Corporate Council on Africa (Washington, DC)

2 July 2014

South Africa's Ticking Time Bomb

Blog

Johannesburg — There is little joy to be found in Sandton, the business and financial heart of South Africa. Although Sandton, a suburb abutting Johannesburg, may be the richest community in all of Africa, and perhaps one of the wealthiest in the world, the business leaders that meet daily here are worried about the nation's future. Although the streets of Sandton are not paved with gold, they could have been, as some of the world's most productive gold and platinum mines are within easy driving distance of Mandela Square and the Johannesburg Stock Exchange, both in the center of Sandton. The luxury auto dealers such as Mercedes, Audi, BMW, Rolls and Jaguar can all be found in Sandton, as can many of the country's top luxury hotels including the Libyan-owned Michaelangelo Hotel, towering over Mandela Square, and the Sandton Sun Hotel with South Africa's busiest shopping mall.

To many, this all seems like a mirage in the face of the many challenges now facing South Africa.

The value of the rand, South Africa's currency, has dropped by nearly 70 percent against the dollar. For years the rand, a model for financial stability, hovered around 6 to 7 rands per dollar. Now it is more than 10 rands to the dollar. It would be a good time for a foreigner to buy a home in South Africa, were it not for the the growing problems permeating nearly every city and town in the country. The fluctuating rand is the least of these problems.

At the time of independence in 1994, South Africa was riven not only by race, but also by income. The white community controlled the economy and was left to manage that economy as a means to a peaceful transition. The African National Congress took political control, but largely left the running of the economy unchanged. There was an expectation that over time, wealth would spread down to those who had been deprived of equality, mainly the black and Asian populations that make up about 90 percent of the South African population.

[GALLERY: Cartoons on the Economy]

There was an optimism, a sense of inevitability of better days ahead for all. This sense of a South African "manifest destiny" hit its zenith with the celebration of soccer's World Cup in 2010. A new subway system was built connecting parts of the Johannesburg and Pretoria, and roads were generally improved. It was not to last. There was an expectation that the World Cup would mark a new era in economics for South Africa. Four years later, it has not happened, and the omens for the future are not good in Africa's most developed economy.

The unemployment figures for South Africa's youth are staggering. Officially, youth unemployment (ages 15-34) has gradually risen to 36 percent. Many believe that real unemployment among that population is closer to 50 percent. Only 37 percent of the youth labor force has a high school degree. Of those who failed to get a high school degree, unemployment is at 47 percent, officially. A decade ago, a person with a high school degree had a 50 percent chance of getting a job. Today, that figure is 30 percent. Census estimates are that more than 3.2 million young South Africans between the ages of 15-24 are neither employed or engaged in education or job training. According to South Africa's Labour Force Survey for the last quarter of 2013, two-thirds of all unemployed South Africans were under the age of 35. This is a ticking time bomb in the belly of the nation.

The evidence is everywhere in the growing, teeming settlements that surround Johannesburg, Cape Town and Durban, where millions live in abject poverty. A taxi driver who lives in one of Cape Town's settlements told me of getting home at 11 p.m., leaving at 4 a.m., and working during the remaining 19 hours each day. It takes two hours each way to get to and from work. He told me that the most dangerous time is when he gets back home to the settlement, where there is little light, little hope and gangs waiting to prey on people like him. He has been robbed of his daily wages several times, yet he considers himself among the fortunate.

[ READ: Don't Stifle South Africa's Opportunity]

The social political compact also has broken down, bringing some to the conclusion that the political process is broken and will not be easily mended no matter who is the president. There is no Mandela to rise above and lead. The opening of the South African Parliament two weeks ago made the hostilities in our own Congress look extremely mild. The African National Congress, once the glue that held the nation together, is at war with itself. The labor unions have become stronger and more militant, particularly in the face of workers gunned down in a strike that shut down the platinum mines, the source of much of South Africa's wealth. The Youth League and the Communist Party have also railed against the division of rich and poor, and of the hopelessness of the young people. They do not believe that capitalism can fix the problem, and that there must be a return to old Socialist models that create a spread of wealth and provide jobs for the masses.

There are some among the government and the economic elite who believe that a closer working relationship with the United States, particularly our private sector, could go a long way in providing jobs for South Africans. Our vocational training system, still perhaps the best in the world, would be a godsend to South Africa. They believe that more programs between small businesses of our two countries could be important to building a fledgling middle class, but such cooperation would take time, and it would take joint planning.There are others, President Jacob Zuma is believed to be among those, who believe that the answer is turning away from the U.S. and Europe and aligning more with the BRICS nations (Brazil, Russia, India, China and South Africa). Certainly, Russia would like to see African nations return to an alignment that once favored its predecessor, the Soviet Union. At this time, it seems very unlikely that Zuma will move South Africa westward. Some also say that even if Vice President Cyril Ramaphosa were to lead the nation, and perhaps favor more Western economic models, South Africa will remain a deeply divided country, by race, economics and ideology. With its masses of unemployed and alienated youth, especially those with high school degrees but no jobs, South Africa faces difficult choices ahead, and an unstable South Africa will only create greater uncertainty in its neighboring countries who depend on South Africa for their own economies.

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