite

• 23 of the world’s critically weak states are in Africa (p153)

• Root cause of Africa’s economic suppression and stagnation = role played by Africa’s political elites in keeping their fellow citizens poor; ergo, their stranglehold must be broken

• Under colonialism countries did not develop an indigenous bourgeoisie – the character of the post-colonial political elites has militated against the emergence of such a bourgeoisie

• In addition: countries lost key indigenous institutions; failed to break away from the economic model created by colonialism; and the subordination of producers to the political elite led to a massive brain-drain

Conclusion

• that will empower not only the political elites, but also the region’s private sector producers (most of whom are peasants)

• that will be able to restore the growth of an independent and productive middle class, and facilitate the development of autonomous civil society institutions

New democracy required…

Innovations required:

• Peasants to become real owners of land • Peasant producers must gain direct access to world

markets without the political elites acting as the go-between

• New financial institutions independent of the political elite that will address the financial needs of peasants and also other small- to medium-scale producers

Architects of Poverty

A diagnosis of Africa’s problems and challenges

Advocates for Change

A set of policy prescriptions

Main title Sub-title Author

1 Negative trends in the South African economy

How should these be overcome?

Seeraj Mohamed

2 Africa’s mineral resources

What must be done to make them drivers of development?

Paul Jourdan

3 Class formation and rising inequality in South Africa

What does this mean for future voting patterns

David Everatt

4 South Africa’s education system

How can it be made more productive?

Jonathan D Jansen

5 Entrepreneurship How can obstacles be overcome?

Mike Herrington

6 Health in Africa How can the situation be improved?

Francois Venter & Helen Rees

Main title Sub-title Author

7 The Mauritius success story

Why is this island nation an African political and economic success?

L Amédée Darga

8 Fraudulent elections lead to pseudo-democracy

How can the crisis of democracy in Africa be overcome?

Gilbert M Khadiagala

9 Traditional agriculture How can productivity be improved?

Mandivamba Rukuni

10 Rethinking Africa’s re-industrialisation and regional co-operation

What is the best way forward?

Thandika Mkandawire

11 Regional integration in Africa

What are the challenges and opportunities?

Sindiso Ndema Ngwenya

Negative trends in the South African economy: How should these be overcome?

Seeraj Mohamed

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Fixed capital formation: private sector

Total credit extended to private sector

Fixed capital formation by the private sector and total credit extended to privates sector (% of GDP)

SARB time-series

A huge amount of credit has been extended to the

private sector, but not much of that has been used to

finance investment.

What has happened to

the rest?

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3

Ratio of household net wealth and household debt to disposable income (%)

Net wealth (LHS) Household debt (RHS)

SARB

-8

-6

-4

-2

0

2

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6

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90

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Net FDI Net portfolio Net other

Net capital flows: % of GDP

SA’s ability to attract net FDI inflows has been: • Volatile • Relatively

unsuccessful • Mainly confined to

acquisitions in the financial sector

SARB time-series

Post-apartheid economic policies have not addressed the structural weaknesses of the economy…. The large corporations that dominated the economy have (MEC) been permitted to internationalise their business … therefore uncontrolled movements in and out of the economy … has favoured growth of services sectors linked to increased debt-driven consumption and financial and real estate speculation at the expense of manufacturing and productive services

Results?

• Volatile currency

• Wrong kind of growth

• Lacklustre job creation

• Continued inequality

• Focus on supporting industrial development and enployment creation

• Make economy less dependent on mining and minerals processing

• Shift growth path away from debt-driven consumption and speculation towards increasing competitiveness and productivity of industry and job creation

• Reform financial system to make institutions more responsive to needs of industry.

Solutions offered

… ensure that economic rents, particularly of non-renewable mining sectors, and in monopoly sectors

should be managed by the state to support their

economic and industrial policy goals

Africa’s mineral resources: What must be done to make them drivers of development?

Paul Jourdan

Commodity prices

World Bank; IMF; McKinsey, 2011

Beware the resource curse

What sets developmental states apart from mineral-rich countries is primarily the nature of institutions and

consequently state capacity (Edijheji)

The key determinant as to whether a mineral boom will be a blessing or curse appears to be the level of governance, particularly the existence of

sufficiently good institutions

Deepening of the resources sector through optimising linkages into the local economy • Use resource rents to improve the

basic physical and knowledge infrastructure of the nation (implement a resource rent tax?)

• Open up high-rent resource infrastructure to other lower rent resource potential (eg, agriculture, forestry, tourism)

• Downstream value addition (eg, greater intra-regional power trade)

• Upstream value addition • Technology/product development

Towards a sustainable resource-based African growth and development strategy

Resource rents = returns in excess of the expected/average return on capital. Generally, the resource rents are not shared with the resource owner (state/people)

First step in regional economic integration:

Multi-state co-operation in the establishment of regional development corridors … seamless infrastructure provision

Class formation and rising inequality in South Africa: What does this mean for future voting patterns?

David Everatt

• Gauteng City-Region Observatory (GCRO)/ Quality of life survey

• Gauteng city region

• 2009 (just before election)

0

5

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45

Self-selected class descriptor, all races

GCRO, 2009

Race correlated with class labelling (46.3% of Africans poor; 4.4% whites) Education correlated strongly with self-selected class descriptors

81 79

50

2 4 2 7

29

5 6 11

0%10%20%30%40%50%60%70%80%90%

100%

Up to R1 499 R1 500-R6999

R7 000+

ANC DA

COPE Unsure/refused

Won't vote

Which party would you vote for, if the election were held tomorrow? (African only)

GCRO, 2009

If income is used as a proxy for class, then the rise of an African middle class could spell trouble for a static unchanging ANC … it spells trouble for the DA too

64 55 62

10 12

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8 7 15

0%

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100%

18-25 26-30 31-35

ANC DA

COPE Unsure/refused

Won't vote

Which party would you vote for, if the election were held tomorrow? (African youth only)

GCRO, 2009

ANC party of choice for majority of respondents; the younger the voters the more “sure” they were of their vote. DA support among African youth lower than among older African voters

• Post-apartheid class formation - especially the African middle class- remains blurry and poorly understood.

• Class-based cleavages starting to become measurable among African voters – young black professionals moving out of the ANC fold (more young black professionals are also starting to vote).

• If the ANC remains heavily pegged to a race/age cohort (currently African voters aged above 35) the party will hit a ceiling.

• COPE’s implosion gives the ANC more time to change/ respond, but ‘respond it no doubt will. The challenge has not gone; it has merely been postponed.’

South Africa’s education system: How can it be made more productive?

Jonathan D Jansen

Blacks Coloureds Indians Whites Total Black share (%)

Matric-aged cohort Dropped out Pass matric

830 720

325 181

292 344

77 500

41 370

27 294

21 240

6 616

13 266

65 720

22 286

42 225

995 180

395 453

377 177

83

82

78

Maths passes Endorse-ments HG maths passed

94 818

50 984

9 701

7 768

5 392

1 226

7 764

7 798

3 252

24 501

22 214

10 119

135 720

86 993

24 549

70

59

40

HG maths: A, B, C or D A-aggregates

6 237

1 303

843

364

2 666

1 696

8 239

5 604

18 171

9 079

34

14

Matriculants by performance, 2007

1 in 11 1 in 640

• 78% of Grade 5 students in SA fell below that level of performance described by the testers as “very low reading achievers”.

• And yet at least 13% of them eventually pass matric (Trong, 2009)

Progress in International Reading Literacy study, 2006

1. A lack of systematic routines and rituals.

2. The knowledge problem (especially content knowledge and pedagogical knowledge).

3. Bureaucratic and administrative ineptitude.

4. Lack of accountability.

5. A lack of capacity and expertise.

Explaining low productivity

• Restore political authority over schools back where it belongs, i.e. government, not teacher unions.

• Establish, through political authority a culture of teaching and learning

What is to be done?

Entrepreneurship: How can obstacles be overcome?

Mike Herrington

SA’s entrepreneurial rate: International comparison (2009)

GDP per capita (PPP $), ‘000

% o

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rial

act

ivit

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10 20 30 40 50

5

10

35

30

25

20

15

ZA

Entrepreneurial rate should be closer to 13%

Why does SA’s early-stage

entrepreneurial activity lag

behind countries at a similar stage

of economic development ?

Issue Solution

Education and training (basic and entrepreneurial)

Retrain teachers Additional payments for scarce subjects

Business skills as a school subject (volunteers from business as teachers)

Financial literacy for the unemployed Effective apprenticeship system Effective technology education

Access to finance Small business website (information)

Mentorship support

Government policies and regulations (in 2004 the compliance costs in small businesses with a turnover of less than R1m represented 8.3% of turnover)

Reduce costs of doing business (eg relax licensing and other statutory

requirements) Simplify registration procedures

Labour laws! Reduce telecommunications costs

Specialised economic zones

Cultural and social norms Inculcate a societal ethos of self-

sufficiency rather than state-dependency.

Health in Africa: Can the situation be improved?

Francois Venter and Helen Rees

• Health systems failure (deliver systems)

• Health care professionals

• Water

• Other forms of pollution

• Natural and humanitarian disasters

• Nutrition

• HIV and AIDS

• Non-HIV infectious diseases

• Access to affordable and safe medicines and laboratories

• Pregnancy

• Violence (especially gender violence and rape)

• Cancers

• Traffic accidents

• Cigarettes

• Alcohol and other substance abuse

What makes Africans sick, or injures them?

• While history is an important factor in understanding underdeveloped systems, many countries with limited resources have made rapid strides in addressing social constraints despite huge resource constraints.

• Solutions lie largely with the improvement in systems, coupled with mechanisms to address poverty.

• Africa DOES have the interventions, diagnostics and affordable drugs and vaccines to immediately tackle vaccine-preventable diseases, maternal ill-health, TB, malaria, river blindness, etc.

• Governments should filter out the most pressing and relevant diverse messages from international agencies, the media, public opinion and vested interests.

How can we improve the health of Africans?

The Mauritius Success Story: Why is this Island Nation an African Political and Economic Success?

L Amédée Darga

1970 Today

“The overcrowded Barracoon” Its “problems defy solution” “Plagued by despair”

Per capita income $260

Per capita income $11 400 (highest in Africa; 71st in world)

Doing Business 2010: 17th out of 183

Global Competitiveness 2010/11: 55th out of 139

Mo Ibrahim Index of African governance 2009 and 2010: 1st

Democracy Index 2008: 26th out of 167

1977-2008 GDP growth 4.6% Gini coefficient

Gini coefficient: 45.7 in 1980 38.9 in 2007

Life expectancy: 61 in 1965 69 (men); 76 (women) in 2008

1970

• Mono-crop economy – sugar – 1/3 of GDP; 1/3 of employment; 92% of total export earnings

Today

• 8 economic pillars: cane industry, manufacturing (esp. textiles & clothing), seafood, global business and financial sector, tourism, IT, business process outsourcing, knowledhe service exports

1. Pragmatic approach to development – first decide on the desired objectives; then determine the means to achieve the objectives (objectives = employment for all; welfare state; sustainably growth in national wealth; equitable distribution of wealth)

2. Nobody owes us a living

3. Managing diversity: We cannot sink the other one without sinking ourselves

What did Mauritius do?

4. Invest in human capital development

5. Never kill the goose that lays the golden eggs (at independence the landed bourgeoisie was allowed to continue the process of wealth creation; export levy on all sugar exported)

6. Build a petite bourgeoisie and even a middle class from small-scale planters

What did Mauritius do?

7. Build an entrepreneurial class to drive job creation and national wealth creation

8. Industrialising: The brick and mortar economy is crucial

9. Strong and participatory institutions

What did Mauritius do?

• Desired outcomes should determine policies.

• Do not kill the goose that lays the golden egg.

• State as a facilitator (not actor) for wealth creation

• Political leaders sought social anchoring through the use of the democratic system, which enabled it to gain adhesion of the majority of the polity and key social actors.

Conclusion

Fraudulent elections lead to pseudo-democracy: How can the crisis of democracy in Africa be overcome?

Gilbert M Khadiagala

• Elections in Africa have been fraudulent; therefore, democracies are “cheap”

• This has engendered weak participatory systems that have fortified local power imbalances, especially by emboldening regimes with feeble stakes in participation and accountable systems of power.

• Nonetheless, citizens remain optimistic about the possibility of building democracies (even though Africa does not reflect the prerequisites often associated with democracy (economic development, sizeable working class, developed market economy).

What practical steps do African societies need to embark upon?

Point of departure

• Escape from the global system of election financing, observation and monitoring (democracy on the cheap underwritten by donors is at the heart of the faltering participation processes)

• Recognition of the trade-offs between creating functional political parties for sustainable democracy and the inordinate focus on building NGOs.

• Install the preconditions of democracy: property rights; thriving middle class; expansion of the private sector

• Analyse the false trade-off between democracy and development (beware the fixation with trying to emulate the Chinese model)

Practical steps

Traditional agriculture: How can productivity be improved?

Mandivamba Rukuni

• Diversity of cropping systems • Thin rural infrastructure • Undeveloped markets • Minimal mechanisation • Limited seasonal financing • Competition with food aid • Dominance of weathered and inherently

infertile soils • Weak agricultural support systems • Poor agricultural policies

What are the issues and challenges for agricultural productivity in Africa?

• Favourable policy environment and political will • Realigning of institutions serving farmers and

agriculture • Resolving security of land tenure and property rights

issues (unregistered land is state land; common land is private land)

• Investment in social capital and physical infrastructure

• Improvements in technology • Promotion of traditional principles of agriculture • Commercialisation of smallholder agriculture through

value-chain development • Make trade open, transparent and fair for smallholder

farmers • Integrate climate change into strategies at all levels

What are the solutions?

Rethinking Africa’s re-industrialisation and regional co-operation: What is the best way forward?

Thandika Mkandawire

Region/country 1961-79 1980-94 1995-2010

India 6.8 5.5 6.9

Indonesia 8.3 12.6 3.9

L Am & Caribbean 4.6 1.5 2.3

MENA 10.5 5.5 6.5

South Asia 5.4 5.8 6.7

SSA 5.6 1.7 3.1

From signs of industrialisation to the era of de-industrialisation

Manufacturing production (average annual growth rate; %)

Import substitution strategy

Markets too small Technological dependency;

inadequate transfer of technology

SAPs

• Lack of political will

• Authoritarianism

• Regional technocracies and regionalism

• False premise of planned national industrialisation

Regional integration: Some lessons Problems with past experiments

• Globalisation vs regionalism

• NEPAD

• Recent events in Europe

• Relations with China and India

• Growing inequalities among African countries

Is regional integration desirable and plausible?

Regional integration in Africa: What are the challenges and opportunities?

Sindiso Ndema Ngwenya

• Intensification of political and institutional reforms (participation by ALL societal groupings)

• Empowerment of AU and regional economic communities

• Development and strengthening of national and regional regulatory authorities to facilitate market-driven operations and prevent market failure (esp. financial sector)

• Facilitation of cross-border and FDI in setting up industries that can add value

• Capacity-building policies and programmes to promote the speedy integration of formal. Informal and subsistence economies

• Production of an educated cadre that has the requisite knowledge and skills for the economy

Solutions for effective and mutually beneficial regional integration

• There is nothing unavoidable about Africa’s political instability; Africa’s underperformance; Africa’s falling health and educational standards; Africa’s inability to advance regional integration, and to raise the productivity of small-scale agricultural systems.

• Arab Spring: people have had enough of the arrogance, corruption, ineptitude and incompetence of Africa’s ruling elites (SA government complacent?)

Final message: M Mbeki