Business / Business News

Johannes Wessels
5 minute read
4 Jun 2019
8:05 am

Why Ramaphosa may have wanted to tie white people to trees

Johannes Wessels

Prolonged low economic growth could lead to even more economic flight by those with skills and capital, regardless of racial grouping.

DPA/AFP/ARNE DEDERT

Is South Africa’s “radical transformation” from a leader to a laggard in the upper middle-income countries the cause or the result of a brain drain? It is hard to tell. What is certain is that there is an extremely strong inverse correlation.

It is so strong that one can use one statistic to deduce the other – and if high-skilled emigration continues, the country’s decline towards the ranks of the lower middle-income countries will also continue.

Figure 1: High-skilled emigration and the slide to the bottom

Source: Eosa (using UN data)

According to World Bank data on upper middle-income countries, South Africa’s per capita GDP was 61.1% higher than the average in 1995. In 2017, South Africa was no longer a leader in this band of countries, but a laggard. Our per capita GDP had shrunk to 75.7% of the average (red line in Figure 1).

During this time, the number of SA-born residents in high-income countries (HICs) increased from 307,000 to 745,000 (United Nations Department of Economic and Social Affairs, Population Division, 2017). This index is portrayed by the blue line in Figure 1.

The two lines form a mirror image and indicate an extremely strong correlation.

Correlations don’t prove causality. One cannot say without further analyses that emigration to HICs is causing SA to be radically economically transformed from a leader to a laggard. Likewise, one cannot deduce that SA’s slide against other upper middle-income countries is the cause and the driver of emigration to high-income countries. However, the correlation is extremely significant; significant enough for one to confidently deduce that if one goes up the other will go down.

Tie white South Africans to a tree…

Even President Cyril Ramaphosa seems to be aware of this correlation, indicating during the election campaign that he wanted to tie white South Africans to trees to prevent them from emigrating.

HICs in general have high standards for granting residence permits. One can assume that the majority of South Africans finding permanent residence in those countries are either professionally qualified or have artisan skills that may be in short supply in the HICs, such as hairdressers and plumbers

Figure 2, based on UN data, plots how the exodus of skilled emigrants to HICs increased linearly from 1990 to 2017. Of significance is that during this period the number of South Africans born in low-income countries essentially remained flat, with a decrease from 42,341 to 39,259.

Figure 2: The South African exodus

Source: Eosa; data extracted from UN Population Division (2019), UN Migrant Stock by Origin and Destination (1990-2017)

Between 1990 and 2000, the number of South Africans in middle-income countries decreased from 53,000 to a low 40,000. However, by 2005, this number had again reached 53,000 – and has since rocketed to 115,000, including a 30,000 increase in Botswana. (It should be noted that the 624 SA-born people residing in Mauritius in 2017 appears to be a vast understatement of the reality.)The rapid increase of South Africans moving to other middle-income countries since 2005 is indicative that these South Africans assess the immediate and long-term prospects in these countries to be better than South Africa’s.

Fleeing a business-unfriendly environment 

This is a strong indicator that economic deterioration in South Africa – with its business-unfriendly environment (high crime, high regulatory environment, deteriorating infrastructure, high port tariffs and low productivity as well as unreliable and costly electricity) – is a driver of professional and skilled emigration.

More SA engineers heading for Australia 

Chaining South Africans to trees (through prescriptive investment) will not stem the emigration of productive knowledge.

There are clear indications that the brain drain is continuing and even accelerating. For instance, Emmanuelle Wintergerst, head of the skills assessment business unit of Engineers Australia, confirmed to the Enterprise Observatory of South Africa (Eosa) that there has been a doubling in the number of South African engineers asking for a skills assessment in order to be allowed to practise in Australia (see Figure 3).

Figure 3: South African engineers requesting skills assessment in Australia

Source: Eosa, using data from Engineers Australia; the figure for 2019 is an extrapolation based on the number of enquiries received so far this year.

If government is serious about changing the trend towards mediocrity, it will:

  • Effectively combat crime (the cost of crime for SA business being the fifth highest in the world),
  • Stop propping up inefficient and bankrupt state-owned enterprises that are an opportunity tax on growth (think Eskom, as well as having port tariffs more than double the world average simply to finance Transnet),
  • Acknowledge that, as Harvard economist Ricardo Hausmann advised government in 2008, BEE is effectively anti-growth and driving away productive knowledge, and
  • Commit to a phasing out of BEE and making it growth-compatible for the remainder of its lifespan.

In his 2017 New Deal manifesto Ramaphosa promised as a first priority “an unrelenting focus on economic growth”, setting a 3% growth rate goal for 2018. The growth rate for 2018 was a mere 0.8%. However, since his inauguration as president, his focus has been more inward, aimed at balancing the internal infighting within the ANC, with the economy receiving insufficient attention.

It is unlikely that South Africa will experience a high economic growth rate in the short term. If low economic growth is prolonged it could lead to a further economic flight: in this instance not by the poor seeking better prospects, but by productive capital seeking opportunities where their skills and talents will be appreciated and accommodated.

Johannes Wessels is director of the Enterprise Observatory of SA (Eosa).

This article was originally published on the Eosa website here.

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