Memo to S. Africa: Economic woes begin at home


South African policy makers from President Jacob Zuma down routinely reach for external factors such as the euro zone crisis to explain why Africa’s biggest economy cannot grow faster or create more jobs.

But the bloody confrontation at the Marikana platinum mine last week, which killed 44 people and uncovered deep undercurrents of labour and social unrest, is forcing them to look closer to home for the sources of the nation’s problems.

What is being called the “Marikana massacre” – which saw striking miners armed with spears and machetes hack mine guards and police officers to death, followed by strikers being cut down by a hail of police gunfire – has done more than trigger a wave of anguished soul-searching among South Africans who thought such scenes were part of the apartheid past, Reuters reports.

It has also revealed another uncomfortable truth, grudgingly
acknowledged by the central bank and finance ministry and cited by local businessmen: that domestic factors such as soaring power tariffs and high labour costs, combined with political uncertainty and simmering social resentment are as much, if not more, of a drag on business activity as the turmoil in Europe.
“This latest round of violence says to people – wait a minute, there’s way too much uncertainty in South Africa,” said analyst Mike Schussler, a noted local commentator from the private research company
“I’m sure other countries also have violent strikes, but I don’t know of many cases where policemen are hacked to death,” he added, reflecting the blot Marikana has put on a post-apartheid South Africa which likes to project itself as distant and distinct from the poverty and suffering seen in Africa.

With Europe absorbing about 25 percent of South African exports, no one is denying that the euro zone meltdown has taken a toll on the most powerful economy in Africa.

With most sectors of the economy stuttering, Finance Minister Pravin Gordhan has warned growth this year will be less than the 2.7 percent projected in February. The World Bank has cut its own estimate to 2.5 percent from 3.1 percent.

In her latest monetary policy statement, Reserve Bank Governor Gill Marcus reiterates her by now familiar argument that “negative spillover effects” from the euro zone crisis on the South African economy are likely to persist and intensify.

But Marcus and Gordhan acknowledge the economy is riddled with structural constraints that keep growth below potential.

Domestic operating headaches cited by South African businesses include electricity tariffs that have soared by an average 25 percent per annum since 2009, and unsustainably high labour costs.

South Africa’s union-friendly labour legislation enforces a mininum monthly wage of about $230-$240, much higher than $55 and $70 in neighbours Zimbabwe and Mozambique.
“We’re losing our competitiveness because our commodities are also produced in South America and elsewhere in Africa where the labour costs are a fraction of what they are here,” Riel Malan, managing director of fruit and vegetable exporter Unlimited Group, told Reuters.


Malan said his company saw a sharp euro zone-related fall in demand for citrus fruits and baby vegetables from nations such as Spain and Portugal, who are grappling with debt problems that have raised the spectre of a global recession on the heels of the last one in 2008/09.

The previous downturn slashed Unlimited’s exports by about 40 percent and it has not completely recouped the lost trade, despite cultivating new markets to augment sales to Germany, Britain and Switzerland, Malan said.
“The one good thing that came out of the recession is that we have become far more diversified in our marketing mix and are not as dependent on the European market as we used to be.”

By contrast, some of the domestic headwinds look a lot more difficult to reverse.

A recent survey by the South African Chamber of Industry and Commence shows local businesses are downbeat in their assessment of the operating climate in terms of security, infrastructure and the labour market.

Participants rated the labour environment and ease of doing business in the country at a meagre 2.8 out of 10 for each of these categories while security and infrastructure also scored poorly at 3.4 and 3.9 respectively.

But even if Europe were out of the equation, growth would barely reach 3.5 percent, the World Bank says, citing power bottlenecks as state utility Eskom’s ageing infrastructure fails to generate enough to meet rising demand.

By contrast, growth in Nigeria is seen at 6.5 percent this year while East African giant Kenya expects 5.2 percent expansion.


The Marikana mine carnage also shines a harsh spotlight on South Africa’s glaring income disparities and social inequalities, which fly in the face of the ruling African National Congress’ promise to create a “better life for all” after the end of apartheid in 1994.

Amid a growing perception that a much-debated government “black empowerment” drive has benefited only an elite and ANC-connected few, an increasingly restive black population has stepped up often violent protests against enduring poverty and poor basic services.
“The global headwinds have put into even sharper focus the demanding policy challenges of high inequality and unemployment in the country,” said World Bank country director for South Africa Asad Alam.

This is tweaking the nerves of local and foreign investors already jumpy about calls from radical factions of the ANC to nationalise mines and confiscate white-owned land.

The country’s Gini co-efficient, a measure of income inequality, is one of the highest in the world at 0.69, Planning Minister Trevor Manuel conceded last week, when he unveiled a growth plan whose ambitious targets include creating 11 million jobs over two decades and more than doubling per capita income.

This was just days before the Marikana bloodshed added dark clouds of potentially spreading labour unrest and violence to the already glowering economic outlook.