By Dr Mamphela Ramphele and Dr George Lindeque, Reimagine SA
The “New Dawn”
South Africa’s young democracy has come full circle. From the miracle of a peaceful transition and promise of a rainbow nation ushered in by the first democratic election in 1994, to the growth and development experienced in the early 2000s, economic stagnation ushered in by the global financial crisis, FIFA World Cup euphoria and subsequent economic stagnation characterised by the phrase, “state capture”.
It is then, no wonder that the country has once again chosen to be led by a President who is not only one of the architects of our democracy and one of the architects for the current National Development Plan (NDP), but also one who is currently overwhelmingly trusted across political boundaries to get South Africa back on course for success.
Public trust and goodwill are not enough though, and this president knows this. This is precisely why one of his first acts after taking over as interim president in 2018 was to go on a roadshow to take his “New Dawn” message to the international community and in particular to investors. This exercise yielded results as Foreign Direct Investments (FDI’s) were the highest since 2013 and are set to climb.
The importance of investments
Foreign investments are important, especially in the context of the NDP, and how South Africa could be an attractive investment destination. It creates the additional resources and linkages to technological advances to refuel our economy for a more prosperous inclusive future.
Foreign investments in our economy can be placed into two categories. (1) Portfolio investments being funds that flow in and out of our economy to liquid portfolios listed on the stock exchange or (2) FDI’s being funds that flow into capital assets like infrastructure, factories, businesses, and other productive projects.
FDI’s is where we believe South Africa’s value proposition has a competitive advantage for international investors. It is this type of investment that will make a difference to South Africa in the context of the NDP to stimulate more sustainable socio-economic asset growth.
The case for investing in Africa
Investment in South Africa needs to be placed in context. This requires us to first make a case for investing in Africa. We believe that an integrated Africa presents an opportunity larger than the sum of its parts, for all constituent countries. Recent trade agreements such as the African Continental Free Trade Area (AfCFTA) are testament to this. The International Monetary Fund (IMF) estimates that AfCFTA would create a market of 1.2 billion people valued at more than $2.5-trillion. The United Nations trade body predicts that the deal would bring about $3.6-billion welfare gains through reduced tariffs that would boost the production of cheaper goods.
Africa has an estimated population of 1.2 billion people spread over 54 countries, across 30 million square kilometres. Each country has a unique history, potential, and growth trajectory. Africa’s richness in minerals and natural resources has yet to be optimally leveraged to boost the human capital development to secure its future. Greater collaboration through AfCFTA would enable Africa to go beyond its historical role as a supplier of raw materials to become a partner in beneficiating these resources to generate greater value for Africa’s citizens.
There is an opportunity for Africa to unite and reimagine its future. Africa’s mobile technology revolution provides a model of what success could look like. Lessons from this revolution are that development does not have to follow a linear model mimicking some developed regions around the world. The African population is skipping fixed-line services and going straight to mobile technology creating fertile ground for growth of innovative companies such as MPESA. Africa provides better opportunities for breakthroughs than traditional developed countries that tend to be more rigid and protective of established corporates.
Africa is expected to double its population to 2.6 billion by 2060, with 1.1 billion expected to be middle class (which is triple that of the current 355m who comprise the middle class). Africa’s challenges present huge opportunities and entry points for innovation. For example, Africa’s vulnerability to climate change emergencies presents significant opportunities for rapid transition to renewable energy utilising the abundance of sun, wind and water. This transition offers opportunities for the majority of the working class in urban and rural areas to pull themselves out of poverty and move up the Living Standards Measure (LSM) curve. Continents such as Asia that have done this in the past have seen their people prosper, and African leaders are starting to wake up to this fact.
In 2013 the African Union produced a 50-year vision statement for the continent, based on the concept of ‘the Africa we want’. For the first time, Africa showed the collective intent to drive its destiny. While this will take time to come to fruition, we believe that this framework will bring about the legislative and economic reforms that will start to unlock the potential for Africa to be a strong, united, resilient and influential global partner and player. Several reforms have seen the likes of Kenya, Rwanda and Ghana experience growth in 4th industrial avenues in a relatively short time.
In this context South Africa has to reimagine itself as a proud nation that believes in the constitutional rule of justice and democracy; and an active democracy that believes in active citizenship that celebrates a continental identity where all the cultures and religions are expressed, and the full range of gender is given space to articulate itself.
This inclusive society believes in rural and peri-urban communities that are productive, safe and healthy. To achieve this inclusive society, we need partnerships between civic, corporate and educational institutions that celebrate the diversity and meritocracy of a globally competitive nation.
South Africa and the NDP
In the sub-Saharan region, South Africa is the principal manufacturing hub and has a sophisticated financial system and banking sector that gives it favourable access to global markets. Strategically located at the tip of the African continent, South Africa is a key investment location, both for the market opportunities that lie within its borders and as a welcoming host for international businesses seeking to engage in economic activity across Africa. It is time for South Africa to rethink its strategic role that it has thus far seemingly been reluctant to meaningfully take up.
South Africa has enjoyed 25 years of robust democracy, and a constitution that is regarded as one of the most progressive in the world. And it is now poised to be at the forefront of the development and rollout of new green technology industries, creating new and sustainable jobs and reducing environmental impact. Allied to that comes the responsibility of ensuring companies adhere to environmental, social and governance standards (ESG).
While South Africa has an abundance of skilled workers, it still has a highly unequal society and is battling to create enough jobs to sustain the population and drive down poverty. And therein lies the opportunity.
While the NDP is a broad vision and plan with many aspects, its stated aims are to eliminate poverty and reduce inequality. It recognises, as South Africans did in 1994, that no political democracy can survive and flourish if the majority of its people remain in poverty without the sanctity of intellectual property and without tangible prospects for a better life. We therefore make a case for small and medium enterprises being that practical and tangible step that supports the ambition of the NDP to eliminate poverty and reduce inequality.
The transition from commodity-driven growth to skills led growth and the role of SMMEs in a world where FDI’s traditionally favours big business.
At the heart of every successful business, is the ability to identify a problem and frame it as an opportunity. Like most economies in Africa, the South African economy was built with a focus on facilitating the extraction of raw materials for offshore beneficiation in more developed countries. This suggests that the existing economy is not built to serve the current needs of the majority of citizens. To correct this, our focus should be on creating space for skills-led industries to stimulate inclusive growth through small and medium enterprises that provide the agility to harness the opportunities of a rapidly changing environment.
These businesses should focus on using ancient African values to address African problems and build bridges to close the gaps created by iniquitous empires of yesteryear. We acknowledge that this will not be easy and will require a conscious decision to reimagine our economy. We need to apply the same consciousness and determination used to conquer an oppressive and limiting political system, to further the conversations that promote human rights and justice in corporate culture. This would address the imbalances of the past and lead us to a new, inclusive narrative embracing a technologically-advanced, globally-integrated economy.
With a world-class constitution at the fore, South Africa is poised to be the investment destination for businesses of the future. Companies that are likely to reap the greatest returns would need to be deliberately context-specific with a greater client- and employee-centricity. Such an approach is likely to unleash higher motivation by all involved, leading to creativity spurred on by the challenges and opportunities such contexts provide.
The advent of Artificial Intelligence and the increasing recognition of Africa’s potential contribution to the global-scale project of what it means to be human in a world where machines take away traditional jobs, present significant opportunities. These developments also provide a platform for conversations about what it means to protect human rights and foster greater harmony between humans, and between humans and nature in the new world.
As academics and corporates engage in conversations on the value of C-suite key performance indicators, United Nations-supported Principles for Responsible Investment, ESG, climate change, and automation, we look to South Africa to begin practicing those ideals in a meaningful way. Our approach should not be driven by compliance with a pact or treaty, but because the prosperity of an extremely divided economy can only emerge from working together to find a just and equitable solution.
South African companies must seize the opportunity to become leaders in a conversation started many years ago by civil rights movements, and philosophers before them. In this way, companies too would become activists. Why not? The Companies Act recognises them as juristic persons. And so, the age of the active citizen embraces juristic persons. Their survival as companies and the economies they operate in require them to become responsible citizens. In so doing they would become better companies, led by better people in better countries — what a time to be alive!
Foreign investments are important to all developing countries. We believe that Africa presents an opportunity for all member nations to develop through higher productivity and intra-Africa trade that would lift all boats. Investing in the talents of our youthful population would accelerate the benefits to all.
South Africa is well-positioned to be the gateway for a large proportion of foreign investors into Africa. It would do well to go a step further and reimagine its economy and the opportunity it presents. Small and medium enterprises can be the drivers of innovation both locally and regionally. We believe this approach would unlock value for both our country, through economic reform, and for investors through unprecedented returns that would yield real value to both the country and the continent. The time is upon us!