Developing the Existing, Harnessing the Potential: Expanding Business Opportunities In South Africa

ABSTRACT

The new South African President, Cyril Ramaphosa, rode to power in 2019 with the promise  of ending years of corrupt regimes  and bringing about economic and social reforms  in a country ridden with economic failures and income disparities . While he has numerous challenges confronting him, including improving the very image of the African National Congress (ANC), which has fallen into disrepute due to years of scandals under former President Jacob Zuma, he is set to undo the loss and unemployment  that has dented the South African economy , and circumstances are expected to improve for some, it is imperative to understand what can be done to stabilize the South African economy and attract foreign investors.

INTRODUCTION

Cyril Ramaphosa’s coming into power was backed by the spirit of business-oriented strategies and a will to build a strong economy. A former Union Leader , Ramaphosa has relentlessly fought for the rights of blacks in his initial years. He is the man behind negotiations that led to the end of a dark era – the era of apartheid. Having a knack for business , he has aimed to churn out sectoral reforms to revive the economy . To our chagrin, the reality has been quite the opposite, and while his outlook may have been highly progressive, unemployment has been the highest ever  and the economy has subsequently seen a downfall . The tremors can be felt most prominently amongst the youth in their angst against the government.

Taking into account the pernicious effects of his policies, some still cling to the belief that there is a ray of hope for development and change. South Africa is not devoid of opportunities . The government can create jobs and spur economic growth by effectively channeling the powers and strength of its natural resources  and the masses.

In answering the existing problem, this paper shall look at four important developments that are key to a strong economy that is capable of turning the tables, namely:

• the development of information and communication technology and its impact on Foreign Direct Investment (FDI);
• the education sector and its relative impact on employment;
• the spreading of organic agricultural practice and its subsequent impact upon the exports;
• the regulation and export of vital natural resources.

ICT: The Key to Foreign Direct Investment

The world at large is on the cusp of the Fourth Industrial Revolution,  but why is it so important for South Africa’s development? Information Communication Technology and its components have driven the world to develop better forms of technology every single day. The changing global scenario and an increased belief in the power of ICT  can create new job opportunities in the most under-developed parts of the world . 

Given the recent development of Intellectual Property Rights in South Africa,  due to the adoption of policy devised on the aid and assistance of the United Nations Conference on Trade and Development (UNCTAD) and UN Development Program (UNDP), there is a higher likelihood of Foreign Direct Investment , since such development shall safeguard innovation and allow for the establishment of new industries and research centres in the country. Welcoming ICT will bring in further investments that shall support economic growth. The availability of high bandwidth connection and internet speed in South Africa  could be used to develop software and systemize work in agricultural, mining and business development.

Additionally, South Africa exports a significant number of manufactured goods to Asia, Africa and America. Digitization can help increase the output of the manufacturing sector and enable online retail trade, thereby improving the scope of employment.

Improving the Sluggish Educational System

The youth employment rate between the ages of 15-24 years stood at 55.2% in the first quarter of 2019. Specifically, amongst graduates, the level is as low as 31% . Even though apartheid is embedded in history, its traces can be seen in the high number of whites attaining post-secondary education levels when compared to the low percentage of blacks. In a country like South Africa, education is the pathway to better opportunities. A better alternative is the inclusion of the policies that Godwin Obaseki adopted for the education system in Nigeria.

Nigeria’s poor education system was a hinderance to growth and job prospects and directly impacted the overall economy. Godwin Obaseki devised EdoBEST, a reform that aimed to provide intensive training for teachers along with classroom exercises to create an environment conducive to learning . This gradually decreased high school dropout rates . Adopting a similar strategy of assessing work on an individual level and giving feedback and motivation to bolster the efficiency of students can increase the learning outcome and thereby reduce school dropout rates.

Simultaneously training teachers in ICT and imparting the same technical knowledge to students from an early stage can open avenues for youth to contribute to the ICT sector. Furthermore, it can create more jobs and attract additional Foreign Direct Investment. With the coming of the Fourth Industrial Revolution, both the education and ICT sectors can help in job creation and innovation.

Organic Agriculture – Opening the Pandora’s Box

Only 13% of the total 122.3 million hectare land is used for crop production , and far less is used for organic farming. Organic farming boasts of a multitude of benefits, including greater carbon sequestration, leading to better soil quality, and increased water retention. This leads to more land for cultivation and the creation of jobs. Sadly, the sheer lack of knowledge amongst the farming community has left this farming technique a distant dream, and per statistical figures, only about 300 farmers practice this technique. Perhaps with the growing trend of organic food habits in developed countries such as the United States and Europe  that have the largest export market share, and with overall global trade in organic agriculture hitting US $80 billion, it is expedient to understand and adopt this technique. Per the data, South Africa shares favourable trade with the United States, exporting over US $1.3 million worth of organic food, including wine, tea, olive oil, honey and blueberries .

The Green Economy and Trade Opportunities Project (GE-TOP) ,a United Nations project, was launched to identify, analyse and harbour trade-related opportunities, with the view to incorporate the green economy by using sustainable methods. GE-TOP promises a grassroots-level campaign to preach the methods  and prospects of organic farming that can help propel South Africa closer to this goal . Providing incentives for such farming practices at the initial stages could also help more farmers ditch orthodox farming methods. This could create an additional 170,000 jobs. 

Proper Allocation and Use of Natural Resources

Africa as a continent is home to a multitude of natural resources  and a hub of precious metals. South Africa, not far behind, boasts gold, diamond, platinum, chromium and coal resources , which can create additional jobs, if effectively and ethically extracted and traded. South Africa produces more than 10% of the world’s gold, nearly two-thirds of the world’s platinum and about half of the world’s chromium, apart from being the biggest diamond exporter to strong economies like China, Singapore, Dubai, Hong Kong and the United States . Furthermore, sugar and timber are also found in abundance and can easily procure global markets for their export.  

Part of the problem arises from the fact that these resources are often passed to the wrong hands and lost in illegal mining and trading , which is unquestionably detrimental for the economy. The other problem is that the authorities in place to check for such illicit practices often exploit their position for material benefit . Going by the figures, an estimated US $195 billion vanishes from the African economy through such unregulated flow . This short-sighted approach of generating wealth is harmful in the long run and does not only wreck the economy, but also the environment.

Gaborone Declaration of Sustainability in Africa (GDSA) [mfn referencenumber=49] Supra Note 19. [/mfn]  was launched with the aim to safeguard and prevent the exploitation of existing natural resources in Africa to promote sustainable growth. While GDSA is well in place, enforcement by officials lags behind.

Given the healthy bilateral relations and exports to economies such as the US, China and India, there can be efficient utilisation of natural resources and more job creation if a proper system of governmental control in coordination with United Nations subsidiaries can be implemented, mitigating the mismanagement and illegal trade of these resources.

One must also consider this: South Africa has the potential to efficiently use renewable energy resources and has recently signed a long delayed renewable energy contract for solar and wind power plants . The aim was to provide for Eskom, a monopolistic state-owned power supplier , which is already under crushing debt of over $30 million. Recently, however, this power supplier has been plagued with frequent black-outs  which can be attributed to its unsustainable power plants  – putting a halt to many power-generated activities, including mining . This existing problem can be best resolved by the proposed reform of distributing  control to small state-based companies .

THE ROAD AHEAD

Given the current trend of growth in the manufacturing sector of 4.6%, wholesale trade of 5.5% and exports of 8% to R112 billion , the stock market performing the best in 12 years with the Johannesburg Stock Exchange (JSE) reaching an all-time high, shares of platinum and gold jumping by 60% and 46% respectively, as well as the tourism sector showing growth of over 11.9% since April 2019 , the future of South Africa seems bright. If Cyril Ramaphosa’s government effectively carves out economic policies to strengthen the economy, much could be done to ameliorate the unemployed youth stuck in a loop of poverty and crime.

Apart from this, South Africa has maintained healthy bilateral ties with a host of nations , such as Japan, Republic of Korea and Australia, where the bulk of trade has risen significantly . In addition, certain training programmes focusing on the automotive and energy sectors have been launched in collaboration with Japan. Japan has also opened the gates for South African students’ skill enhancement by taking in students and providing internships and job opportunities . China is another leading partner in trade .  The US, being the third largest trading partner  and the single largest source of FDI , can effectively invest in more sectors if ICT is developed efficiently. Canada, which has been contributing to natural resource management and enhancing cooperation in sectors such as mining and mineral beneficiation, environment, aquaculture and ICT , can effectively aid in the process of generating more FDI from other countries.

In fact, even Western Europe generously invests in science and technology and provides educational scholarship and training opportunities in Europe. There is also significant trade in high manufactured goods. This serves Africa’s best interests for generating wealth via FDI by having access to technological advancements and experts who open up new avenues locally and abroad. The Central Reserve bank has come under harsh criticism for having high interest rates  and is expected to cut interest rates  to create more jobs and bring about economic stability as part of its constitutional mandate. Additionally, given the number of small scale businesses that have been run by over 1.5 million people, often requiring loans for which there ought to be a registration, and for which interest rates are exceedingly high, reforming the banking sector will only restore the trust of the common man in banking service and introduce more structural reforms.

CONCLUSION

There is a consensus that South Africa is on a path of renewal, having a business-oriented President in place, who is busy carving out better policies than ever. Of course, it may be too early to comment, but it’s nevertheless apparent and can be witnessed through multiple changes, such as hiring women as 50% of the cabinet  and the growth in stocks and investors, yet there is uncertainty looming over other spheres. There is no one shortcut for reform, but an inclusion of all the interdependent policies listed above that can make the country perform its best ever. Policies can’t be created in isolation and this can be best understood by the fact that unemployment is caused by paucity of infrastructure and staggeringly low standards of education, which severely disrupts peace in society, increases crime rates , decreases the flow of tourism, leads to political instability that can effect stocks, and thereby impacts the overall performance of the country.

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3.  Jason Burke, ‘They Don’t Get It’: South Africa’s Scarred ANC Faces Voter Anger, The Guardian (Apr. 30, 2019), https://www.theguardian.com/world/2019/apr/30/south-africa-anc-voter-anger-election.
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6.  Jason Burke, South Africa Election: Everything You Need to Know, The Guardian (Apr. 30, 2019), https://www.theguardian.com/world/2019/apr/30/south-africa-election-everything-you-need-to-know.
7.  Supra Note 5.
8.  Jason Burke, Cyril Ramaphosa is Cautious, But He must Waste No Time Reforming South Africa, The Guardian (May 26, 2019), https://www.theguardian.com/world/2019/may/26/cyril-ramaphosa-must-waste-no-time-reforming-south-africa-election.
9.  Supra Note 4.
10.  Supra Note 3.
11.  Cyril Ramaphosa – South African Union Leader, Mine Boss, President, BBC News (May 25, 2019), https://www.bbc.com/news/world-africa-20767093.
12.  Supra Note 3.
13.  Mark Gevisser, Opinion: Why I Am Voting For South Africa’s Ramaphosa, The New York Times, (May 7, 2019), https://www.nytimes.com/2019/05/07/opinion/south-africa-election.html.
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17.  High Unemployment is a Symptom of South Africa’s Economic Malaise, The Economist (Apr. 21, 2019), https://www.economist.com/special-report/2019/04/25/high-unemployment-is-a-symptom-of-south-africas-economic-malaise.
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19.  South Africa, Gaborone Declaration for Sustainability in Africa,  http://www.gaboronedeclaration.com/south-africa.
20.  Elizabeth Pollitzer, Creating a Better Future: Four Scenarios For How Digital Technologies Could Change The World, 72 J. of Intl. Affairs, 75, (2019).
21.  Ibid.
22.  Pushpam Kumar, Natural Capital and the Fourth Industrial Revolution, UN Environment, United Nations Environment Programme, (Nov. 15, 2017), https://www.unenvironment.org/news-and-stories/story/natural-capital-and-fourth-industrial-revolution.
23.  Supra Note 20.
24.  Linda Daniels, South Africa Approves New IP Policy, With Guidance From UN Agencies, Intellectual Property Watch (May 27, 2018), https://www.ip-watch.org/2018/05/27/south-africa-approves-new-ip-policy-guidance-un-agencies/.
25.  Ibid.
26.  Supra Note 4.
27.  Kate Whiting, South Africa’s Economy in 5 Charts, World Economic Forum (May 8, 2019), https://www.weforum.org/agenda/2019/05/south-africas-economy-in-5-charts/.
28.  Work & Labour Force, Stats SA, Department: Statistics South Africa,  http://www.statssa.gov.za/?page_id=737&id=1.
29.  Education, Stats SA, Department: Statistics South Africa, http://www.statssa.gov.za/? page_id=737&id=4=4.
30.  Ibid.
31.  Supra Note 30.
32.  Supra Note 30.
33.  UNEP Report Outlines Vast Opportunities for Organic Agriculture in South Africa, UN Environment, United Nations Environment Programme (Apr. 26, 2016), https://www.unenvironment.org/news-and-stories/news/unep-report-outlines-vast-opportunities-organic-agriculture-south-africa-0.
34.  Supra Note 34.
35.  Supra Note 34.
36.   Supra Note 34.
37.   South Africa: Growing Trade Opportunities for U.S. and South African Organic Food, United States Department of Agriculture, Foreign Agriculture Service (Mar. 1, 2019), https://www.fas.usda.gov/data/south-africa-growing-trade-opportunities-us-and-south-african-organic-food.
38.  Green Economy and Trade Opportunities Project (GE-TOP), UN Environment, United Nations Environment Programme, https://www.unenvironment.org/explore-topics/green-economy/what-we-do/environment-and-trade-hub/green-economy-and-trade.
39.  Ibid.
40.   Green Investments in South Africa can Spur Growth and Enhance Crop Yields and Water Supplies: Report, UN Environment, United Nations Environment Programme (Aug. 23, 2013), https://www.unenvironment.org/news-and-stories/press-release/green-investments-south-africa-can-spur-growth-and-enhance-crop.
41.  Ibid. 
42.   Mapping Africa’s Natural Resources, Al Jazeera (Feb. 20, 2018), https://www.aljazeera.com/indepth/interactive/2016/10/mapping-africa-natural-resources-161020075811145.html.
43.  Needum Lekia, South Africa’s Natural Resources, Borgen Magazine (Dec. 7, 2016), https://www.borgenmagazine.com/south-africas-natural-resources/.
44.  Ibid.
45.   South Africa, OEC, https://oec.world/en/profile/country/zaf/.
46.  Supra Note 18.
47.  Supra Note 18.
48.  Supra Note 18.
49.  Supra Note 19.
50.  Siphiwe Sibeko, South Africa Signs $4.7 Billion of Delayed Renewable Energy Deals, Reuters (Apr. 4, 2018), https://www.reuters.com/article/us-safrica-power/south-africa-signs-4-7-billion-of-delayed-renewable-energy-deals-idUSKCN1HB230.
51.  Adrian Blomfield, Bribes, Dodgy Deals and Electricity Rationing: What’s Gone Wrong With South Africa’s Plunging Economy, The Telegraph (Jul. 04, 2019, 1:01 PM), https://www.telegraph.co.uk/business/2019/07/04/can-ramaphosa-keep-lights-rescue-south-africas-stuttering-economy/.
52.  Joseph Cotterill, South African Economy Suffers Worst Slump in a Decade, Financial Times (Jun. 04, 2019), https://www.ft.com/content/3fa375e4-86b0-11e9-a028-86cea8523dc2.
53.  Supra Note 51.
54.  Joseph Cotterill, South Africa Imposes Blackouts to Save National Grid, Financial Times (Feb. 12, 2019),  https://www.ft.com/content/8a7402d4-2e20-11e9-8744-e7016697f225.
55.  Helen Reid et al., Eskom Power Cuts to Hit South Africa GDP– Goldman Sachs, Reuters Africa (Mar. 21, 2019, 4:09 PM), https://af.reuters.com/article/investingNews/idAFKCN1R210H-OZABS.
56.  Supra Note 53.
57.  Supra Note 53.
58.  Helena Wasserman, 9 Reasons to Feel Better About South African Economy, Business Insider South Africa (Jul. 01, 2019, 05:16 PM), https://www.businessinsider.co.za/good-news-economy-2019-7.
59.  Ibid.
60.  Supra Note 59.  
61.  Supra Note 59.
62.  International Relations, South African Government, https://www.gov.za/about-sa/international-relations.
63.  Ibid.
64.  Supra Note 63.
65.  Supra Note 63.
66.  Supra Note 46.
67.  Supra Note 63.
68.  Supra Note 63.
69.  Supra Note 63.
70.  Adam Ikdal, 6 Challenges to Financial Inclusion in South Africa (Apr. 27, 2017), https://www.weforum.org/agenda/2017/04/financial-inclusion-south-africa/.
71.  Reuters, South Africa’s Reserve Bank Expected To Cut Rates, What You Need To Know, CNB Africa (Jul. 11, 2019), https://www.cnbcafrica.com/news/financial/2019/07/11/south-africas-reserve-bank-expected-to-cut-rates-what-you-need-to-know/.
72.  Bloomberg, South African Interest Rates May Fall, And Not Due To Politics, BusinessTech (Jul. 17, 2019), https://businesstech.co.za/news/banking/329623/south-african-interest-rates-may-fall-and-not-due-to-politics/#.
73.  Supra Note 53.
74.  Supra Note 72.
75.  Sean Fleming, South Africa’s Cabinet is Now 50% Women for the First Time Ever (Jun. 04, 2019), https://www.weforum.org/agenda/2019/06/south-africa-s-cabinet-is-now-50-women-for-the-first-time-ever/.
76.  Crime Statistics, Stats SA, Department: Statistics South Africa, http://www.statssa.gov.za/?page_id=737&id=5=5