South Africa’s Economic Crisis Will Breed More Social Tensions Wealth gap between few Whites and Millions of Blacks too wide. Recent strikes indicate the poor are getting angry

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WASHINGTON – According to most analysts, Sub-Saharan Africa is finally poised for a real economic take-off. Prevailing growth rates between 5 and 7% indicate a new vitality, and at the same time the promise of a far better future for perennially under developed countries.

Challenges remain

Yes, there are still major challenges in the Region: lack of electricity, poor infrastructure, deficient public health and inadequate public education, to name the most significant obstacles. But the Continent is finally moving ahead.

What about South Africa?

Yes, it is moving ahead, except for South Africa, the country that in principle should be ideally poised to lead Africa’s competition for higher rates of economic development.

After the bloodless political revolution of 1994, African National Congress (ANC) ruled South Africa had major advantages. The White South Africans during apartheid had developed several reasonably competitive modern sectors.

Therefore, post apartheid South Africa had decent infrastructure and manufacturing, not to mention banking, financial services and insurance. On account of all this, the new South Africa had by far the largest and overall most prosperous economy in the Continent.

Major advantages not used well

That said, South Africa did not manage to leverage these valuable assets in a good way. The country, despite the relatively smooth political transition from White minority rule to a Black majority government, remains deeply divided. Whites still have most of the wealth.

Not enough progress

Much has been done to help poor Blacks move up and eventually join the middle class. There have been significant investments in affordable housing and in basic services (water, electricity) aimed at improving the lot of the really poor.

But it was and it is not enough. The Black-White economic divide remains enormous. And this wealth gap is fueling resentment. Radical Black leaders, like Julius Malema, the founder of the Economic Freedom Fighters, interpret and channel this discontent.

Trade unions have become much more combative. This widespread resentment this year culminated in an unprecedented wave of strikes affecting the most critical mining sector.

Mines were closed for months. No output means no platinum exports, and therefore no growth.

The impact of the strikes

As the Pretoria News reports, (SA Mining Output Falls To 19-Month Low, September 11, 2014) , as a result of all these strikes, South Africa’s economy is contracting.

“South Africa’s mining output fell more than expected in July, hitting levels last seen in late 2012 and compounding doubts about whether the central bank would hike interest rates next week, as the economy suffers.

Mining output in Africa’s most advanced economy dropped 7.7 percent year-on-year in July, from a revised 5.4 percent decline in June, Statistics South Africa said, with output largely hit by platinum group metals, which fell more than 45 percent. [Bold added]

The data increases concerns about the health of the economy, which is still struggling to recover from the effect of a five-month strike in the platinum industry this year.

The number comes just days after the release of a wider-than-expected current account deficit for the second quarter.

Earlier this year the Association of Mineworkers and Construction Union (Amcu) downed tools for higher wages at the world’s top three platinum producers – Impala platinum , Anglo American Platinum, and Lonmin – in the longest strike in South African history. [Bold added]

The mining sector entered recession in the second quarter of 2014 and helped to drag the whole economy into contraction in the first three months of the year.

GDP managed a 0.6 percent expansion in the second quarter, effectively putting growth at zero in the first half of the year.” [Bold added]

South Africa is in a bind

There you have it. Zero growth. Not a very good prospect. It is understandable that under privileged South African miners demand higher wages and better working conditions. They can see the standard of living of the mostly White middle class and upper middle class.

Still, their protracted industrial actions have impaired mining, the country’s most important economic sector. Because of these huge economic losses, now everything is more complicated.

No way to fund new social investments

Do keep in mind that all government’s economic and social investment strategies are predicated on a much higher rate of growth. (At least 5%).

Unless this stagnant economy starts growing again, millions of poor South Africans are destined to stay poor. (The official unemployment rate is 25%. The real numbers are much higher. Many rural people have no real work. But they are not counted). Inevitably, in this already tense climate, persistent inequality will breed more resentment.

Unless the government and civil society, working together, can create a credible path that will allow the poor to find their way into the mainstream, I see only more trouble ahead.

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