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10 wasted years: The continued cost of cadre deployment

Advisor who recommended ‘productive knowledge’ for SA a decade ago has been brought back to try again.

Finance minister Tito Mboweni’s call to “think outside the box” about economic growth is akin to closing the stable door after the horse has not only bolted, but already won a race elsewhere.

Mboweni picked Harvard economist Ricardo Hausmann as an advisor, knowing full well that Hausmann’s advice on productive knowledge has been flatly ignored by the ANC government since 2008.

Hausmann sees productive knowledge as the key factor separating successful countries from unsuccessful ones, with a lack of productive knowledge retarding economic growth and development.

From 1990 to 2003, South Africa lost 7% of its professionally qualified people – predominantly high-skilled whites. After some stability during the high-growth years of former president Thabo Mbeki and finance minister Trevor Manuel, the exodus was again triggered by the growing ineptitude of an administration that radically transformed departments and state-owned enterprises (SOEs) into little more than facades.

The South African Police Service, SAA, Transnet, the National Prosecuting Authority and municipalities are among the examples where cadre deployment trumped productive knowledge.

The result:

  • At township level, the disgruntled resorted to service protests.
  • At professional level, highly skilled individuals emigrated. 
  • At investor level, South African business has emigrated through foreign direct investment; fixed investment by South Africans abroad exceeds fixed investments lured to our shores.

Hausmann, an erstwhile cabinet minister from Venezuela, chaired the international panel of experts convened by Mbeki to advise on the Accelerated and Shared Growth Initiative of SA (Asgisa). Originally Agisa, the ‘shared’ was added in an attempt to counter growing criticism from Cosatu, the ANC Youth League and the SA Communist Party that Mbeki and Manuel were agents of neo-liberalism with their Growth, Employment and Redistribution (Gear) plan.

Asgisa did not materially depart from Gear, but introduced a stronger emphasis on black economic empowerment (BEE): in that sense, it was the forerunner of radical economic transformation. 

The Hausmann panel made several far-reaching recommendations regarding growth prospects as well as impediments to growth, urging government to, inter alia, make BEE growth-compatible and do everything to stem the exodus of high-skilled whites.

With heightened attention on a Great Trek of productive capital out of South Africa following a radio interview with Johann Rupert, I have highlighted just some of the 2008 conclusions and recommendations of the Hausmann panel dealing with productive knowledge:

  • Skills are in short supply and this requires an urgent strategy; a growth strategy has to be based on the people SA has, not on the people it wishes it had.
  • BEE complicates firm creation, exacerbates skills constraints in managerial positions, creates greater regulatory burdens and discourages investment and job creation; making BEE growth-compatible should be an important strategic objective.
  • BEE elements such as equity transfers amount to an open-ended tax on existing and new capital.
  • Introduce a sunset clause for BEE; if the policy is successful, it should become redundant.
  • High skilled and low skilled workers are strongly complementary; the greater the demand for the one, the greater the demand for the other. The shortage of highly skilled workers causes a lower demand for low skilled workers and the lack of engineers may cause the loss of hundreds of blue collar jobs.
  • Stop and reverse the emigration of high-skilled whites. There is substantial anecdotal evidence that BEE rules may be sending a negative message to both young white university graduates and those in senior management.

Black professionals have joined the exodus

These recommendations were unpalatable for an ANC leadership convinced it was on the right radical economic transformation track by getting rid of Mbeki and his Gear approach and accelerating BEE.

It is unlikely that Hausmann will find an improved situation now. In fact, matters have deteriorated concerning the availability of productive knowledge.

Government, in its own White Paper on Migration (2017), acknowledges that:

  • For every one professional immigrating to South Africa, eight are emigrating.
  • White professionals emigrate due to push factors that include fear of change and opportunities open to professionals abroad.
  • In recent years, the annual number of black professionals leaving South Africa has exceeded the tally of professional white emigrants.
  • While the National Development Plan (NDP) prioritises skills acquisition to further inclusive growth, government has not devised or implemented adequate policy and strategies for retaining and/or recruiting such skills.
  • Between 1989 and 2003, 120 000 of the 520 000 mainly white emigrants had professional qualifications (one in four) and SA lost 7% of its total stock of professionals.

Considering that the 1990-2003 emigration of skills continued despite the return of stability under Mandela and Mbeki, one can easily state that at least a similar number of white professional people have left between 2004 and 2018, amounting to at least a quarter million of white professionals. The last phase of the [former president Jacob] Zuma catastrophe, as well as the ANC’s embrace of land expropriation without compensation, has led to an acceleration of skilled emigration by all race groups.

With the White Paper on Migration stating that more black professionals are leaving than white professionals, one can conservatively calculate that at least 400 000 professionals have left our shores. This contributes to the shrinking percentage of high-income households, as well as removing people in high personal tax brackets as contributors to the South African Revenue Service (Sars).

ANC effectively promoting growth in Mauritius at its own expense

The current low-growth, high-unemployment situation is too often blamed on the ‘Gupta-isation’ of government spending. 

Hurtful as these body punches were, the head blows of inefficient economic policies and inefficient and counter-effective administration have had a worse effect. 

Some examples are:

  • Inefficiencies in the logistics system – including some of the slowest ship turnaround times and highest duties on a global scale – were not triggered by Gupta-isation, but by transformational strategies such as affirmative action elbowing out experience. While the goal of affirmative action can be understood, why would a foreign buyer of SA exports carry such additional costs of inefficiencies if other suppliers (countries) that do not have such inefficiencies can provide these more reliably at lower cost?
  • If BEE adds any cost to firms exporting goods or services, the policies are making SA firms less competitive. Such firms generally either close down and re-establish abroad or they open an international affiliate unburdened by such regulations to escape from this opportunity tax. The ANC, through its policy mix, is exporting successful entrepreneurs to Mauritius and Botswana. Authorities in both countries indicate that SA citizens are quite active in registering companies there. Some of the surnames of directors in Mauritian companies registered the past decade are Botha, Basson, Coetzee, De Bruyn, Meyer and Van der Walt; names that would not garner any BEE points in South Africa. By pursuing demographic-driven economics, the SA Government is effectively promoting economic growth in Botswana and Mauritius at the expense of local growth.
 
We need leadership that realises:
  • Summits cannot replace the restoration of standards and productivity.
  • To assist the poor, the scuttling of anti-growth policies is more important than maintaining the unity tightrope between the factions of the ANC.
  • Before one can lure foreign investment, the inefficiency of the police service – considered one of the 20 most inefficient in the world, with the cost of crime for business the fifth highest – has to be tackled.
  • The high cost of state monopolies should be addressed by creating competition; this implies breaking up and privatising the majority of SOE components.

To be more precise, it is time (before the 2019 elections) to:

  • Declare a moratorium on BEE.
  • Revamp the police service and the top four tiers of municipal staffing by ensuring incumbents meet the requirements of these positions and stop the practice of making mice the managers of cheese factories rather than competent people.
  • Free all firms with an annual taxable income below R50 million from the constraints of collective bargaining.
  • Enter into port management arrangements with at least four consortia to ensure more efficient ship turnaround times as well as immediately slashing tariffs to at least the international average while committing to privatising the ports by not later than 2023;
  • Announce the introduction of a voucher system for parents to choose schools for their children (in at least two pilot provinces, preferably Gauteng and the Western Cape) from January 2020.
  • Transform the Sector Education Training Authority (Seta) system by giving employers the flexibility to choose from the total range of accredited training courses.
  • Cut national cabinet to no more than 20 ministers.

If not, the compromised unity slate of the national and provincial ANC lists will ensure another five years of waste. By then, the racehorses will have won more coveted trophies abroad, expanding the ranks of the SA-born Patrick Soon-Shiongs [US-based surgeon, entrepreneur and philanthropist] and Elon Musks [US-based entrepreneur behind Tesla and SpaceX] and enabling countries like Mauritius and Botswana to progress while the vision of the NDP will fade into pure fiction.

Johannes Wessels is director of the Economic Observatory of SA (Eosa). His article was originally published on the Eosa website here

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We live with a communist trained and socialist oriented government also rich in tribalism, favouritism and corruption.

Under such conditions a meritocracy cannot succeed.

If a white professional feels that he/she will never rise to the top due to the famed BEE etc they have to go where they can!

At the end of all you only live once !!!!

It is such a mess that if you were to remove
President Ramaphosa, Tito Mboweni, Pravin Gordhan and few other very good politicians, the ship would sink once and for all.

All thanks to Mr. Zuma, the Ex-President, the President which history will remember South Africans marching for him to leave.

And why is he still on public platforms addressing crowds and not in jail. This country will never recover from his 10 years.

Zuma was garbage

Zuma’s selected ministers were as useful as pot plants

Agree with you about leaving. If you are skilled and have any self-worth in South Africa, you should be looking abroad

The ANC has done nothing but bring South Africa to its knees

People wont see the Zuma damage until 20 years’ time when it’s time to retire and there is nothing left in the government pension fund

“few other very good politicians”; surely you aren’t serious? The individuals you mention are, at best, slightly better than those they replaced but all of them supported the “terrible” Zuma government faithfully for years. It is just a chair swapping of the crooked and incompetent (like Zim and Venezuela) IMHO of course.

Just for the record, there is no such thing as a good politician…

BEE has done its job…it’s time to move on and get on with Business SA. The longer this policy is around the more racist our society will remain.This country has amazing resources starting with its people….and still remains the hope of Africa. Education and dealing with over population is the key. Government grants should be an incentive to reduce the number of dependents not increase them! At the moment these grants are an incentive to not complete ones education and encourages having children out of wedlock …there are just not enough tax payers around to continue this cycle. It’s time to change. Hopefully it will happen under Mr Ramaohosa’s watch.

The ANC effectively promoting growth in Mauritius at its own expense!!
Everyngovernment around the world that has tried to control the market has destroyed itin the end. The prime example is Venezuela, all communistic countries and even the USA. All markets in the USA are rigged. Rigging leads to distortion, distortion leads to enefficiences , false information, bad investment failure in th3 economy.
Government’s role is to prepare the people for the market place and facilitate fair trade and a balanced justice system. So far it has failed in every aspect! Why carry on supporting it or even try and get it to recover.? Just abandon it and go back to basics !

It’s 25 wasted years, not just 10!

The ANC is a wasteful organisation and the deployed cadres just have one thing on their mind – corruption and self-enrichment.

BBBEE, a racist policy that is the breeding ground for fraud and corruption. It is the root cause of the majority of ALL South Africa’s econocmic problems. It is time for this to be scrapped.

Great ideas! However, it will fly like a lead balloon with the the majority of our electorate since they are obsessed with race ratios, victimhood and entitlement without any responsibility. Productivity and the question “what did you actually achieve today?”are also completely irrelevant.

Never, never and never again shall it be
that this beautiful land will again experience
the oppression of one by another.
– Nelson Mandela

and then he signed affirmative action into law!

These are all fantastic pipe dreams. Daydreaming of good outcomes seems to be all we have left though.

The implosion of he economy is triggered the moment any political party begins to regulate the economy. The more the state plans, the more individuals fail to plan. Entrepreneurship and job creation in South Africa is destroyed by the actions of the state that tries to promote entrepreneurship and employment opportunities. The state should protect private property at all cost, and economic activity will do the rest. BEE, Employment Equity, cadre deployment and militant workers are infringements on private property rights. These are policies of plunder that will kill the goose that laid the golden eggs.

In short – ANC policies are “decivilizing” South Africa. They are taking us backward toward the Middle Ages at great speed.

“Any attack on the peaceful possession of goods and on the property rights that pertain to them, any coercive manipulation of the free process of voluntary exchange, in short, any state intervention in a free market economy always brings about undesired effects, stifles individual initiative, corrupts moral and responsible behavior habits, makes the masses childish and irresponsible, hastens the decline of the social fabric, consumes accumulated wealth, and blocks the expansion of human population and the advancement of civilization, while everywhere increasing poverty.” Jesús Huerta de Soto – “Socialism and Decivilization”

Great article with great ideas, but I give a snowball greater chance in hell than the government implementing any of these ideas. My favourite sentence in the article is:
“Summits cannot replace the restoration of standards and productivity.”
I bet the government will hold several summits, indabas and other talk shops instead of actually doing something serious.

None of this will happen for a few reasons, namely:

– All the leadership cares about is staying in leadership positions, those are closest to the cookie jar;
– BEE has made people like Ramaphosa rich beyond belief, he is now the president, what is the chances he will change that? Slim to none;
– The poor is not actually a focus of the leadership in SA, yes they will hand out maize meal at elections but everything they do is short term power grabbing related.

The biggest irony is that we have more skilled black professionals immigrating than white. The cynic in me suggests that this is exactly the reason why trillions have been spent on basic services like education with little to no success, because the moment anyone comes into the middle class then the chances of them voting for the ANC starts to decline. I almost wish there was a policy that if you have voted for the ANC in the past decade then you are not allowed to leave, stay and reap the rewards.

I agree with this “BEE has made people like Ramaphosa rich beyond belief” and a bad spin off from it is that many people (Peter Bruce fo Business Day for example) believe he actually knows something about business; maybe even slimy Cyril himself thinks he knows something about business. In fact, all he knows about is politics and corruption; well schooled by his many years of ass creeping support for the incompetent and corrupt ANC. Now he actually thinks he can manage SA (Pty) Ltd. Fat chance when you’ve never even run a spaza shop. But of course I guess he’s taking no risk; I’ll bet his cash (and his kids?) are living a life of luxury outside of SA. And I guess he’s looking forward to a nice injection of farm land into his portfolio when EWC, SA style, kicks in.

Although I think Cyrill does have some organizational skills and is not a bad choice for running the ANC, the bigger problem is the ANC and the shambles of the past 25 years in terms of reaching their long term goals of which I would argue none have been achieved.

I do find it ironic that despite being a billionaire, his kids are still doing lucrative consulting contracts with government, it just doens’t end regardless of how much wealth is accrued, corruption still continues.

We have encouraged our children to get qualifications that will enable them to emigrate and make a life in another country. We wants to live in a society that is totally skewed in favour of one race? It’s just normalised social engineering — Apartheid under another name.

Did same with our children who then experieced ridiculous BEE firsthand and all left long ago and doing very well for themselves. ANC cannot manage a modern world with their socialist manipulation of all resourc es. RSA is a gonner

I am starting to feel unwelcome in the land of my birth. Fake news is stirring up hatred against whites every day. It is disgraceful that we have these rubbish laws to protect the majority from a shrinking minority.

BEE is bad for whites, but is BEE bad for the majority?, ie does the greater good over the long run not trump the few?
Also, the few are able to move and find opportunity elsewhere. It is only because the few were so productive that it made the impact worse for the whole.

You are missing the point, government performance is so bad that it is fueling a weak economy causing a brain drain across all ethnic groups. Free enterprise means economic prosperity for those willing to compete on a level playing field.

government performance is a different thing to BEE, that is a voter issue.

The long-term effect BEE is also bad for collection of tax by the Govt. Unsustainable ‘economic’ system.
The budget shortfall HAS TO get worse over time….my economics literature indicates there’s no other way.

RW Johnson’s book “How Long Will SA Survive the Looming (financial) Crisis” puts everything into clear perspective.

Hi jblack, I think this is a classic example where what appears to be obvious, is effectively disguising the reality. BEE is an opportunity tax that especially the poor masses are carrying. BEE, in all its formats from AA to BBBEE, in the first instance benefit the direct beneficiaries: the cadres deployed in official positions, the tenderpreneurs that land the contracts from government departments and municipalities at an increased price to enable them, the tycoons that landed pots and pots of shares from the corporates. Every cent that is this way chanelled towards enablement of black businesses is a cent siphoned off from service delivery: less funds for infrastructure, housing subsidies, medicine in the clinics to mention a few. Does that imply no BEE? In its current format yes, but devise BEE in a drive to ensure proper education with good outcomes, not the current system that yields a high pass rate based on a low exam percentage and that cementing SA as one of the five countries whose mathematics students perform worst in the world. That may imply developing an alternative voucher-funded school system, since I’m not convinced that SADTU can be supportive of a radical revamp to ensure quality education.

I think there is a merging of issues here. A wealth transfer tax that enabled the creation of wealthy elites is a requirement in order to bring them up to speed. Post this however, ie the current situation, seems to be unproductive and needs to be re-engineered to be supportive for business growth. I’d be in agreement that BEE can be scrapped now as there is sufficient change in the workplace and shareholding and move towards pushing monies into education/facilities from birth.

You can have the most productive workforce in the world but if you don’t have stable affordable electricity, your economy is dead on arrival.

A holistic solution is sorely needed.

It is just amazing and 100% sad that nobody in the ANC learned anything out of the old Rhodesia / Zimbabwe history and where that country stands today as a result of their governments limited economical insight in how one goes forward and not 20 years backwards – The ANC has this misconception that by dishing out land and jobs, especially government jobs, they stimulate the economy, actually they are just creating a long term liability for the taxpayer by doing so – the same counts for BEE jobs where time and again large amounts are paid out to BEE companies whilst the results received in return from those companies are not up to standard – one just have to go through the SOE’s history and there will be examples of it.

Correct! The Govt’s policies have the effect of splitting up or sharing a (shrinking) pie, instead of making the pie grow for the benefit of all.

But history has proven, the majority cannot uplift themselves against the minorities. Laws were needed.

Elections coming up! It is time the silent majority stepped up and got rid of this ANC government.

There is no silent majority. If all the people forced to vote, the ANC would have an even bigger majority and the EFF would be the official opposition.

Sad but true.

There is hard evidence highly qualified white people are leaving the country. In the business I operate in we have lost around 20 highly skilled people in the last 2 years, also 3 of my close friends have left, all highly qualified. I am working to ensure my kids get qualifications and experience that will allow them to be globally mobile as I don’t see a safe future for them in SA. It will always be home but professionally they must grow elsewhere. Just as an aside I fully understand the imbalances in the country and have (though my business) in the last 3 years sponsored 72 black kids to graduate level qualifications…their future in SA is bright, my kid’s future in SA is not.

@if it walks…

Agree & share your sentiment. Your kids may not have the number of opportunities in SA, compared to abroad.

Only a small portion of black kids’ future is great in SA, being the few that will become local professionals. Long-term (say over the next generation), the bright future for a (selected few) black kids will also diminish, as “economy SA” goes smaller and smaller as more professionals emigrate, and BEE to disappear without any skilled/wealthier people left behind to perform the “upliftment” function.

SA is not supposed to be this wealthy (compared to Africa) in the first place. Other African countries also have minerals & also poor leadership. Why should SA historically be more fortunate? My money is on the ANC (and African populism) to reduce SA to ashes over the next generation. Easy prediction…just be negative…and usually one is spot-on. I’ll live here, but my money will emigrate 😉

“In recent years, the annual number of black professionals leaving South Africa has exceeded the tally of professional white emigrants.”

If that isn’t an indictment of the ANC’s policies then I don’t know what is.

But of course, we have to ask why people go into politics, (especially in South Africa), the source of direction and control of the economy. What is their motivation? Here it seems to be purely selfish personal gain and so as long as they have the associated benefits of status, power and funds, they really have no incentive to improve the lot of the voting public.

So until the ethical, moral, intellectual capacity and quality of the administrators is radically improved I see very little changing. Especially considering the flight of black professionals.

In SA, when you have zero skills, little knowledge and expertise and basically are totally unqualified for anything higher than car guard or janitor in the real world, then you become a politician.
Its the only avenue for adcancement for the most incompetent in our society.

@Daviddebeer

That’s true from a supply-side. However I think there is a demand-side argument for incompetent politicians.

A party like the ANC that wants control over all levers from totally loyal apparatchiks will tend to appoint incompetents because (1) they are never going to have a professional disagreement in implementation of policy as they have no knowledge or background from which to disagree. And (2) as they have no alternative career, their undying loyalty is assured.

Problem is that there are two clear conflicting interests. Economic growth and the need for redress (a euphemism for retribution?).

Springbok captain Siya Kolisi recently came out against quotas. The underlying dynamics are the same – do we want a meritocracy or do we want to change the optics.

I am afraid this is unlikely to change, if anything the calls for redress/retribution is getting stronger. Expropriation of land also falls into this category. For the economy it spells disaster but it does quell some of the thirst for retribution.

Black South Africans, similar to my people the Afrikaners after the Boer War, have the sense that they are excluded from many spheres in their own country that they govern politically. This combined with the shame and anger from apartheid is a potent mixture.

White South Africans have probably to little empathy and understanding for the deep damage done to the psyche of black people during apartheid and all the little slights suffered by black South Africans adds up, till even the collapse of the economy seems a small price to pay to exact some form of revenge.

I can tell you the number of people who emigrated is much much higher. Here is the reason:

A lot of people with EU/UK passports just left after university or high school without going the process of emigration. If I were to count the number of people in high school who now live overseas, I would say 80% of my class left the country!

How many taxpayers is that lost?

Agree. On my 30th matric reunion a year or so ago, one realises with alarm the % of classmates that left SA. (…and mostly those wizz-kids or leadership types that became high-end professionals).

Never mind the loss to SARS, just imagine the skills loss. That’s why things happens so slowly in SA & there no implementation…as a direct result of so few skills left, that we struggle to perform our basic job tasks to a minimum level!! (Apology as I’m generalizing)

IF skills were able to be imported in a (physical) “box/package” form, Amazon and Alibaba will do roaring trade inbound to SA *lol*

But SA is a miracle: a miracle that we still have just enough skills left in SA to receive continuous electricity & water supplies. Mostly.

This is not limited to just people with UK/EU passports. I left on an SA passport but am naturalised now abroad.

As I left straight after Uni with just a shirt on my back, I had no reason to officially emigrate. The gov thinks I still live in SA but Ive been gone 20 years…

The economic suggestions are brilliant and would work wonders for the economy but the ANC, the likes of Zuma and more recently the EFF have fostered a political environment that make doing the ‘right thing’ for the economy impossible and have put the country on an irreversible road to destruction. The number of skilled people that I know of who have left and gone on to create wealth and jobs in other countries – that actually don’t need them – is immense. Sadly this country will need to reach a Zimbabwe-like rock bottom in order to wake up. What is even more ridiculous is that Whites that have stayed, are happy to live under Black rule and are committed to building a better South Africa are ‘attacked’ at every opportunity while those who mismanage and corrupt the country and economy are treated like heroes. Given the opportunity that was made possible in 1994 one cannot think of a bigger tragedy than South Africa.

“In recent years, the annual number of black professionals leaving South Africa has exceeded the tally of professional white emigrants”

This ANC government has failed and they will continue to for the foreseeable future. We need change and we need it NOW. Enough is enough.

I will save this article in my archives.

Ten years into the future, I will be “looking forward” to the follow-up article, to be titled “20 Wasted years”……..

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