Pink Slippers and Platinum: Governance Failure and the Decline of Innovation and Entrepreneurship in South Africa

People in countries such as Brazil, India and China are two to three times more likely to be entrepreneurs than South Africans. The result is stagnation in the structural transformation of the economy, keeping it ironically dependent on sectors such as agriculture and mining where the looting, instability, violence and rent-seeking is most endemic. The country is locked in a downward-spiral poverty trap and upward-spiral inequality trap.  What does the future hold?

South Africa’s national defence force was once perhaps highly rated; recently it is facing ridicule and concern. Ridicule, as a Lieutenant-Colonel was seen sporting pink slippers with her official uniform in public. According to the UK’s Guardian Newspaper, “It is not an image of top guns defending African skies that is likely to deter would-be foreign invaders”. Concern, as an officer borrowed an air force plane for personal use to visit a friend in neighbouring Botswana.

South Africa’s platinum mines were also once highly rated. Until the Marikana Massacre of 16 August 2012 when the South African Police killed 34 striking workers, apparently shooting many in the back, interfering with evidence after the shootings, and charging the mine workers (the victims) with the deaths of their fellows. While it is the police, and not the mines that are now facing an inquiry, the context of South African mining remains problematic, despite a decade of the longest commodity boom in recent history.

Between 1980 and 2008 the average growth rate of the mining sector was -0.2%; and the sector’s ‘contribution’ to average annual GDP growth over this period was -1% per annum. Over the same period, the share of mining in the country’s exports declined from 27% to 16%, and in the country’s GDP from 13% to 6%. In 1980 mining provided 11% of employment opportunities in South Africa. Currently it is only around 2%.

As noted by The Economist, “During the recent minerals boom, production actually shrank by 1% a year, whereas it surged by an annual average of 5% in the rest of the world. Output has now dropped to its lowest level for 50 years and the industry is much smaller than it was in 1994, when the ANC first came to power.”

The loss of discipline in and the decline of the country’s defence force, the atrocities of its police, and the failure of mining to grow and share its benefits fairly have one common cause: a failure of governance in the presence of plentiful natural resources. South Africa is suffering from a particularly vicious twist of the ‘natural resource curse’:  a double whammy of (i) a Dutch disease effect, whereby manufacturing becomes increasingly uncompetitive (Figure 1) while the economy becomes less innovative (Figure 2); combined with (ii) patronage,  rent-seeking and corruption within the state for access to the fruits of the mining sector, including threats of the nationalization of mines.


Figure 1: Labour productivity in manufacturing in South Africa, India and China, relative to the US in manufacturing industries, (5 year averages); 1980-2008 (US=100).

Figure 2: Number of patents granted in the USPTO (5 year sum) for South Africa, India and China; 1979-2008.

The fundamental impact of governance failure in South Africa is that productive entrepreneurship as well as innovation (Figure 2) is crowded out. For example, early stage entrepreneurial activity declined from 7.8% in 2008 to 5% in 2009, significantly lower than countries with a similar GDP per capita, but interestingly similar to the entrepreneurship rate in Russia, an economy similarly resource-rich and struggling with rent-seeking and corruption, and where innovation has, as in South Africa, declined during the commodity boom (Figure 1).

In comparison: people in countries such as Brazil, India and China are two to three times more likely to be entrepreneurs than South Africans. The result is stagnation in the structural transformation of the economy, keeping it ironically dependent on sectors such as agriculture and mining where the looting, instability, violence and rent-seeking is most endemic. The country is locked in a downward-spiral poverty trap and upward-spiral inequality trap.  What does the future hold?

South African President Mr. Jacob Zuma unintentionally hinted at disaster, “South Africa’s government was an unwieldy ship to steer…. You cannot change direction overnight. It’s like the Titanic” (BBC). Many international observers seem to share Mr. Zuma’s slip of the tongue that his party and South Africa, once hailed as Nelson Mandela’s miracle ‘Rainbow Nation’ is heading for disaster.

South Africa’s ‘iceberg’ it is said, is not an unknown danger lurking in the mists but a governance failure punctuated by ethnic violence and erosion of the rule of law. The Institute for Security Studies (ISS) in ‘What to do About the Steady Erosion of the Rule of Law in South Africa?’ writes that “state security agencies are being misused for political ends and that politically connected individuals are protected from prosecution in South Africa”.

Furthermore Genocide Watch reported in August this year, “There is direct evidence of SA government incitement to genocide. Forced displacement from their farms has inflicted on the Afrikaner ethnic group conditions of life calculated to bring about its complete or partial physical destruction, an act of genocide also prohibited by the Genocide Convention.” Ditto the ISS’s recent concerns about attacks and murders of white farmers in South Africa and the drying up of jobs on farms. And The Economist magazine recently stated that South Africa is “sliding downhill”, noticing that under Mr. Jacob Zuma the ANC “has sought to undermine the independence of the courts, the police, the prosecuting authorities and the press”.

The dynamics of fragile states are not well understood. The West was taken by surprise by the revolutions in Tunisia and Egypt, countries that like South Africa did not feature on any list of fragile states before 2010. South Africa is already a fragile state, a fact that may take many by unpleasant surprise. Partly because, in the words of Andrew Harding, BBC correspondent, it is “like the old story about the frog in the pot of water that does not notice it is in danger, South Africa seems to have learned to live with its problems – an unwieldy political alliance between the ANC, trade unions and the Communist Party, massive corruption, a collapsing education system, inequality, a shrinking tax base and expanding welfare system and some of the most protective labour laws in the world…. And so, instead of being confronted with a sudden crisis that prompts real change, South Africa appears to be drifting… while the water in the pot keeps getting steadily hotter.”

by Wim Naudé

Wim Naudé is Professorial Fellow at UNU-MERIT and the Maastricht Graduate School of Governance and Dean of the Maastricht School of Management.

Images by UN Photo / P.Mugabane; IRIN / T.Letsie.

Source: UNU-MERIT blog, 4 December 2012

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