My Thoughts

Fundamental restructuring: A continued tension between long-term policy and strategic questions

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Shocks and mega trends shaping the global economy have altered how economies around the world need to be organised, managed and thus the instruments therein repurposed. One such mega trend is the rapid level of urbanisation that is taking place in the rest of the developed world and Asia, where roughly 1.2 million people a week migrate from rural areas to urban centers in Asia. We see this same trend in the Gauteng province, albeit at a smaller scale, where over 300 000 people migrate into the Gauteng province annually from other provinces. Placing significant pressure on the quality of available infrastructure, basic services, the environment and the availability of jobs.

A second mega trend shaping the world economy is the declining fertility rates in the Americas, Europe and China. The resultant outcome of this feature is an aging working population.   The potential labour force in the U.S. grew by 2.5 percent per year between 1974 and 1981. It has been declining since, because of aging, and is expected to be just 0.5 percent per year over the next decade. In China, the situation is even direr: The workforce has actually fallen significantly. The U.S. is struggling with a lower but still positive growth rate, while China has to cope with almost no growth and perhaps some declines. The ongoing trade negotiations between the US and China have also contributed to slower global economic growth forecasts, with declining global PMI numbers, a change in posture from a hawkish US Federal Reserve to a more dovish outlook in 2019, uncertainty with respect to the outcome of Britain’s negotiations to exit the EU and slowing Chinese economic growth. Amidst these developments, after a decade since the previous financial crisis, fears of another financial crisis have been exacerbated. Albeit, these fears are not necessarily founded as there has not been a credit boom as in the last crisis as yet, nor is there an abnormal liquidity squeeze and a number of regulations have since been promulgated to manage the quality of underlying credit.

Evolutions in the nature and form of industrialisation can also be attributed to the shifts in the world economy which manifests itself in the advent of the Fourth Industrial Revolution. Whereby advances in technologies such as automation, quantum computing, artificial intelligence and machine learning will have a real impact on jobs, wages, working conditions and the ethics of technology in the formulation of industrial policy.

Fluctuating international crude oil prices in 2018, compounded by a depreciating currency saw a rise in the price of petrol at the pump for South African consumers. A rise in consumer price inflation and a US Fed hawkish posture by increasing interest rates led the South African Reserve Bank to do the same in addition to underlying weaknesses in the fundamentals of emerging markets.

To illustrate the point of South Africa’s positioning in the global economic landscape is that the South African economy comprises less than 1% of the global economy and its population comprises less than 1% of the global population. Yet, it has the most traded emerging market currency, exposing it to market fluctuations and changing sentiments.

Contrary to some parts of Asia, Americas and Europe faced with the challenge of a declining working population exposing them to risks of slowing growth. South Africa and the continent of Africa find itself in the position of having high fertility rates and a young demographic dividend with the median age being 20 years in Africa.

A loss of competitiveness in key sectors of the South African economy such as manufacturing, agriculture, trade, construction and mining has pronounced the youth unemployment problem in SA. Despite the loss of competitiveness, SA remains Africa’s most industrialised nation, highlighting the need for the over $1bn worth of annual infrastructure development required in the continent.

Finance is the largest contributor to the nominal GDP number at 20% followed by government, trade and manufacturing. This structure of the economy does not boast well for a nation that has a significantly young demographic that is of working age and yet locked out of participating meaningfully in the economy. Poor education outcomes and a high unemployment rate are the two major structural burdens SA faces with respect to its youth. A mismatch in terms of skills that are required in industry versus the skills that are available in the labour market are an outcome of the over 600 000 learners who fall out of the schooling system prior to reaching matric. The inability to access employment opportunities exacerbate the levels of poverty and wage inequality. Amidst all of these pertinent strategic questions of homelessness, unemployment and poverty that need to be addressed with the greatest sense of urgency, longer term policy considerations compete for the same level of attention and detail.

For instance, Africa will have 1 billion new middle-class consumers in the next 15 years. This therefore, serves as a tremendous opportunity for institutions, governments and the private sector to invest in this growing market. Given its demographic dividend, the developed world is likely to be searching for its workforce here in the continent. South Africa’s future is not divorced from that of the rest of the continent. Therefore, diplomatic work on trade, strong institutions, peace and stability in the region should be an apex priority. In the past year alone, there were more babies in Nigeria than all of Western Europe. And so, it therefore leaves the question, are we doing enough to secure a sustainable growth path for African economies and its young people? Contentious issues such as famine, climate change, the economy, healthcare and technology are pertinent questions that require attention. If we are indeed to accept that the tensions between long-term policy considerations and strategic questions exist. It leaves a question to be answered; they exist to do what?

The Zimbabwean predicament – it’s the people stupid!

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The popular phrase, “It’s the economy, stupid!” was coined by Bill Clinton’s campaign strategist, James Carville which led to Bill Clinton’s 1992 presidential campaign win against the then sitting president of the United States, George W. Bush. This campaign messaging was utilised at a time when the American economy had endured a recession, a weakening public health care system and rising disapproval ratings of US jobs performance of the Bush administration. To reignite the focus of the American people on the task that was at hand, Bill Clinton’s campaign team chose to use the economy as a target which required much reform in order to improve the lives of the American people.

Whilst the importance of developing and implementing forward-thinking economic policy reforms in an increasingly volatile, uncertain, complex and ambiguous world cannot be overstated. It does, however, lead to somewhat of a misguided way of thinking about the economy.

More often than not, mainstream thinking of examining an economy or the performance thereof, as it relates to the Zimbabwean question in particular, is with respect to its agricultural potential as a possible pathway for growth and so is the case with its mining sector. In other words, the messaging is such that when talking about the economy, reference is made to mining, agriculture and the informal architecture of that economy and that becomes the economy, which in turn by omission, negates the most important factor of production – human capital – which is the source of value creation in the productive process of any economy. The same way capital instruments create value in an economy, so do people. The high quality of human capital is Zimbabwe’s greatest competitive advantage with literacy rates of above 92 percent compared to other countries, according to the National Competitiveness Report.

For the Zimbabwean economy to collapse there would virtually have to be no one in the country in order for that to be the case. It, therefore, suggests that the current crisis is not on the demand side but rather lies in the structural, monetary and fiscal policy side. Which would enhance economic development, optimise price stability and ensure the effective allocation of resources? A World Bank report titled, The Changing Wealth of Nations finds that a country’s level of economic development is strongly related to the composition of its national wealth. Human capital is the largest component of wealth in high-income countries. In effect, high-income countries have higher adjusted net savings ratios primarily because of what they do with their human capital in creating value in the productive process of what they produce and are naturally endowed with.

There is indeed no quick fix with respect to the Zimbabwean economy. It has to be addressed at the level of economic diplomacy and domestic public policy reforms. These policy reforms have to be purposed, timed and sequenced in a manner that will unlock the growth that the Zimbabwean economy has the potential to yield. Regional economic communities have an important role to play with respect to Zimbabwe. By mobilising domestic and foreign capital in fixed capital for the establishment of the new plant, equipment, goods, and services. Regional economic communities such as SADC and other African economic communities as a whole are pertinent as this cannot be achieved without the ability of the Zimbabwean people to engage in investment and open trade activities in the continent and across the globe. The average of intra-Africa trade between African economies is below 20% according to the World Trade Organisation and over 50% in Asia and 70% in Europe. People are stronger together. There are currently 14 Regional Economic Communities (RECs) of which 8 are recognised by the African Union. The sanctions imposed on Zimbabwe are a significant barrier to their potential to unlock growth in order to earn foreign exchange reserves so as to acquire a local hard currency. There is indeed much to be said about the form quantitative easing of printing currency which led to hyperinflation as a short-cut to growing the economy but greater economic openness will create opportunities for new export markets, free trade zones and to foster industrial activity.

Throwing money at the problem is not the answer but leveraging a favourable demographic structure which espouses the nation’s productive capacity through its people, broadening access to education and education infrastructure, stabilising policy and strengthening important institutions with good governance, accountability and transparency are but a few of the ingredients that would sure turn the Zimbabwean economy around.

To borrow from the words of a former statesman, “Gloom and despondency have never defeated adversity. Trying times need courage and resilience. Our strength as a people is not tested during the best of times. As we said before, we should never become despondent because the weather is bad nor should we turn triumphalist because the sun shines.” Central to these remarks is the ability that people have to self-determine their own pathways despite turbulent circumstances. And how they think and/ or perceive their circumstance can determine their trajectory. An honest examination of the Zimbabwean economy through the lens of the role that its people have to play in reigniting it, therefore becomes the most pertinent task at hand. The economy is about how people as actors in it, drive and determine value creation and sustainability. Stability and peace in Zimbabwe is in the best interest of the region and its collective prosperity.

Shared Prosperity in the 4th Industrial Revolution: Not simply a good idea but a strategic pathway for transformation in Africa

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Image source: CGTN

The 10th Summit of the BRICS trading bloc recently hosted in South Africa under the theme of ‘Collaboration for Inclusive Growth and Shared Prosperity in the Fourth Industrial Revolution’ was one of the more significant meetings of the trading bloc particularly for African states and their participation. More so, in an attempt to create a new rise of emerging markets during turbulent times of global trade and cooperation. The global political economy has been experiencing increased uncertainty mainly driven by the foreseeable trade war between the US and China compounded the events leading up to Brexit in the European Union. Certainly, some of the most influential countries and/ or regions in the world have developed an inward-looking posture to international trade and cooperation. Consequently, that has not served emerging markets well.

The quest for shared prosperity in the fourth industrial revolution is of particular importance for the continent of Africa because it has the youngest population in the planet, a growing consumer base and The Economist indicated that six of the world’s 10 fastest-growing economies over the past decade are from this region. Moreover, the participation of other outreach countries in the 10th BRICS Summit such Rwanda, Zimbabwe inter alia is significant because over 60% of the world’s population is Asian, African and Latin American. Therefore, the participation of SA in this trading bloc as the gateway to the rest of the continent has an important role to play in creating solid partnerships for inclusive growth and driving transformation and cooperation amongst developing economies.

What started out as a little more than an investment category by Goldman Sachs in 2001, BRIC (without South Africa at the time) is now a trading bloc that by 2016, had accounted for 41% of the world’s population, 23% of global GDP worth about US$40.6 trillion (£30.9 trillion), 18% of trade and just under 40% of the world territory. The establishment of the New Development Bank and Contingent Reserve Agreement has strengthened BRICS’s case as a global governance institution, of which some view as an alternative to Bretton Wood institutions such as the World Bank and the International Monetary Fund (IMF). Largely viewed as part of an attempt to reform financial and Global governance institutions to respond more meaningfully to the challenges and aspirations of the people in the global south as it were. The BRICS bloc had achieved a 70% compliance rate with respect to of implementing Summit decisions.

The presence of African Union (AU) Chairperson and President of Rwanda Paul Kagame among 27 other, most of which are African, Presidents that were invited to the Summit to participate in the BRICS Plus session created a space for the common interests of the AU and BRICS bloc to be articulated and for strengthened multi and bilateral engagements to take place.

The major challenge that confronts the ability of African nations to leverage strengthened collaboration for inclusive growth with the BRICS trading bloc lies in its regional economic communities (RECs). Six African countries are members of only one REC, 26 are members of two RECs and 20 are members of three RECs, while only 1 country belongs to four RECs. The main reason provided is that countries believe that this enhances their political and strategic positioning. However, practically, this has led to duplication and overlapping protocols. The African Continental Free Trade Agreement (AfCFTA) is the culmination of a vision set forth nearly 40 years ago in the Lagos Plan of Action, adopted by African Heads of State and government in 1980.

In the quest for the establishment of the African Economic Community (AEC), the AfCFTA is an important milestone, including the establishment of a continent-wide customs union (thus also free trade area) and continent wide economic and monetary union (and thus also a currency union) and parliament to be completed by 2028.

We have seen the developmental impact that technology has had in Africa such as the impact of M-Pesa in mobile money payments and transfers in Kenya for low-income and unbanked consumers. Compounded by what will soon be the world’s largest workforce, exploding mobile connectivity and a huge market of over 1 billion people set to more than double by 2050 which are some of the factors that have been driving and will drive the growth of Africa’s middle class.

These factors serve as ingredients to strategic developmental pathways for transformation with the next wave of industrialisation that it characterised by artificial intelligence, increased digitisation and modernisation. In light of this, the Fourth Industrial Revolution presents a unique opportunity for strengthened connectedness between African countries, FinTech solutions that promote financial inclusion empowering Africa’s poor and creating inclusive economies.

The commitment of BRICS to support the infrastructure development and connectivity financing deficit through the work undertaken by the New Partnership for Africa’s Development (NEPAD) is pertinent in the strategic areas of people-to-people cooperation, global governance and international peace and security.

Good governance in the interest of increased trade, investment promotion and aftercare therefore needs to be the apex priority of the AU thus enhancing the efforts of the African economic community and positioning the region to achieve more meaningful and impactful trade deals that will drive the transformation and renaissance agenda of the continent.