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Lumkile Mondi: ANC’s inability to take policy risk is SA’s missed opportunity

Former Chief Economist of IDC Lumkile Mondi tells Tim Modise that South Africa missed the growth opportunity due to the ANC’s inability to take policy risks. He also criticizes the mistrust of the private sector by the government saying it has retarded the pace of investment in infrastructure. Mondi calls on South Africans, especially black South Africans, to hold the government to account on the performance of the economy and not on rhetorical political promises. – Tim Modise

Mr Lumkile Mondi, the former IDC Chief Economist and now, Senior lecturer at Wits University. Thanks for joining me.

It’s a pleasure, Tim.

The OECD spoke about a couple of recommendations for South Africa, to get the economy to grow at a faster pace. On the continent, we know there are economies, which are growing at seven percent as we speak but South Africa with its own mineral endowments is not able to achieve that growth. In broad terms, what do you think of the OECD recommendations?

Over years, the OECD has come with interesting reports and recommendations on the African continent and specifically, on South Africa. Unfortunately, the advice we’ve gotten from the OECD is so different to the rest of the advice our Government gets – either from us domestically, or from some scholars. You will remember in the period between 2004 and 2007, we had what we called the Harvard think-tank, led by Ricard Haussmann and Daniel Roderick looking at the economy and what needs to be done.

Over the past few years, it has been a recycling of what we already know but we failed dismally, to take the advice to follow through and take the risk. In economics, what has made Asian countries (specifically China, South Korea, and Thailand etcetera) is that they take risk. In South Africa, the ANC Government – during the past 20 years in power – has not taken risks and been very cautious. The recommendation from the OECD, particularly around the taxation to try to kick-start this economy…we’re going to read about them and then we’ll leave the report to gather dust and nothing will be done.

What do you mean when you say the ANC Government is not willing to take risks? You’ve been part of the system for some time yourself, as the IDC Chief Economist. There are few things during that time or at least, in recent times, which the Government should have done and you think they missed the opportunity of doing. What are those specific things?

Particularly in the period between 2001 and 2007, we had what was referred to as a super-cycle of commodities where, across all commodities from… Before September 2001, the gold price was below $300 per ounce. From that period, it rose. Today, it is above platinum. Platinum itself rose to $2,000 per ounce.

We had a beautiful story that South Africa could have been telling today – about how we exploited an opportunity (the commodity super-cycle). We were too slow to invest in infrastructure so Rail Engineering and Transnet Freight couldn’t move the commodities. I’m specifically talking about the bulk commodities such as iron ore, coal, and manganese, which were well endowed. We have about 88 percent of the world’s manganese reserves. The infrastructure wasn’t there, so that opportunity was lost.

Secondly, there was the bickering. At the time, the ANC talked about the developmental state, which is a very noble idea because we’ve seen how Ethiopia today is developing rapidly (above seven percent) as you pointed out earlier in our discussion. Part of it drove the agenda and the ANC Government wanted to do the same. That sent very different signals because in the first five years of the ANC Government, we had strategy of opening up and allowing private people in. When the State came in, it created some bottlenecks, which created some uncertainty in the private sector and in that period, we missed that opportunity. It’s an area, which I believe, would not only have grown the economy much faster than we did (we grew at about five-point-five percent) during that period, but we could probably have grown around eight or nine percent.


More importantly, we planned creating jobs and building the infrastructure, but we failed dismally. In addition, because we were unversed on energy; that’s when we started having energy challenges around that time. For me, this is a big area where that lesson of investing in more infrastructure has not been taken to the Board by the ANC. The ANC talks about it. You have a provincial infrastructure investment committee, led by our President (Jacob Zuma), has a plan to invest R1.2 trillion. So far, it’s been run by politicians and we know politicians can’t run businesses or investment programs. That can be run through a private sector. This fixation of the ANC Government that they can resolve all of these other problems, is what’s letting us down. Until they bring in other stakeholders to the table as partners and we’re able to work together (public and private sector), I think we’ll go a long way despite the contradictions.

We know very well that there are huge transformation issues with the private sector. It’s lily-white. It’s old, white money. Some companies are still imbued with past policies as we saw with Marikana and the strikes in the platinum belt. We know about those contradictions. You need to go beyond those contradictions to drive a national development agenda.

The infrastructure investment program of the Government: you say it’s R1.2trn, but you are not impressed with the pace of the implementation of this program. Why? What are the blockages? What is stalling it?

The biggest blockage is that (1) it’s being run by politicians and bureaucrats whom (themselves) have issues with the public sector. They completely distrust the private sector. Within that, we’re unable to give the private sector opportunities where they build their own transfer to the State.

For example, in the Sishen/Saldanha line where we have a big endowment of manganese as well as iron ore, I was involved before the crisis of 2008/2009 (as IDC). IDC was a huge investor there with Kalagadi, Kumba, and BHP Billiton, of course. We were very keen on unlocking the locked gems by making these companies invest in infrastructure (and Transnet ran those trains). However, the State believed that it could do it better. That led to those companies not investing, and waiting for the State to deliver the trains. It was a missed opportunity.

Until we get to a point where the ANC Government accepts that any growth and development would be led by the private sector, the State will set the infrastructure and address failures where private sector isn’t entering rather than wanting to take the whole cake on its own and claim credit for it. Really, the ANC has nothing to claim for because it’s a majority party. It’s very strongly rooted, but it doesn’t have a growth plan or if it does have a plan, it doesn’t flow through, e.g. the National Development Plan. It’s not willing to do what they’re supposed to do. Until it accepts that, we’ll continue postponing our investment program.

We’re sitting with serious structural problems in the economy, here in South Africa – the main one being the high unemployment rate – and it’s been there for a long, long time (25% unemployment). It’s one of those things. What are we going to do? What should we be doing with this problem?

Tim, that’s a huge issue for South Africa. It’s a huge issue for the rest of the continent. About 60 percent of those who are unemployed are the youth – between 18 and 35 years. They’re a big part of the unemployed. Since South Africa industrialised much earlier than many African countries did under British and later, Afrikaner rule, we failed (due to Apartheid regime’s inward-looking policies) to spread some of our companies that had industrial capability, to the rest of the continent.

What do I mean by that? I mean that a country whose cost of production has risen tremendously, has located some of its office production into Vietnam (into Myanmar) to try and ensure that those companies can survive using the low, cost-based structure of Myanmar/Vietnam and other countries around China. Currently, as the country does well, incomes start rising. People unionise. In South Africa, we did that a long time ago, so our industrial economy is unlikely to regain the beautiful past of the 60’s, where we were growing above six percent, driven by industry. We need to be playing at a much, higher part of the growth curve. That is what we call fabrication and services.

Services – I am talking about R & D. Designing new cars. Designing new air conditioning but not manufacturing them. That change, which China is currently undergoing; South Africa didn’t because we were not looking. We are scared about the countries around us, so we look internally. Companies became conglomerates, which are mining companies but are also involved in clothing, such as Edgars. A company liked Anglo owns Edgars and owned non-mining assets because it was forced to internally.

Those were paid for, so we need to go beyond our own. Where we are strong, Tim today is that we still have a very, strong mining sector, with a very, poor policy directive. You know the debate that is taking place between Chamber and the State, at the moment, and the communities.

Secondly, we cannot provide uninterrupted power supply. Thirdly, our human capital has weakened over years, as we have lost quite a lot of brand to the rest of the world, but largely the first world. These are big constraints for us, of addressing that unemployment. The solution for us and the solution that we have, to address that is a solution that the NDP, (National Development Plan), talks to very well that South Africa’s future is intertwined with that of the Southern African development community.

For example, to resolve our energy crisis we need to look to our neighbours because our neighbours have endowment. Mozambique has some of the biggest world reserves of gas. Instead of talking nuclear – nuclear is not going to create that we want in South Africa because we’ve lost our high skill. A lot of it has been lost overseas some of it is already engaged in various areas. We need to create jobs at the lower end of the curve, same skilled and unskilled chart.

If we invested tremendously with our partners in Mozambique on creating a gas industry – the gas industry, as you know, is linked across all other sectors. With gas you are able to create a plastic industry. If it is a leather industry, you are able to create quite a lot of those labour intensive industries. Of course, the South African youth will compete with the Mozambican youth, but that’s what has happened to us. With us, when you are industrialise with a huge influx of the rest of Africa.

Tim, most of us grew up with a foreigner next to you. You grew up with someone coming from Ovambo coming from the then South West Africa, today Namibia, so we are quite diverse. Particularly in Gauteng, so we need to do that. Mozambique is going to be like that because the youth will move and follow jobs and that is the psychology of South Africans. For you to be unemployed, as youth, it means you sit at home and do nothing.

Historically, we knew. My father came from Transkei. He came to South Africa because he knew that for him to survive (to support his family), he had to move, and South Africa – we have seen some of the youth. Some of the youth coming from the middle class is moving. I know quite a lot of my friends whose children are in England, in Australia, studying and working at the same time. We need to see, even at low level we need to see the same.

Now looking at what the government is trying to do, currently, how do you rate it? We’ve just seen the Deputy President Cyril Ramaphosa lead a delegation to China, for instance to go and learn how the state owned enterprises are run there. You have just mentioned the National Development Plan, and there are a whole, number of initiatives – the Infrastructure Investment programs. When you lump them altogether, very briefly, do you think that they will deliver the goods change, the way the economy operates, create jobs and deliver the growth that this economy needs?

Unfortunately, the current ANC leadership has excellent reports of offering poor performing, under-qualified, black people – putting them on the podium because they can toyi-toyi and sing the ANC slogan. That has led to the crisis that we have. Not that we don’t have competent, excellent, good black skills around – we have but the ANC chooses to select those to lead. Some of which, as you know, they are failing dismally.

Tim, the role of institutions can never be underestimated. Countries fail and succeed not because of poor government. It’s because of a poor institution, and we haven’t done very well in ensuring that institutions are strong and be able to run independently because they are being run by strong leadership. For example, we have a very, strong competent guy, Brian Molefe. Is Brian Molefe the only highly skilled guy in South Africa, who can be used across all areas? Can’t we create others or others under there? He has done an excellent job in Transnet. We’ve sent him to Eskom to try to do the same but the point is he the only man around? Aren’t there other competent black, South Africans that can also do the job?

All these issues, which the ANC is trapped… These, are the issues leading it to failure until it overcomes its fear and mistrust of some of the competent black people – what President Zuma referred to as ‘clever blacks’. Until it accepts those into its fold, who are not necessarily ANC praise singers are South Africans who are deeply patriotic about their country, about what the ANC, historically, has stood for and wants to get the country going but are uninterested in the political part of it. These are the cadres, which we need to come and assist us, to move forward but they think not.

The trip to China: I wish Mr Ramaphosa good luck but until they look internally, into who can do the job, rather than is he a comrade who is aligned with us and in whose pocket he is… We need to go beyond that and I think that as long as we continue with this trend we are, basically not going to get to where we are supposed to. To create a strong institution, who can deliver? Let the politicians sing their slogans but the institution functions, irrespective of the nonsense that the politicians are going through.

What happens to the youth in the meantime, briefly?

The youth is trying very hard. The youth is not, amongst other things, grouping. We do have a youth that is quite entrepreneurial. That is going on, on its own. I’m sure you’ve seen, in your industry, that you have quite a lot of younger men and women, who have entered your industry and are making a difference for themselves because they saw an opportunity.

There is that youth. There is other youth, Tim who come from really, poor families. Where there is no breadwinner, where people take turns to eat. Today is Tim, two days later Tim, again has to eat again, because he had to give way for others. That is for me, the youth that I am worried about. We are basically, marginalising millions of people who will never see any difference in their lifetimes. Who will never be employed in their lifetime and no one is engaging them because they keep on promising and telling people that the reason why the economy is not growing is that there’s a European problem. It is because of the apartheid regime. There is no accountability.

We are not taking accountability that actually we are probably failing to do what we were given a mandate to do, by the South African people to ensure that we provide infrastructure across all areas. That youth can be able to have access to state resources. There are people who don’t have access to state resources, Tim. For me, as long as there’s a society that has access and others don’t have access to basic universal infrastructure. Then we are not going to go that far.

Lumkile Monde thanks very much for talking to us.

It is my pleasure, always, Tim. Thank you very much for having me.

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