By R.W. Johnson
How to react to the news that President Ramaphosa plans to hold his government’s sixth investment conference later this year? This time, Ramaphosa wants to set the target at attracting R2 trillion in new investments over five years. This will, he told MPs, “deepen our efforts to position the country as a compelling destination for global capital”, and it will “follow the success of the five previous investment conferences”.
What actually happens at these conferences is that the government invites all manner of businessmen to attend, there is a great deal of talking, and various businessmen declare their intentions for future investment. Some of this is just a matter of telling the world about investment plans actually made some time ago, and some it is pure wishfulness. Rather as in a religious revivalist meeting, a considerable spirit of hope and patriotism is engendered.
But the vital points are two: first, the government’s own contribution to investment has continually fallen to miserable levels, undercutting whatever the private sector does; and secondly, the whole thing doesn’t work. We know that because throughout Ramaphosa’s presidency the rate of economic growth has remained pitiful. And the whole point about earlier investment conferences was supposed to be spending on infrastructure – but, as we know, spending on infrastructure has been derisory, far below what is required just to maintain what we had.
One gets the impression that Ramaphosa automatically wants to re-create the world of Codesa: get all sides together, and keep discussing until a solution emerges. But that just isn’t how rapid rates of economic growth are achieved. Start with the pitifully low rate of public investment. It is so low because in practice the government always favours consumption over investment. It keeps giving inflation-plus wage settlements to the way overpaid and over- numerous public servants, and actually prides itself on giving out enormous amounts of money in social grants, paying people to do nothing.
And one goes back to Ramaphosa’s phrase about South Africa as “a compelling destination” for investment. What is actually compelling is the government’s requirements of investors, local or foreign. First they have effectively to give away 30% of their investment for BEE, and second, they also have to comply with some of the world’s most rigid and interventionist labour laws, including having to appoint the right numbers of blacks, women and disabled at every level of their organisation, quite irrespective of the uneven distribution of the right skills and qualifications in South Africa’s labour force. No other country makes such demands, and they are enough to send most potential investors running for the exits.
On top of that, Ramaphosa proudly tells us that the GNU is firmly building the National Democratic Revolution. The NDR, we have learnt from over 30 years of ANC rule, is actually a situation in which a state has the world’s highest unemployment rate and the world’s highest levels of inequality together with one of the world’s highest crime rates, all-pervasive corruption and extremely high rates of violence against women. Quite why anyone thinks that building such a society is a great achievement is difficult to fathom.
One is forced to conclude that neither Ramaphosa nor the ANC has the faintest idea of how to achieve economic growth. The ANC started off with the RDP – a huge, unbudgeted wish list of projects which, if carried out, would quickly have bankrupted the country. This soon had to be ditched and was replaced by GEAR, the key part of which meant cutting back public debt. It was supposed to see several large privatisations too, but these got shelved, so the whole programme was never carried out. After that the government avoided having a growth strategy, and settled down to business as usual, which is to say, looting.
It thus doesn’t come as any surprise that Ramaphosa’s chosen theme for the current G20 – Africa’s debt problems – has clearly flopped. The fact that the G20 process has been largely neglected by the US ought, in theory, to have made it that much easier to reach a consensus, but that has not happened. All the G20 working groups save one have failed to reach a sufficient consensus to be able to issue a communique. The sole exception – the finance ministers and central bankers’ group, which met outside Durban – issued a banal communique which made only a minor contribution to the debt problem.
Just how forlorn the issue of African debt has become was borne out last month at the UN’s Development Finance conference in Seville. Initially it was expected that the conference would be attended by at least 70 heads of state, including all or most of the G7 countries. In fact, the only G7 attendee was President Macron: after the disastrous last election he has had to appoint a toothless minority government, and he is keeping away from Paris as much as possible. Even he had to speak to rooms full of empty chairs, for attendance was disastrously poor.
Ramaphosa too backed out at the last moment. Those who did attend were uncomfortably aware that one developed country after another is cutting back its aid budget so as to spend more on defence. The US didn’t even bother to send a token representative.
Potential investors being wined and dined at the 5th SA Investment Conference, held in 2023. Image: SA Investment Conference website.
The same attempt as at the G20 was made to encourage developed countries to hand over their IMF Special Drawing Rights (SDRs) to fund some relief for Third World debt, but the only country to do so was the host, Spain. Hardly coincidentally, Spain is the only country to refuse Trump’s pressure to increase its defence spending.
Part of the problem is that the world has been here before – many times over. The countries of the Global South have repeatedly run up unpayable amounts of debt and then had to appeal to the IMF and their creditors to bail them out. Private lenders and commercial banks got fed up with this long ago, and now very seldom lend to such countries. Accordingly, most of the debt is now owed to countries, to multilateral lenders like the World Bank or IMF or to development agencies of one kind or another.
The situation is hardly helped by the fact that many of the Global South countries are notoriously corrupt, and that many of them have run up debts because they have manipulated their currencies, keeping them at overvalued levels so that their political elites can afford to buy foreign luxury goods – Riviera holidays, fancy cars, Scotch whisky, and so on.
Yet Ramaphosa and many other Global South leaders are deeply admiring of a country like Vietnam which was a bombed-out wreck when it achieved unity and peace in 1975 – but is today one of the world’s fastest growing economies, clipping along at a 7.5% growth rate. At first Vietnam collectivised everything and the economy worked very badly, hamstrung by inefficiency, corruption and poor quality goods. So, in 1986 it changed course, devalued, and allowed private ownership in industry, commerce and agriculture.
The economy boomed and the government repeatedly devalued the currency to ensure that Vietnamese goods remained highly competitive, which indeed they were, because Vietnamese wages were even lower than China’s. Attracted by this, foreign investment poured in.
At the same time, Vietnam, like China, poured effort and money into a highly competitive education system, which in turn produced an increasingly educated workforce – a major magnet for foreign investors. This has also been reflected in the growing reputation of Vietnamese science. In 2012 Vietnam was ranked 76th on UNESCO’s Global Innovation Index, but by 2024 it was 44th. Vietnam’s scientific publications flourished, the country has made significant advances in robotics and is working towards its first space flight. Perhaps most striking of all are its mathematicians – Hoang Tuy pioneered the new field of global optimisation, while Ngo Bau Chau won the 2010 Fields Medal, the equivalent of a Nobel Prize for Maths.
In 1975, Vietnam was one of the world’s poorest countries, but its per capita income is now over $4 000 a year and rising fast. It is already the world’s 33rd biggest economy, or 28th on a purchasing parity basis. Unemployment was only 2.3% in 2022 (the latest available figure). Vietnam aims to achieve developed country status by 2045. If it can maintain a growth rate of 5.1% – far less than its actual rate – it will be the world’s tenth biggest economy by 2050.
It is worth pointing out that however much the ANC might admire Vietnam, it has resolutely refused to learn any of the lessons that the “Vietnamese miracle” teaches. First, Vietnam started down the same state-controlled path that the ANC took, but after a decade this was clearly not working, so it changed its model completely. The ANC, on the other hand, has continued on the same path no matter how poor the results.
Secondly, Vietnam made the most out of the fact that Vietnamese wages were so low, even undercutting China, and thus attracting foreign investment. South Africa did the opposite. Apartheid had bequeathed various “border industries” which benefited from very low wages but provided invaluable employment in very poor areas. As soon as it came to power, the ANC, under pressure from Cosatu, forced all these industries to shut down because Cosatu wanted the same (much higher) wages to be paid nationally. The result was that all these jobs were lost, much to the unhappiness of local workers.
Thirdly, Vietnam concentrated on improving its education system and thus upgrading the quality of its workforce. The ANC has done the opposite, privileging SADTU, the teachers’ union, which resolutely opposes school inspections and other measures aimed at upgrading education. As a result education standards have fallen under ANC rule, and both basic literacy and numeracy have suffered.
Fourth, the ANC has erected various barriers to foreign investment – BEE, affirmative action rules, extremely rigid labour laws, and so on. Vietnam has done the opposite, and pulled in all the FDI that it can.
Fifth, social inequalities have increased under ANC rule. In Vietnam inequalities have been reduced. Much of this is due to the fact that the rate of unemployment in South Africa is roughly 20 times higher than in Vietnam. Poverty in Vietnam is now far less than in India, China or the Philippines.
Finally, Vietnam has pulled itself up by its own bootstraps. It has systematically favoured investment over consumption. It started to build a nuclear reactor and a bullet train, but abandoned both projects because it could not afford them. It has kept the national debt within modest limits – in 2023 it was 33.5% of GDP. South Africa has favoured consumption over investment, its debt is now over 75% of GDP and interest payments are eating up more and more of the budget.
Without doubt, Vietnam would regard South Africa’s development path as that of a drunken sailor. It would also regard paying a large part of the population to do nothing as laughable. The Vietnamese are exceptionally hard workers.
One is left bemused. What do Ramaphosa and the ANC think they are doing? In theory they feel close kinship with socialist Vietnam, ruled by one of the world’s most successful liberation movements – but their NDR is clearly quite opposite to that of Vietnam, and there is no debate as to which is the more successful.
One is left reflecting that Ramaphosa’s entire career has been based on trying to persuade richer and more powerful white men to give him what he wants. That was what his first job, as a trade union leader, was all about. When he led a major strike, he flopped. Then at Codesa he was charged with getting white men to surrender more political power: not too difficult, De Klerk had already agreed to that. In business he got a large number of white businessmen to give him exceptional rewards, though it’s difficult to believe they got value for their money.
Ramaphosa’s investment conferences are all about him trying to get similar businessmen to give him all the investment he wants. This has not worked. Nor was it ever likely to. Other countries offer investment incentives. We offer disincentives in the shape of BEE requirements. Which make no sense: the 30% cut for BEE is supposed to be about “restitution”. But why should a Japanese or American firm be asked to pay for that? They were never party to the apartheid regime.
And now, at the G20, Ramaphosa is trying to get developed countries to dig deeper into their pockets to bail out indebted African countries. This too has not worked. Up to a point, then, Ramaphosa succeeded, but as the failure both of his investment conferences and his G20 initiative attest, this sort of PR and flannel is simply no substitute for a workable development plan.
FEATURED IMAGE: President Cyril Ramaphosa and colleagues at the 5th SA Investment conference, held in 2023. image: SA Investment Conference website.