A letter from South Africa: What the world can learn from its economic decline

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John Rapley is a political economist at the University of Cambridge and managing director of Seaford Macro.

When I recently returned to Johannesburg after three pandemic-induced years away, I was shocked by what I found. I drove past the city’s main railway station and saw the trains all immobilized, the overhead power lines having been cannibalized by thieves and sold as scrap.

The city had decayed into a broken replica of what had been, a century ago, the world’s fourth-richest metropolis. Sadly, as I soon discovered, that scene would serve as a good metaphor for the country.

South Africa seems to have been born with a curse, one that dates back to the nation’s rebirth as a free country in 1994. Although that year’s election buried apartheid, it did so with a catch, one best summed up in the phrase of the economist Sampie Terreblanche: “You get Pretoria but we keep Johannesburg.” (For Pretoria, read Ottawa, and for Johannesburg, read Toronto.)

Everyone would get the vote, but the fundamental structure of the economy – one dominated by a tiny elite – would be left essentially untouched.

Today, the beggars on the streets might be both white and Black, but those streets, along with most of the country’s infrastructure, are crumbling. Economic growth for 2023 is forecasted at a pitiful 0.1 per cent. And the neglect of investment behind that has been practically coded into the new nation’s genes.

It’s tragic, because this country deserves so much better. An extraordinarily beautiful land with a climate as close to perfection as there is, endowed with abundant natural resources and such a rich and varied ecology that local peaches, grapes and bananas compete alongside one another in the supermarket, South Africa seems to be sharing its neighbour Zimbabwe’s fate – to have been blessed by nature but cursed by those who govern it.

South Africa could be any of us, for it offers a cautionary tale to all countries of the downward spiral that can happen when a government fails to strike a balance between growth and development, between saving and spending.

The first time I came here it was 1993 and while apartheid was in its death throes, you couldn’t escape that its legacy would endure. Jan Smuts Airport was then a small, provincial place staffed by white immigration officers. Many whites clung to a regime that reserved such privileges and power to them, and some were even prepared to fight for it.

The mood in the country was thus tense and febrile, and it was a testament to good leadership – that of President F.W. de Klerk and African National Congress Party Leader Nelson Mandela – that the regime came to an end peacefully.

When it became clear that the economic legacy of apartheid would be left untouched, and millions were left wondering what was in it for them, their leaders insisted they had a plan. First, they’d use a strategy of Black Economic Empowerment (BEE) to encourage white-owned companies to transfer shares and board positions to Black people. Second, they’d spread the fruits of economic growth widely in the form of housing, public services and welfare support. In place of revolution, a kind of evolution.

So as the new country went to the polls to elect its first fully democratic government, the war planning by both white extremists and their most radical enemies, which had reached fever pitch, fizzled out. The sense of attendant relief then gave way to outright euphoria when, on the day Mr. Mandela took the salute from the same air force that had once hunted him down, the new president swore his oath of office.

It carried over into the following year’s Rugby World Cup when, after decades as a pariah state, South Africa welcomed the world to a tournament that showcased the sport that had long been a pillar of apartheid. As president Mandela strolled onto the field at Ellis Park wearing a Springboks jersey, long a hated symbol of the old racist regime, the stadium burst into a rapturous chant of “Nelson! Nelson!” The nation had its hero, and its promise seemed endless.

If the transformation was admittedly slow to come – the Mandela presidency was consumed largely with just creating a viable regime – the beginning was nonetheless full of hope. And when Thabo Mbeki succeeded Mr. Mandela in 1999, things took off.

China’s ravenous appetite for raw materials was then fuelling a commodity supercycle, and South Africa’s economy began exporting its way to steady growth. With its tax coffers full, the government was able to now deliver on its promises of better lives, building more than two million new homes for poor people and connecting yet more to the electrical grid and water systems.

Life in the townships remained anything but easy. But when you walked their streets and observed the houses and transmission poles sprouting up, when you saw police officers on the beat and felt safe going out at night, you could feel change coming.

And by the time South Africa hosted soccer’s World Cup in 2010, Jan Smuts Airport – now renamed O.R. Tambo International – had grown into a huge gleaming pair of terminals befitting a country that had gone from global isolation to a major world centre. South Africa was now shiny and new. It was cool.

Nevertheless, you didn’t have to scratch this surface deeply before a grit below revealed itself. BEE was altering the complexion of the business elite and making a handful of Black people fabulously wealthy. Yet the fundamental structure of an economy built to exclude poor people remained largely intact. Unemployment worsened, inflation eroded earnings, and the gap between rich and poor, already among the widest in the world under apartheid, grew even worse.

Meanwhile the cost of distributing so much largesse – the welfare rolls expanded eightfold until more people got social assistance than had jobs – left little for investment. So while the distribution of electricity widened enormously, very little new capacity was added. As potholes pocked the streets, they went unfilled. By the time the World Cup kicked off, South Africa’s rolling blackouts, now infamous across the globe, had begun.

Amid deepening discontent, a new strain then arose in the ruling party. Led by Jacob Zuma, the man who’d been in charge of the ANC’s spies back in its exile days, the so-called Radical Economic Transformation (RET) faction aimed to accelerate the dismantling of apartheid’s economic legacy by intensifying BEE and steering ever more government contracts to Black entrepreneurs. Orchestrating an intra-party coup, Mr. Zuma managed to push Mr. Mbeki aside, and took the presidency in 2009.

That’s when the wheels fully came off the South African bus. Whatever ideals lay behind RET, it attracted an unsavoury mix of opportunists, not least a family named the Guptas who grew enormously wealthy off state contracts. BEE became a byword for corruption as Gupta allies got contracts in return for kickbacks to the Zuma family, then funnelled the money into offshore accounts or luxury cars, not bothering to actually deliver the contracts.

After eight years of plunder, during which the economy ground to a halt, the ANC’s men in grey suits decided enough was enough and pushed Mr. Zuma aside, replacing him with Cyril Ramaphosa.

A man who’d had a storied career – rising as a union organizer in the late apartheid era before leading the ANC negotiating team, during which time he’d acquired a reputation as a brilliant operator able to constantly outmanoeuvre his foes – Mr. Ramaphosa had also made a fortune in business, leading many to conclude he would not need to engage in corruption himself.

But that didn’t necessarily mean he’d do anything to reverse the country’s decline. Today, it’s hard to find evidence he has. Whether because of fatigue or a personality that prefers consensus to confrontation, Mr. Ramaphosa has disappointed the nation that looked to him to chase the money lenders from the temple. Corruption remains rife, incompetent ministers keep their jobs and the Guptas have escaped justice and are now living – we are told – in Vanuatu.

Thirty years ago, when I first came here, South Africa was a strange land – a place where First World islands swam in a Third World sea, the prosperity and advanced services of the white suburbs sealed in by apartheid’s walls.

The ANC tore down those walls and allowed the wealth to flow outward. But its laser-like focus on redistribution led it to neglect growth, and it invested little in expanding capacity. Everyone got electricity, water and policing. But today the electricity runs only half the day, the water often fails, the trains don’t run at all, and the police are overwhelmed by criminals.

It appears the nation has now had enough. Barring a dramatic turnaround in the country’s fortunes, the ANC will probably lose its parliamentary majority in next year’s elections, for the first time since independence. Forced into coalition, the ANC may then find itself turning to the more growth-oriented elements of the conservative opposition. That new balance could herald an economic revival. On the other hand, to judge by the record of those South African cities that are currently governed by coalitions, it could just as well herald deeper chaos.

South Africa’s error was to assume its wealth was endless. But then, that’s a mistake any country can make. And so we’ll all do well to watch if next year’s story restores the promise of 1994.