tv Key Capitol Hill Hearings CSPAN May 5, 2015 1:00am-3:01am EDT
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in south africa since it transitioned from apartheid. good afternoon. welcome to the cato institute. i'm marian tupy. before we start, a quick housekeeping item. the person who was supposed to be a respond ent today was taken ill and as a consequence won't be participating in today's forum. instead, frans will talk for a
little longer than we originally assumed, for roughly 35 to 40 minutes after which we will have a q & a and we expect to finish perhaps a little earlier maybe at 1:15 or so. with that, allow
me to introduce the subject of today's forum. it has been 21 years since south africa's transition to a multiracial democracy. for much of that time, the country enjoyed a largely positive media coverage and goodwill on the part of both domestic and international community and ordinary people around the world. yet, as the time passed, the bad news from south africa became increasingly more difficult to ignore. first, there was the presidency
marked by anti-western rhetoric denial of the link between hiv/aids and support for this zimbabwe dick ate for prompting michael gesh win of "the washington post" to refer to south africa as a rogue democracy. then with the seemingly endless corruption scandals widespread electricity outages and plunging business confidence attempts to muzzle the media and kwaush the independence of the judiciary, disorder that culminated in the massacre in 2012 during which the police gunned down 44 protesters. for years, the anc has tried to dismiss criticism of its misrule as an attack on south africa as a whole. that, i believe says more about the anc than about its critics.
the ruling party has tried to bring all institutions of the state, not to mention vast parts of the civil society under its thumb. as far as the anc is concerned, anc is the state. perhaps most shameless with those anc defenders who argued that criticism of the anc amounted to the criticism of the majority rule. well times have changed. as it has always been, to get a flavor of the political scene in south africa today, please join me in watching a very short video from parliamentary proceedings in the south african parliament earlier this year.
. >> we have indeed, allowed one powerful man get away with far too much for far too long. members, this honorable man is in our presence here today. honorable president in these very chambers, just five days ago, you broke parliament. please understand honorable president, when i use the term honorable, i do it out of respect for the traditions and conventions of this house. but please don't take it literally. for you, honorable president, are not an honorable man.
you are a broken man presiding of a broken society. [ applause ] so you're willing to break every democratic institution to try and fix the legal predicament that you find yourself in. you're willing to break this parliament if it means escaping the accountability for the wrongs you have done. you see, on thursday afternoon, outside this very house, members of the parliament were arrested and assaulted by your riot police. a few hours later inside this house, our freedom to communicate was violated by an order to jam the telecommunications network. not long after that, armed police officers in plain shirts physically attacked members of this house. this was more than assault on
members of parliament. it was an assault on the very foundations of our democracy honorable members. [ applause ] parliament's constitutional obligation to fearlessly scrutinize and oversee the executive lost all meaning on thursday night. in fact, the brute force of the state won and the hearts of our nation was broken. [ speaking in foreign language ] when you at that very moment, that our democratic order was in grave danger but here's the question. what did you do, mr. president? you laughed. you laughed while the people of south africa cried for their beloved country. you laughed while trampling mandela's legacy in the very
week that we celebrated 25 years of his release. honorable president, we will never, ever forgive you for what you did on that day. >> in our presence here today honorable president -- >> we've seen that already. all right. good. so that's done, then. frans cronje is the ce oechlt of south african institute of relations. the institute was established in 1929 and is a research and policy organization oldest in south africa. the institute is not only the oldest think tank in south africa, it is also the oldest liberal institution in south africa. it tries to be independent of government and of all political parties. it sees its role as serving its
members and the country at large to reach political and economic success on the continent by promoting liberal democratic values or, as we would put it classical liberalism. frans was at the university and holds a ph.d. from northwest university. he joined the institute of race relations in 2004 and established its center for risk analysis, which specializes in using scenarios to help business and government leaders make decisions about investment and policy in south africa. he's also an associate of the center for innovative leadership, a leading consultant and author. his work has been widely cited in the media. he writes columns for "the
report" newspaper and is it a regular contributor to classic business on classic fm. with that, help me welcome frans cronje. [ applause ] >> narian, thank you. good afternoon, ladies and gentlemen. it is a great pleasure to come and talk to you this afternoon. the economist newspaper says that south africa is headed downhill. are they right, is the question that i am going to try and answer for you in the next 40 minutes or so. and i'm going to do that via a scenario exercise called the time traveler scenario that my institute released in south africa about 18 months ago. and the time traveler scenarios try and describe the steps and the trends and the processes that will take south africa to its 2024 and if we pull this off at all here this afternoon, i
leave you in 40 minutes with a reasonably clear description of south africa the way it looks when it wakes up, opens the curtains and looks out at the world the morning after that election now ten years down the line. the story, as we wrote starts where it only possibly could in the south african economy. 1994 was the year of our democratic transition. nelson mandela comes to power as the first democratic leader and we have average levels of gdp growth of just over 3%. considering where we came from there's a member of success in that number. but it's been a bit of a roller coaster ride. what you are seeing over both my shoulders here is gdp growth performance in south africa from the year 2000 projected by the institute into the year 2019.
the 3% growth that we've averaged over the whole period to today where we sit started relatively slowly coming out of the transition years as the african national congress grew out of debt and the high interest rates. by the early 2000s, things were looking fairly positive indeed, between the years 2004 and 2007, south africa will exceed growth rates an average of just over 5% of gdp and those years that growth rate is something that you must keep in mind because we're going to revisit it again on a few occasions this afternoon. you can then see coming out of 2007, very obviously, the global financial crisis the south african economy contracts by 1.5% in 2009 and bounces out of the crisis and appears to recover into 2010 and 2011 and then the recovery stalls.
gdp growth in south africa is now trapped in a band of somewhere between 1.5 and 2% of gdp, about a third, i will show you later of the rate that south africa needs to get out of political trouble. there are many things happening in this graphic. you see the financial crisis. but what you don't see and nor explains the difficulty south africa has in recovering economically out of the crisis is that the same 2007 and 2008 and 2009 period coincides with a significant shift in the country. nelson mandela has been to davos in 1991 and has come back saying that south africa should drop their socialism system during the liberation years. by 1996, the south african government in the terms of its growth and employment and redistribution policy has adopted a fairly conservative
economic model. it argues the need to finance social spending, for example, not through borrowing which is controversial throughout parts of the west these days. that takes south africa up to the relatively high growth rates. in 2007, though there's a conference party left within the south african government remnants of the communist party that had been the engine of ideas in the liberation struggle seized power by voting out south africa's then leader and head of state who is forced to resign two years later. subsequently left us within the south african government have seized control of the policy formulation function. the economist newspaper again a year ago got it right when it quoted us on this talking about the ominous turn in 2007, a
common thread is that the weakened property rights threatened business with draconian penalties and undermined confidence. that assessment is spot-on. getting out of this growth trap over my shoulder requires dealing with two problems. the first one is that the international economic environment is coming together in a way that will make the growth recovery more difficult. the second thing that needs to be overcome is very bad domestic economic and other policy. i'm going to deal with both of those. we start with our argument on the global economy. these numbers will be familiar to you globally economic growth expected to pick up 2012 to 2017 to about 3% made possible by recovery and high-income or advanced economies, europe and
the united states but in terms of rates of growth it's a story of developing economies that should be exceeding growth rates of 5% of gdp by 2017. those developing economies and purchasing power terms are now 51% of global gdp that overtook advanced economies over the past two or three years. the advanced economy 49 to give you a sense of scale, asia is at 25% of the world's gdp. the european union and the united states both sit at levels of 16 and 17 and 18%. china and purchasing power terms overtook the u.s. last year in absolute dollar terms. the united states is somewhat ahead. india, 6% of the world's economy, the japanese also 6. subsaharan africa 2%. a very great extent what happens in the south african economy will be determined by how we are
swept along by the tides and currents that shape global economic performance. the story of growth as it is predicted to unfold is therefore a story largely of developing economies but it is not spread across regions and china and india predicted to exceed growth rates of 6% of gdp. europe sitting at 3% and only as long as you leave south africa in. as soon as you strip it out of the subsaharan numbers it becomes the third region in the world together with southeastern asia to be exceeding growth rates of just over 6% of gdp. of course, are we con if i debt
that at what we see in the growth numbers are the projections are accurate and one of the concerns we ran across immediately is that brought up by the price of copper. the numbers the years and along the bottom axis run from 2001 to 2015. you're looking at the copper price there he a it picks up from 2001 into the financial crisis and falls through the crisis and appears to pick up again and it's been stepping down for five years sitting now at just over $6,300, a number that was accurate on the london exchange yesterday. on top of the copper price, quick economic global growth. you can see why we like copper. it's one of the best leading indicators to indicate whether it's headed much better than oil and gold and concerning risk ap
pit appetite. the same time the orange line ticks upwards again. we thought that it relates not to the fact that global growth forecast is necessary but to what we see and know you all know is happening in china. in 2012, growing at 8%. 2013 the same stepping down into 2014 and the chinese will engineer a growth rate of about 7%. the real figure might be below that. and that's a trouble, that's a problem for south africa. because that means that one of our great commodity export markets and there's only one manufactured products. the great market for those commodities is starting to slow. the commodity demand will start slowing even the chinese drive their economy through internally drive driven consumption. the euro is staging a recovery
but this has caused question marks over that and that's another problem for south africa because of what you're seeing on the right-hand side of the graphic. major export markets china, 200 billion a year is our biggest export market. that's definitely going to slow and commodity demand will slow even faster. our second biggest export market is the european union. and what happens, for example, in the event of a greek exit? the united states a relatively small export market. south africa now records -- and this is a remarkable thing -- trade deficits with every major economy and region in the world except for nonenergy africa and the united states of america. africa is an export market considerable and will continue to remain in the rest of the world as well. the trouble for us is that as
south africa needs to stage a growth recovery, two of our big export markets, serious question marks are hanging over them. our outlook on the currency, therefore, is as follows. the yellow bar that you see is 19 1982 and i've chosen that because the rand traded at 1 to the u.s. dollar. in 1994 at the time of the transition it was 3.5. 10 years later in 2004 it is 6. it has moved a decade later to the last bar 2015. we think it will average 12.5th 12.5 this year and we think the rand is on its way to trade to 20. the story on the rand, the takeout story is that it has lost between a half and two-thirds of its value every decade since the 1980s and nothing in the current climate that we think is going to change that.
you see that same rand number again. i put it here on the left side so it will remind you of the rand's weakening trajectory. there's a very curious relationship between the structure of south africa's gdp. the years you're looking at are from 1994 into 2015. despite what rapd weakness would have given the agricultural contribution is down from 5 to 3%. it would have been 15%? in the 1950s. despite global booms in the mid- to late 2000s and the weakening rand over that period, mining's contribution to gdp is largely flat. the one that concerns us the most is the gray line manufacturer's contribution to gdp. is averaged about 25% from 1950 right through to the democratic transition in 1994. subsequent 20 years it's fallen
by half to about 12%. those three lines you see the hostile impact that government policy in south africa has had on three critical areas of the south african economy. the extent of that hostility is such that despite the huge benefit to exports it would have gained in the weakening round the contribution to the country's economy is slipping. the last little line i'll show you here it's not the entire economy to 100% but left out some sectors that aren't critical to my argument high-skilled sector banking finance, insurance technology. now almost three times as important to the south african economy as mining anding a curl combined. we are evolving over time to become a high-tech high-skilled post industrial emerging market economy and when i show you the skills portion of the economy, you're going to see why that presents opportunity in south
africa to africa's hong kong is to china. that means that we are unlikely to make much headway there. in the absence of a growth recovery, don't think that the revenue base of the government can improve quickly. this is the story of the south african taxpayer. the population in south africa is now about 55 million people. 53 million are adults over 20. about half of those about 15 million or so, have a job including in the informal sector receiving monthly cash grants from the state, more people now than people in employment. registered taxpayers the number looks reasonably healthy but that's an illusion. you have to register your employees now for income tax. only 5 million people are allowable to submit tax returns and just 10% of that number, 500,000, are earning the equivalent of $100,000 a year. that is the brittle nature of the income tax base.
without a turnaround in that tax base south africa's government runs into a number of fiscal constraints. 2005 to 2015, south africa's projected budget deficit is to sit at around negative 4 to negative 5%. it cannot borrow its way out of trouble because of this line, the orange one. that's the country's debt to gdp ratio. on the last day that the apartheid governed south africa that number was 48%. the national congress government brings the debt levels down into the 20 percentiles and pick up into the financial crisis year in 2009, as you can see subsequently they accelerate and then the levels end again at exactly the number they were on the eve of south africa's democratic transition. the south african government cannot grow its way out of trouble.
it cannot borrow its way out of trouble. i will show you in a moment that it cannot spend less either, meaning that the fiscal deficit is now the most powerful force acting on the government to determine where it goes next. in terms of staging a growth recovery, there's some pretty formidable infrastructure constraints standing in the way, the most prominent of which is electricity electricity constraints. the years are 1994 to 2024. we're measuring megawatts on the left hand axis and the gray pars bars are available capacity. if they turn on the switch, they draw electricity. it's a number that currently sits at about 30000 and picks up to 40,000 over the next decade. is it going to be enough? the first problem we get to is the relationship between the
available capacity and this blue line that we're calling stored capacity. the difference between the two is electricity generated capacity that is out of action for maintenance reasons, planned maintenance but, more often than not, unplanned. we're assuming a differential of 20% to what is in store and available to users. the worst this year has been 38% mainly as unplanned maintenance, breakdowns energy fran struck stur causing significant blackouts throughout the country. if the demand for electricity grows at 1% per annum then we have a surplus capacity by 2024. but 1% demand growth for electricity corresponds with 2% economic growth. not enough to solve south africa's social and economic problems. the demand for electricity increases at 3% per annum, why 3, if you look at the graph of the lines, 2004 to 2007 when
south africa hit 5% growth for the first time and that rate of electricity demand the shortfall will be close to 10,000 megawatts, the equivalent of two coal-fired power stations. what we're seeing here, therefore, is that you cannot now talk seriously about south africa exceeding on a sustainable basis growth rates 3% of gdp, the risk is on the downside. if we see more breakdowns of infrastructure, which are happening at a record rate, will you have to push that growth ceiling of 3% downward. that means that that level of growth, you cannot deal with the achilles heel, which is south africa's labor market. the population the blue line bar is 2001 and the orange bar is of last year 2014. the population has increased from 45 to roughly 55 million people. the population of working ages
increased and the population of the job however has increased by very much less than the population of working age and the population of unemployed as increased by even less than the population that is employed. where are people going? they are becoming discouraged work seekers young people not looking for work. 9 million is the population rise over this period. 8 million are of people joining the working age population. only 3 million of that 8 could find a job, including in the informal sector. 1 million became 4 million employed and that means they are looking for work but half become young people not looking for jobs. it is a crisis of young people. you're looking here at south africa's official unemployment rates by age group. the first bracket among the bottom line is people had 15 to 24. the data is not skewed by school children as we're only looking
at people actively looking for a job that cannot find one. that unemployment rate is 50%. for young black people, it's 60%. for young black woman it is 70% number. astonishing number. as people get older, they appear to find work but that is not the case. these are people that have always had jobs and they have simply hung on to them without a growth recovery in south africa that 50% unemployment figure become as bubble that will drift through other age groups as we move through -- it's a globally unique circumstance. we are home today that red part is 0.7% of the world's young people but almost 2% of the world's unemployed young people. when does it turn? the answers are here. a lot comes up at once so you will follow my voice through this. 1996 to 2014 along the bottom
axis. the blue line i'm showing you runs off the right-hand axis. that is economic growth in south africa. the little peak and the only time after 1994 that south africa recorded a sustained decline in unemployment rate has corresponded averaging 5% economic growth. it cannot solve its structural unemployment program but infrastructure rates alone 3% of gdp cannot be met. you can start to see the position that the south african government has painted itself into and the scenarios that will follow shortly answering the question of how did they respond to that position? before that, a went doeindow into
south africa's living standards. households for black african black south african families, there are about 12 million of those families, you can see on the orange bar. but only half a million of them, 479,000 have a home loan an excellent indicator of middle class status, they can begin to accumulate assets. indian south africans and white south africans we leave those two groups alone. white south africans, about 1.3 million families and a third have an active home loan from a financial service institution. look at monthly expenditure levels and there in blue are the 12 million black families. of those, 8 million in orange, are spending less than 2,500
rand a month. only 660,000 are spending more than 10,000 rand, approximately $1,000 a month. and a number that correlates very closely to the half a million home loans, especially when you consider that we have drown these numbers out of a sample size of 12 million mixed race, indian asian, and white south africans about two-thirds of them will spend in excess of 10,000 rand a month. this is a very brittle middle class. the takeout number, only 5.5% of black south african families have an experience of spending more the equivalent of $1,000 a month. south africa remain as poorer country than it is often able to portray itself as to the rest of the world. if you want to turn that around you need to be able to turn this around. the problem of the skills and what is happening in south africa's schools, the longview is very important.
so i start you in 1955 and i'm going to take you through 60 years to 2015 and we're going to measure through the apartheid era into the democracy how many black children successfully completed high school. the number -- and there is a number from 1955 and sitting at the front you might see that it's 555 children that completed high school. by the 1960s, not much has changed. in the 1970s, there's something stirring. the '80s, there's a pickup. the real pickup is in the last decade of apartheid. in the first decade of democracy, the rates at which young black kids leave and graduating high school is slipping. we expect this year the number to be 350,000 out of a cohert of 850,000 children and that's why i make the point of the changing
infrastructure. the skills story is not a good one. even if you were to survive in that blue bar and get to 2015 and graduate high school you've nonetheless suffered from a crisis of quality in your education. we're showing you the results of a study done on rates by grades. we're going to jump to grade 9 and then grade 12, the year at which you graduate high school. the test finds between grades 1 and 2, 60% of children in south africa are required to the degree to graduate those classes and graduate nonetheless. 4 out of 10 children have already been left behind. the rates crash by 2000. only 12% of the class is found to be numerate to be required to be at grade 9 and only 700 south
africans will pass with the final math exam with a grade of 50% or above and that in an emerging high-skill economy. for thatten reason, people remain dependent on south africa's welfare system that now has passed more people than in employment. my colleagues have developed an excellent indicator that appears here in a moment and measures what proportion of the budget in south africa has spent on free or subsidized housing, health care education and electricity, welfare is an actual cash grants to homes and individuals and 60% of government expenditure in south africa, the massive redistribution of wealth that has happened through the tax system. state debt costs are 10%. there is little room to expand
the welfare system especially when you look at the fiscal constraints on the government and this is the point on south africa not being able to spend less because spending cuts will eventually have to come out of this and that's something that the government will not be able to survive. the dependency that this has brought is shown on this graphic running from 2001 to 2015 and measures a number of people in employment. for every 100 people who receive a welfare grant from the state in 2001, 300 people had a job for every grant recipient. 2009, for the first time, more welfare recipients more than there are people in employment. it's a complex answer, though. in 1994 70 in every 100,000
south africans was murdered. a decade later the murder rate has fallen to 40 and it will largely stabilize to where we are today. it's a positive story but australia's figure in 2014 was 0.8 and yours here in the united states was 5 so in many respects we remain a violent society. are you safer? we brought home -- and i'll show you on top of that this data. 2005 to 2014 armed house and business robberies in south africa rising from 12 to 40,000 incidents. the total number of criminal convictions in the country has been falling and the reason i show you this is to make the point that many state institutions, the criminal justice system being one of them, is simply overwhelmed by the demands placed on it and in the environment that we
confront, we don't see our way out of these problems without a growth recovery. if this is the context where we are at 20 years, 21 years into our democracy u. what, what do south africans think about it? the answer is by the presidency in south africa and asks one question and asks many questions, one of which is, do you agree that the government is performing well? in the year 2000, 72% of south africans agreed with that. the government popularity has fallen to just 54th year and we think the number will fall below 50% into 2015. this is a collapse in confidence in the south african state. the collapse in confidence can be seen and read in other indicators as well. riot policemen employed in south
africa. between 1995 and 2001, south africa has a policing system and 11,000 riot policemen and then 10% of policemen that do policing work in the country, between 2002 and 2006 the riot numbers -- south africa was making it. we were going to become a successful democracy and you can see in the -- i think it's a fantastic way of measuring that. subsequently, the figure is at least 4,5000. a government is responding to the perceived threat. elected in a week or so i have no doubt leader of the opposition in south africa the
graphs that marian showed you to the great shock they invaded south africans parliament physically assaulted members of parliament and called the president and the state of the nation speech to appoint that he had to interrupt the speech the the government's responding to a real threat as well as it sees fit. 971 violent protests largely directed at the government took place in 2001. that number has more than doubled into 2014. you're seeing the beginning of what will become a protest movement in south africa. that collapse of political confidence in the government can be measured when you look at the formal political arena, how south africans vote. what i'm showing you here is voting patents and numbers measured not as a proportion of people who went to vote but express the proportion of people entitled to vote. in other words, citizens over the age of 18 had to go out and
vote. in 1994, the anc got 54% of the vote of all people entitled to vote if everyone had turned out to vote. they got 63% of people who went to vote and they have that number 20 years later. so it appears if you measure the voting -- the election results of anc support is constant but if you measure anc support as a proportion of eligible voters it's showing support quickly. the opposition of the party has made its way from 1.5 to 13% of the eligible vote. all other parties you see there in gray the collapse of the national party government that dates back to the apartheid era and some others. but the most political player in south africa has not appeared on the graphic. it's represented by this yellow line. the nonvote. the south african over the age of 18 entitled to vote who is choosing not to, their numbers are not greater than the number of people voting for the ruling party and that is not for a
moment a comment on voter apathy. these are highly activist young people, very politically engaged who look around the political spectrum and say i don't think this is for me. if half of the nonvoters were to vote again and not to vote for the ruling african congress, the african national congress will lose south africa's next election and that's a reality. that is accepted in private within the party. if this is the predicament that they are being faced, what is it going to do and the scenarios emerge obviously, led through a few months of work. we think the government and the ruling party as it is now positioned, has two sets of choices. on economic policy and seeing the likely consequences of the approaching fiscal cliff, is it driven to reform the single demand of pursuit of economic growth in the understanding that only that growth driven by domestic and foreign investment
can create the wealth to create the jobs to meet the expectations and secure the political future of the government. as it turns to the right or does it persist in the face of the evidence in the view that the social iflt socialist status can meet far better expectations. south africa is back to the idea, do we remain a free and open society under the rule of law as we have largely been or do the types of incidents that marian referred to do those become the norm at south african institutions are eroded how the country addresses those two questions of the fundamental importance to our future gives you the scenarios. where the state insists on being the socialist development state and later heads off inevitable political defeat borne of its inability to meet expectations
by attacking institutions south africa's rocky road scenario. socialism among crumbling institutions negative growth rates and invest of flight horrific human rights abuses. the best case is the government under pressure to the surprise of many of it is critics turns to the right. growth rates will have to start approaching 4 to 5% of gdp and it will win on the right-hand ak axis as the effects of reform are felt across homes across the country and there are reforms within the government who we know would like to turn this way but they remain a minority. an intriguing case, one that the south african government finds particularly interesting is what we call the narrow road scenario. again, the understanding follows from the context that market-driven reforms are the only way to escape the political defeat of the african congress but the same time the winning of
popular mandate is unlikely with a climate of ideas in south africa remains hostile to the idea of property rights and private enterprise and force reform and south africa's model gains 4, 5% growth rates degree of stability and you're talking about something approximating south africa of 1980s. the next one is the toll road future. the socialist developing state prevails and significantly under the country's potential and expectations escalate as we have clung to our democratic institutions and we have no ut do the african national congress will lose the 2024 election, most likely no clear when it will emerge and south africa will enter a new era of coalition politics. the most likely is the radical
marxist left together with the african national congress and by the time the african national congress loses we think the radical left will have approached 16 17 18% of the vote atddded to the 49% of the african congress gives the new regime a constitution majority. the most probable outcome on current trends is some hybrid of the toll in the rocky roads i think ending in coalition politics even if you have to push that one year ahead one cycle ahead into 2029 for the team at the institute which is our little consulting group to come to another conclusion of -- as the scenario we want to see economic upsurge of major export
partners and that will cause us to reconsider the likelihood, is the government buying itself time to escape the fiscal consequences of low growth? increases in foreign interest rates coinciding with capital upflows out of south africa and the economy falls flat. reckless short-term borrowing on the part of the government to shore up political support regardless of the consequences. the inevitable ratings downgrades will follow south african and the likelihood move into institutional investors pull out rand past the u.s. dollar. it's the rocky road future. sharp rand weakening together with be a environment of rapidly rising oil prices that put an end to any growth recovery. one that we are particularly interested in is fundamental reforms in labor market policy to emerge from the successful defeat of the apartheid system.
if the current government moves on on labor market deregulation it will tell us that they are truly interested in real reform. other areas of policy reform may also follow, opening the door to either the wide or the narrow road. if we continue to see loss of autonomy of democratic institutions, the down side beckons, so does that narrow road, that south korea type scenario where the government will appropriate to itself considerable powers and use those to force significant and conservative economic policy reform. south africa emerges as a prosperous country. there are such attempts that haven't been successful it will deter investment but more serious governments that do this follow very quickly, once you
take property rights, individual rights follow. stability in the ruling party meaning it falls apart what i don't think we will see would turn our views, sustain sharp increases in violent anti-government protest actions. we have little doubt that south africa's future as you will hear or experience it if you live in the country will fall broadly within the confines of one of the scenarios we set out for you today. marian and i gladly take your questions. thank you. [ applause ] >> thank you, frans for that interesting presentation. i would like to point out that the marxist group in south africa are waiting, called economic freedom fighters. i want to be sure there's no
connection between them and freedom fighters at the cato institute that stand for the exact opposite. before turning to the audience for questions could you explain in one or two sentences your beef with the unemployment regulations, for those people watching on tv or who are in the audience, what's the problem with unemployment regulations and agricultural property rights. >> i think the institute has maintained right from the time of the transition in 1994 that unduly heavy regulation of the south africa labor marked in the absence of skills revolution will conclude in the problem of structural unemployment and we've been proven right of course by the numbers that we see behind us. the fact of the matter, whether
activists on the left in south africa like it or not, without significant deregulation of south africa's labor market, we will not be able to ensure competitiveness that is necessary to allow very large numbers of young south africans a job. there are exceptions have become organizations that protect the employed from unemployed. the political consequences of the rising and unmet expectations are driving the rising left and marxist left in south africa. so it is not just a question of deregulating labor markets to achieve economic ends. if you cannot place more south africans in position, to take charge of their own lives, i
think we will see a continued input of radical leftist thinking that will take south africa deep into that rocky road future. on property rights we have grave conflicts, not just a question of agriculture. there are a series of proposed and active policies and regulations in the pipeline that undermine those rights. that stretches from policy thinking that would undermine intellectual property rights and therefore become a severe disadvantage to the country should it in time wish to position to -- you very well can come in, rearrange. should it want to become the services hub. as it stands, there's very little chance that south africa will attract the domestic or foreign capital investment new
greenfield expansion in mining operations or agriculture and the like as long as the rhetoric and now policy is starting to place the state in the position where it can seize property rights virtually at its will and delay the payment of compensation should any be paid in the longer term at all. >> all right, thank you very much. over to the audience. please wait for the microphone to get to you and if you would please, state your name who your pay master is and keep your question informal question. first question here. >> hi doug brooks with international stability operations association. great presentation frans. could you address foreign workers, how that impacted the economy and how chasing them out may impact the economy as well. >> absolutely, doug. if you follow the news on south
africa, you will have seen in recent weeks attacks on black foreign workers out of africa. and these are nothing new. we estimated that between 350 and 500 foreign workers have been killed in terrible circumstances, machete wielding mobs over the past decade. it's a function of rhetoric directed out of parts of the south african government at times, and people closely -- people in the pay as marian would say with south african government, in this case the sue lou household who portray foreigners as stealing our jobs, in some cases stealing our women, which raises all manner of questions. it's part of something broader though, doug. it is an attempt to divert
attention away from the root causes of south africa's problems, to offer the seductive idea that someone else is stood in the way of you and a better life, if you can take that someone else out of the picture, then your life will improve. you delay the inevitable turn of focus on to the south african government itself. it is not done as brutally as talking about the negative impact of western investors and companies in south africa. there's been a movement in south africa of students to remove any vestiges from university campuses. it is the same thing the idea that someone else came here and through their actions you are poor, and if you do not remove that other you will never have the life-style you aspire to. it is a very dangerous thing and it is going to increasingly
turn i have no doubt, into arising degree of anti-western sentiment in south africa as well, and western firms and the like invested in the country are going to start seeing this thing -- and what this heralds -- in their own company and organizations will have a difficult time batting it away. the gentleman with his hand up. the one i am pointing at. >> my name is steven. one scenario you haven't mentioned is a possible indonesian solution where the radical left overplays its hand and the government if driven by nothing other than self interest sees its future in violent repression of the left and property rights are protected,
if for no other reason than greed of a major family or two. >> i think there are elements of that, the top left scenario. the state is eventually forced to the right, has to maintain vestige of property rights, otherwise we get nowhere and tolerates no dissent at all. are we already on the way there? that attack on parliament was on the marxist radical left. the move within the ruling party i think to undermine effectiveness of trade unions by isolating the charismatic leader of congress of south africa's trade unions may be a move that direction. we certainly see reformers within the government and the ruling party people that would surprise some of the critics who if push comes to shove will move that direction.
the trouble is the climate of ideas is hostile to the type of private sector led growth, and the rights necessary to get there. either the reformers are more likely to fall short. the scenario is that continuing economic decline and oefrt move to try to undermine democratic institutions in the country. a gentleman to your left. yes, you sir. >> david terry with executive intelligence. simple question. the first is -- >> is the mike on? >> like this. okay. you projected what you thought might be the most likely
coalition government which could come in 2024. but i didn't understand clearly who the participants were. >> there are essentially four players in the political space at the moment. there's the african national congress which has about 40% of the vote of potential vote, 60% of the actual vote. they're player number one. the second player is the largely liberal or classically liberal -- these things aren't always clear -- opposition in south africa. and they're sitting at about let's talk about the actual vote anc has about 60 liberal opposition sitting around 25 or so. and the marxist left is sitting at about 7 and a few other rats and mice parties.
the likely coalition for me is that the anc loses its absolute majority, so it loses another 10 or 11 percentage points moves to just below 50. that is attrition both from the marxist left and from the liberal right of the party. if through that process of attrition the young marxists can gather another ten percentage points, then the likely coalition is former african national congress with former young marxists, and that completes a circle because the young marxist left is former youth wing of african national congress that was expelled from the party recently in the hope that like other splinters that have gone before it it would find life in the wilderness very difficult. it has thrived uh-uh uh-uh through some marketing genius and exploitation of the unmet expectations for young people. i think anc goes below 50, the likely partner is the radical
left. together they have a constitutional majority which is something that anc hasn't had since 2004. >> the other question if i may it was a big one namely what -- i was surprised in your scenarios you did not include the factor of the bricks alliance of nations. what bricks means to me is vast increases in infrastructure development. now, if you factor in south africa not only being a member of bricks but bricks bank coming into effect in a manner of months, and africa being somewhat of a priority for bricks as i understand it, then how does that effect this picture? >> i think south africa is brick
et. in per capita terms, looks like a brick in absolute terms, somewhat insignificant. i do think that plays into it. i think a lot of what plays into south africa moving, especially into the narrow road scenario is diplomatic pressure of sorts out of china that sees enormous advantage to themselves in changing what would otherwise be formative precedent, shaping the high growth economies across the continent. in that narrow road scenario, foreign corrupt practices act here would be a headache for any firm wanting to do business in south africa or in the rest of the continent, leaving the chinese with an unasaleable advantage. i think the bricks, unsaleable advantage for the future of africa. africa is starting to look impressive. 20, 30 year projections on
consumer markets could drive future recoveries. a lady in front of you, then the eager gentleman, i see your hand, i'll have you next. the lady in front of me please that's you, madam, yes. >> my name is mia. i would like to know for economic development, about public private partnership, in the normal moral way it is okay, the problem now is whether it is misleading, is terrible and according to africa development there's tendencies, equivalent to profit of people. people don't have water, they don't really receive it. i just wonder if you can explain
more how they use public private partnership or say forget it we want to do best interest of general public. >> i think one point you cannot escape on south africa is that in the absence of significantly high levels of investment must be driven from private sector, where will capital come from. public private partnerships are a popular fad. they often simply open the door to a corrupt relationship between big business and big government and i think to significant extent if south africa reaches that growth rate, because they had the door open and enabling investment environment was created. the gentleman at the back. i see one, two, three hands.
yes, sir. >> thank you. you made a good presentation of what are the factors effecting decline in economic growth of south africa. specific economic factors worldwide. now, maybe i got you wrong, but i got impression that it seems you are more concerned about anc being at fault and something else you take over. assuming that is right. suppose anc loses election and new government comes in the way you want it. what are the specific actions you would recommend to their new government to reverse the growth, the declining economic growth and particularly what are three specific things they
should do and what time frame would you advice such government before they see any positive response in economic growth in south africa. >> my first point to you is that with close to two-thirds majority over 20 years, it is only right if there are shortcomings in south africa, we take a close look at the behavior of its government. i don't think it is accurate to suggest that will we are pushing for collapse of that government. if anything else we fear if it only loses majority by one or two percentage points we end up in a worse situation where the marxists get back in again. that's it. we will back any party i think the broader sense willing to embrace the reforms to turn south africa around. specifically what needs to be done. first point. i will talk generally, introduce
a model adaptive for charter school system for the country. school vouchers. allow parents choice of education the children get. there are governments that can run good school systems. our government is not going to be one of those. if you cannot break the skills deadlock you cannot exploit a natural strength as a services economy. second step that future government must follow, significant labor market deregulation. scrapping of minimum wage, right to work clause in south african constitution scrapping of horizontal application of bargaining agreements. third, scrap all race based policies and black economic empowerment policies. they're simply a breeding ground for corruption, incompetence and unnecessary obstacle to invest to growth. that would be our advice. other political takers to accept
that, time will tell. let me move on. i see a number of hands. if you excuse me i am going to try to deal with as many as i can. the gentleman in front of me. >> tony carol. teach at johns hopkins vice president manchester trade. last week you spoke about trying to generate the attention and interest of those sectors within the south african government that are actually competent and who may be drawn to more persuasive arguments about good governance and lastly, let me say as a comment, i was in south africa before the end of apartheid, this government inherited a mess. status society, it was exclusionary highly inefficient. maybe things haven't gotten better, but they were certainly bad when they took over. i am not sure you make enough comment or reflex. i am more worried about engaging the elements of the government
that offer some coherence and willingness to engage. >> there are advantages in the fiscal deficit because it means that moderates within the government and reform minded members are more focused on getting out of trouble -- it focuses collective imagination. the prospect of a young marxist party in red berets or -- you would adjust for them if you get them to speak one day, we are seeing as a think tank as independently privately financed group more positive interaction with elements of ruling party in south african government than in the last 20 years. it is true to say south africa is a better place than it was at the end of apartheid. we have made that point repeatedly to the point that we have drawn the ire of the
official opposition. and i think in the mid 2000s it appears that would be our trajectory. the confluence of global financial crisis and effective coup of the left taking back policy forming function in south african government means that we are a country that is now significantly underperforming in terms of our potential. the gentleman on the extreme, my extreme left. yes, sir. >> i didn't -- i was hoping to see a chart that would show both the capital and human capital people leaving the country. i get the sense that, mine, can you go back after