by Kerstin Engler and Timm Reutter
South Africa needs to create a spirit of departure into a new era. With the right and decisive steps being taken, the best days of the country may still be ahead.
Following the return of load shedding and ongoing governance issues at several of South Africa’s largest state-owned enterprises (SOEs), the twin threats of asset drain and of declining foreign direct investment (FDI) are increasing. Both are potentially devastating to the local economy, especially if President Cyril Ramaphosa fails to implement much-needed reforms.
There also hasn’t been nearly enough attention paid to the reduced FDI volumes as well as the growing number of locally owned assets which are being deployed outside the country. And, if steps aren’t taken to support the inflow, long-term consequences could be untenable.
‘Missing investments is a reality’
The value of FDI is cause for concern. The ongoing governance and power struggles could reverse the massive surge in FDI South Africa experienced in 2018.
Exacerbating the situation is the high number of foreign investors ditching South African assets. In July, it was reported that overseas investors had sold a net US$4.8-billion of South African equities and bonds in 2019, the most on a year-to-date basis in data going back to 1998.
If that trend continues, it could have a seriously detrimental effect on the growth perspectives of the country as well as total taxable income which is available to the fiscus as well as on local markets.
That, in turn, will impact on pension funds, causing societal disruption.
South Africa’s obvious economic challenges mean that local assets are appealing to fewer and fewer international investors. The latest bout of load shedding would have only underlined these challenges and further dented investor confidence.
Frustratingly, this comes at a time when international powers are desperate to invest in Africa. In 2019, Angela Merkel and Emmanuel Macron both made African visits aimed at boosting relations, while Turkish Prime Minister Recep Erdoğan kicked off a tour in January 2019. Britain, meanwhile, has earmarked the continent as a trading partner post-Brexit. As Africa’s most industrialised economy, South Africa should be well placed to take advantage of this interest, but its battle to keep the lights on will deter investors.
That said, South Africa still has a lot going for it. Stability of law, a functioning banking system and skilled labour mean that it could readily absorb and make good use of FDI, provided its governance issues can be turned around. That said, we feel South Africa is a relatively easy place for international investors to navigate and to do business.
Small wonder then that some are taking drastic action. The hedge fund industry, for example, is betting on new rules to help reverse a record drop in assets under management. The change in tax legislation whereby South African tax residents are no longer exempted from paying tax on income from foreign employment can also be seen as an attempt to disincentivise South Africans from taking assets abroad.
That may not, however, be enough.
Strong action needed
This approach also tackles the problem from the wrong end. Investors around the globe are diversifying their investment holdings — this is just good portfolio management practice. The focus should lie on making South Africa more attractive to foreign funds. Foreign investors recognise that steps are being taken in the right direction but they’re frustrated by the slow rate of progress.
While it’s encouraging that President Cyril Ramaphosa has taken matters into his own hands, he must find a way to implement the structural reforms needed to reignite growth and reduce the burden on the taxpayer.
And until that happens, missing investment remains a grave danger. Investments in the country’s economy are vital to prevent growth from further slow-down, to create jobs and increase the number of taxpayers. This is the only way to get out of the vicious circle.
FDI drives cannot lead to broader success, as long as basic infrastructure such as electricity hasn’t been fixed.
By doing their homework, fixing the infrastructure and creating an investor-friendly environment, the South African government could attract FDI which would create jobs, consequently increase consumption, create more jobs and increase the taxpayer base.
We both believe in South Africa — but in order to achieve this outcome, the country’s leadership has to move away from the headlines that mark a malfunctioning country and market better what they have. A spirit of departure into a new era has to be created. With the right and decisive steps being taken, the best days of South Africa may still be ahead.
South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa. It is bounded to the south by 2,798 kilometres (1,739 mi) of coastline of Southern Africa stretching along the South Atlantic and Indian Oceans; to the north by the neighbouring countries of Namibia, Botswana, and Zimbabwe; and to the east and northeast by Mozambique and Eswatini (Swaziland); and it surrounds the enclaved country of Lesotho. South Africa is the largest country in Southern Africa and the 25th-largest country in the world by land area and, with over 57 million people, is the world's 24th-most populous nation. It is the southernmost country on the mainland of the Old World or the Eastern Hemisphere. About 80 per cent of South Africans are of Bantu ancestry, divided among a variety of ethnic groups speaking different African languages, nine of which have official status. The remaining population consists of Africa's largest communities of Whites, Asian (Indian), and multiracial (Coloured) ancestry.
South Africa is a multiethnic society encompassing a wide variety of cultures, languages, and religions. Its pluralistic makeup is reflected in the constitution's recognition of 11 official languages, which is the fourth highest number in the world. Two of these languages are of European origin: Afrikaans developed from Dutch and serves as the first language of most coloured and white South Africans; English reflects the legacy of British colonialism, and is commonly used in public and commercial life, though it is fourth-ranked as a spoken first language. The country is one of the few in Africa never to have had a coup d'état, and regular elections have been held for almost a century. However, the vast majority of black South Africans were not enfranchised until 1994. During the 20th century, the black majority sought to recover its rights from the dominant white minority, with this struggle playing a large role in the country's recent history and politics. The National Party imposed apartheid in 1948, institutionalising previous racial segregation. After a long and sometimes violent struggle by the African National Congress (ANC) and other anti-apartheid activists both inside and outside the country, the repeal of discriminatory laws began in the mid-1980s.
Since 1994, all ethnic and linguistic groups have held political representation in the country's liberal democracy, which comprises a parliamentary republic and nine provinces. South Africa is often referred to as the "rainbow nation" to describe the country's multicultural diversity, especially in the wake of apartheid. The World Bank classifies South Africa as an upper-middle-income economy, and a newly industrialised country. Its economy is the second-largest in Africa, and the 34th-largest in the world. In terms of purchasing power parity, South Africa has the seventh-highest per capita income in Africa. However, poverty and inequality remain widespread, with about a quarter of the population unemployed and living on less than US$1.25 a day. Nevertheless, South Africa has been identified as a middle power in international affairs, and maintains significant regional influence.
The name "South Africa" is derived from the country's geographic location at the southern tip of Africa. Upon formation, the country was named the Union of South Africa in English, reflecting its origin from the unification of four formerly separate British colonies. Since 1961, the long form name in English has been the "Republic of South Africa". In Dutch, the country was named Republiek van Zuid-Afrika, replaced in 1983 by the Afrikaans Republiek van Suid-Afrika. Since 1994, the Republic has had an official name in each of its 11 official languages.
Mzansi, derived from the Xhosa noun umzantsi meaning "south", is a colloquial name for South Africa, while some Pan-Africanist political parties prefer the term "Azania".
South Africa contains some of the oldest archaeological and human-fossil sites in the world. Archaeologists have recovered extensive fossil remains from a series of caves in Gauteng Province. The area, a UNESCO World Heritage site, has been branded "the Cradle of Humankind". The sites include Sterkfontein, one of the richest sites for hominin fossils in the world. Other sites include Swartkrans, Gondolin Cave Kromdraai, Coopers Cave and Malapa. Raymond Dart identified the first hominin fossil discovered in Africa, the Taung Child (found near Taung) in 1924. Further hominin remains have come from the sites of Makapansgat in Limpopo Province, Cornelia and Florisbad in the Free State Province, Border Cave in KwaZulu-Natal Province, Klasies River Mouth in Eastern Cape Province and Pinnacle Point, Elandsfontein and Die Kelders Cave in Western Cape Province.
These finds suggest that various hominid species existed in South Africa from about three million years ago, starting with Australopithecus africanus. There followed species including Australopithecus sediba, Homo ergaster, Homo erectus, Homo rhodesiensis, Homo helmei, Homo naledi and modern humans (Homo sapiens). Modern humans have inhabited Southern Africa for at least 170,000 years.
Settlements of Bantu-speaking peoples, who were iron-using agriculturists and herdsmen, were already present south of the Limpopo River (now the northern border with Botswana and Zimbabwe) by the 4th or 5th century CE (see Bantu expansion). They displaced, conquered and absorbed the original Khoisan speakers, the Khoikhoi and San peoples. The Bantu slowly moved south. The earliest ironworks in modern-day KwaZulu-Natal Province are believed to date from around 1050. The southernmost group was the Xhosa people, whose language incorporates certain linguistic traits from the earlier Khoisan people. The Xhosa reached the Great Fish River, in today's Eastern Cape Province. As they migrated, these larger Iron Age populations displaced or assimilated earlier peoples. In Mpumalanga Province, several stone circles have been found along with the stone arrangement that has been named Adam's Calendar.
At the time of European contact, the dominant ethnic group were Bantu-speaking peoples who had migrated from other parts of Africa about one thousand years before. The two major historic groups were the Xhosa and Zulu peoples.
In 1487, the Portuguese explorer Bartolomeu Dias led the first European voyage to land in southern Africa. On 4 December, he landed at Walfisch Bay (now known as Walvis Bay in present-day Namibia). This was south of the furthest point reached in 1485 by his predecessor, the Portuguese navigator Diogo Cão (Cape Cross, north of the bay). Dias continued down the western coast of southern Africa. After 8 January 1488, prevented by storms from proceeding along the coast, he sailed out of sight of land and passed the southernmost point of Africa without seeing it. He reached as far up the eastern coast of Africa as, what he called, Rio do Infante, probably the present-day Groot River, in May 1488, but on his return he saw the Cape, which he first named Cabo das Tormentas (Cape of Storms). His King, John II, renamed the point Cabo da Boa Esperança, or Cape of Good Hope, as it led to the riches of the East Indies. Dias' feat of navigation was later immortalised in Luís de Camões' Portuguese epic poem, The Lusiads (1572).
By the early 17th century, Portugal's maritime power was starting to decline, and English and Dutch merchants competed to oust Lisbon from its lucrative monopoly on the spice trade. Representatives of the British East India Company did call sporadically at the Cape in search of provisions as early as 1601, but later came to favour Ascension Island and St. Helena as alternative ports of refuge. Dutch interest was aroused after 1647, when two employees of the Dutch East India Company (VOC) were shipwrecked there for several months. The sailors were able to survive by obtaining fresh water and meat from the natives. They also sowed vegetables in the fertile soil. Upon their return to Holland, they reported favourably on the Cape's potential as a "warehouse and garden" for provisions to stock passing ships for long voyages.
In 1652, a century and a half after the discovery of the Cape sea route, Jan van Riebeeck established a victualling station at the Cape of Good Hope, at what would become Cape Town, on behalf of the Dutch East India Company. In time, the Cape became home to a large population of "vrijlieden", also known as "vrijburgers" (lit. free citizens), former Company employees who stayed in Dutch territories overseas after serving their contracts. Dutch traders also imported thousands of slaves to the fledgling colony from Indonesia, Madagascar, and parts of eastern Africa. Some of the earliest mixed race communities in the country were formed through unions between vrijburgers, their slaves, and various indigenous peoples. This led to the development of a new ethnic group, the Cape Coloureds, most of whom adopted the Dutch language and Christian faith.
The eastward expansion of Dutch colonists ushered in a series of wars with the southwesterly migrating Xhosa tribe, known as the Xhosa Wars, as both sides competed for the pastureland necessary to graze their cattle near the Great Fish River. Vrijburgers who became independent farmers on the frontier were known as Boers, with some adopting semi-nomadic lifestyles being denoted as trekboers. The Boers formed loose militias, which they termed commandos, and forged alliances with Khoisan groups to repel Xhosa raids. Both sides launched bloody but inconclusive offensives, and sporadic violence, often accompanied by livestock theft, remained common for several decades.
Invasion of the Cape Colony, Cape Colony, British Bechuanaland, and Colony of Natal
Great Britain occupied Cape Town between 1795 and 1803 to prevent it from falling under the control of the French First Republic, which had invaded the Low Countries. Despite briefly returning to Dutch rule under the Batavian Republic in 1803, the Cape was occupied again by the British in 1806. Following the end of the Napoleonic Wars, it was formally ceded to Great Britain and became an integral part of the British Empire. British emigration to South Africa began around 1818, subsequently culminating in the arrival of the 1820 Settlers. The new colonists were induced to settle for a variety of reasons, namely to increase the size of the European workforce and to bolster frontier regions against Xhosa incursions.
In the first two decades of the 19th century, the Zulu people grew in power and expanded their territory under their leader, Shaka. Shaka's warfare indirectly led to the Mfecane ("crushing"), in which 1,000,000 to 2,000,000 people were killed and the inland plateau was devastated and depopulated in the early 1820s. An offshoot of the Zulu, the Matabele people created a larger empire that included large parts of the highveld under their king Mzilikazi.
During the early 1800s, many Dutch settlers departed from the Cape Colony, where they had been subjected to British control. They migrated to the future Natal, Orange Free State, and Transvaal regions. The Boers founded the Boer Republics: the South African Republic (now Gauteng, Limpopo, Mpumalanga and North West provinces), the Natalia Republic (KwaZulu-Natal), and the Orange Free State (Free State).
The discovery of diamonds in 1867 and gold in 1884 in the interior started the Mineral Revolution and increased economic growth and immigration. This intensified British efforts to gain control over the indigenous peoples. The struggle to control these important economic resources was a factor in relations between Europeans and the indigenous population and also between the Boers and the British.
The Anglo-Zulu War was fought in 1879 between the British Empire and the Zulu Kingdom. Following Lord Carnarvon's successful introduction of federation in Canada, it was thought that similar political effort, coupled with military campaigns, might succeed with the African kingdoms, tribal areas and Boer republics in South Africa. In 1874, Sir Henry Bartle Frere was sent to South Africa as High Commissioner for the British Empire to bring such plans into being. Among the obstacles were the presence of the independent states of the Boers and the Kingdom of Zululand and its army. The Zulu nation defeated the British at the Battle of Isandlwana. Eventually, though, the war was lost, resulting in the termination of the Zulu nation's independence.
The Boer Republics successfully resisted British encroachments during the First Boer War (1880–1881) using guerrilla warfare tactics, which were well suited to local conditions. The British returned with greater numbers, more experience, and new strategy in the Second Boer War (1899–1902) but suffered heavy casualties through attrition; nonetheless, they were ultimately successful.
Within the country, anti-British policies among white South Africans focused on independence. During the Dutch and British colonial years, racial segregation was mostly informal, though some legislation was enacted to control the settlement and movement of native people, including the Native Location Act of 1879 and the system of pass laws.
Eight years after the end of the Second Boer War and after four years of negotiation, an act of the British Parliament (South Africa Act 1909) granted nominal independence, while creating the Union of South Africa on 31 May 1910. The Union was a dominion that included the former territories of the Cape, Transvaal and Natal colonies, as well as the Orange Free State republic.
The Natives' Land Act of 1913 severely restricted the ownership of land by blacks; at that stage natives controlled only 7 pc of the country. The amount of land reserved for indigenous peoples was later marginally increased.
In 1931, the union was fully sovereign from the United Kingdom with the passage of the Statute of Westminster, which abolished the last powers of the British Government on the country. In 1934, the South African Party and National Party merged to
) controlled the vastly larger black majority. The legally institutionalized segregation became known as apartheid. While whites enjoyed the highest standard of living in all of Africa, comparable to First World Western nations, the black majority remained disadvantaged by almost every standard, including income, education, housing, and life expectancy. The Freedom Charter, adopted in 1955 by the Congress Alliance, demanded a non-racial society and an end to discrimination.
On 31 May 1961, the country became a republic following a referendum in which white voters narrowly voted in favour thereof (the British-dominated Natal province rallied against the issue). Queen Elizabeth II was stripped of the title Queen of South Africa, and the last Governor-General, Charles Robberts Swart, became State President. As a concession to the Westminster system, the presidency remained parliamentary-appointed and virtually powerless until P. W. Botha's Constitution Act of 1983, which eliminated the office of Prime Minister and instated a near-unique "strong presidency" responsible to parliament. Pressured by other Commonwealth of Nations countries, South Africa withdrew from the organisation in 1961, and rejoined it only in 1994.
Despite opposition both within and outside the country, the government legislated for a continuation of apartheid. The security forces cracked down on internal dissent, and violence became widespread, with anti-apartheid organisations such as the African National Congress (ANC), the Azanian People's Organisation (AZAPO), and the Pan-Africanist Congress (PAC) carrying out guerrilla warfare and urban sabotage. The three rival resistance movements also engaged in occasional inter-factional clashes as they jockeyed for domestic influence. Apartheid became increasingly controversial, and several countries began to boycott business with the South African government because of its racial policies. These measures were later extended to international sanctions and the divestment of holdings by foreign investors.
In the late 1970s, South Africa initiated a programme of nuclear weapons development. In the following decade, it produced six deliverable nuclear weapons.
End of apartheid
The Mahlabatini Declaration of Faith, signed by Mangosuthu Buthelezi and Harry Schwarz in 1974, enshrined the principles of peaceful transition of power and equality for all, the first of such agreements by black and white political leaders in South Africa. Ultimately, FW de Klerk opened bilateral discussions with Nelson Mandela in 1993 for a transition of policies and government.
In 1990, the National Party government took the first step towards dismantling discrimination when it lifted the ban on the ANC and other political organisations. It released Nelson Mandela from prison after 27 years' serving a sentence for sabotage. A negotiation process followed. With approval from the white electorate in a 1992 referendum, the government continued negotiations to end apartheid. South Africa also destroyed its nuclear arsenal and acceded to the Nuclear Non-Proliferation Treaty. South Africa held its first universal elections in 1994, which the ANC won by an overwhelming majority. It has been in power ever since. The country rejoined the Commonwealth of Nations and became a member of the Southern African Development Community (SADC).
In post-apartheid South Africa, unemployment has been extremely high as the country has struggled with many changes. While many blacks have risen to middle or upper classes, the overall unemployment rate of black people worsened between 1994 and 2003 by official metrics, but declined significantly using expanded definitions. Poverty among whites, previously rare, increased. In addition, the current government has struggled to achieve the monetary and fiscal discipline to ensure both redistribution of wealth and economic growth. The United Nations (UN) Human Development Index (HDI) of South Africa fell from 1995 to 2005, while it was steadily rising until the mid-1990s, before recovering its 1995 peak in 2013. This is in large part attributable to the South African HIV/AIDS pandemic which saw South African life expectancy fall from a high point of 62.25 years in 1992 to a low of 52.57 in 2005, and the failure of the government to take steps to address it in the early years.
In May 2008, riots left over 60 people dead. The Centre on Housing Rights and Evictions estimates over 100,000 people were driven from their homes. The targets were mainly legal and illegal migrants and refugees seeking asylum, but a third of the victims were South African citizens. In a 2006 survey, the South African Migration Project concluded that South Africans are more opposed to immigration than anywhere else in the world. The UN High Commissioner for Refugees in 2008 reported over 200,000 refugees applied for asylum in South Africa, almost four times as many as the year before. These people were mainly from Zimbabwe, though many also come from Burundi, Democratic Republic of the Congo, Rwanda, Eritrea, Ethiopia and Somalia. Competition over jobs, business opportunities, public services and housing has led to tension between refugees and host communities. While xenophobia is still a problem, recent violence has not been as widespread as initially feared. Nevertheless, as South Africa continues to grapple with racial issues, one of the proposed solutions has been to pass legislation, such as the pending Hate Crimes and Hate Speech Bill, to uphold South Africa's ban on racism and commitment to equality.