South Africa’s six competitive advantages

Thank you for inviting me to get the discussion started by talking about South Africa’s national competitive advantage. It’s always a pleasure to spend time with Sacred Heart, a deeply admirable community — and one that transformed my life.

As a business person I will naturally approach this topic from the perspective of national economic competitiveness, which is, simply, the ability to increase productivity and standards of living. 

Countries compete for export markets, inward foreign direct investment, and leadership in technology-intensive industries. Happily, this is not a zero-sum game in a multipolar world — there is room for everyone. 

The African economy will grow at 3.5% this year and 4% in the medium term, with South Africa growing at 1%. Other countries expect significantly faster growth of between 5 and 6%. This is good.

Education is one extremely important input into competitiveness. One can see this very clearly by looking at South Africa’s most internationally competitive sectors. For example, finance requires high levels of numeracy and literacy in all employees, and needs people with advanced skills in mathematics and statistics, accounting, law, psychology, marketing and communications. 

Mining is still an area of strength for our economy and here civil and mining engineering are the key skills. Some say that tourism is the new mining for South Africa. That may be — and it’s also a sector that requires advanced skills, particularly in logistics, marketing and management skills. 

Of course, we are all living with an important counterexample — we lost large quantities of crucial skills in electricity generation and in state-owned enterprise management, and we are paying a very heavy price.

Education

We should also not forget that our education sector is, in itself, a key source of competitive advantage. We have five genuinely world-class universities, another six which are very good by international standards, and a few hundred exceptionally good schools. All of these attract valuable foreign investment, create the next generation of advanced skills, generate economically important innovations — and, obviously, require a large supply of highly trained people themselves.

In general, education makes workers more productive and makes invention and innovation possible. There is, therefore, a very strong and worldwide statistical relationship between average years of education and national wealth — or to be more specific, GDP per capita. There is also a strong relationship between the share of the population with higher education and GDP per capita. More education is also strongly correlated with better physical and mental health.

Here’s what’s particularly interesting about this data. It suggests that both quantity and quality matter. Obviously, there are extreme cases — 12 years in a school where teachers struggle to understand, let alone communicate, the curriculum does not equal 12 years at Sacred Heart. 

But, broadly speaking, quantity actually does matter. Years of adequate education build competitive advantage. Equally, quality matters — the kind of schooling that gets you ready for advanced education and training are also very good for growth. 

Other than education, what are South Africa’s national competitive advantages?

I think many people will be surprised by how strong South Africa’s national competitive advantages are. 

Energy

First, believe it or not, we will soon have enough energy again. There’s no polite way of saying this — the electricity crisis is a monumental catastrophe. It was totally self-inflicted and totally avoidable and, at current levels of load-shedding, it’s reducing economic growth by as much as 2 percentage points per year, according to the Reserve Bank. In other words, if we had enough electricity, we could be growing as fast as 3% a year.

However, it’s also true that there has now been enough regulatory reform to ensure that the crisis will end over the next few years. Standard Bank’s experts say that at least 9 000 megawatt-hours of private-sector new build has already been procured, and that at least 3 000MWh of this will be coming online over the next two years. 

So, conservatively, we should be able to avoid at around three stages of load-shedding by the end of 2025. Further, a lot of commercial activity is now also shielded against load-shedding by self-generation or battery backup. 

Just to be super-clear — it’s outrageous that we ever got into this situation, and it has caused immense damage, but we’re on the way to recovery.

In addition to the energy sector reforms I’ve mentioned, public-private partnerships and competition are being introduced in the ports and freight rail sectors; an e-visa system has been introduced for important emerging tourist sources and a successful spectrum auction was held last year.

Next, our “brown” and transitional energy endowments are, and will remain, an important source of competitive advantage. I’m firmly of the view that South Africans — and all Africans — have an absolute right to make use of these resources. 

We understand the importance of moving towards sustainable energy. But we should do so at a pace that makes sense for Africa. We should not be dictated to by the global north, and we should certainly not sacrifice Africa’s human development on the altar of climate change targets set by activists in air-conditioned and heated offices in the capitals of the richest countries.

Before we leave natural endowments, it’s also important to remember that as well as coal and gas, we have abundant sunshine and wind and the rare earths and platinum-group metals necessary to generate, store and transmit transitional and green energy.

Robust corporate sector

A third major source of competitive advantage is that the South African corporate sector is incredibly robust. It’s something of a mixed blessing but it’s also simply true to say that South African businesses are the world experts in doing well under difficult circumstances. 

This year, for instance, our analysts think that South African listed equities will deliver average earnings per share growth of between 15 and 20%. This compares rather well with emerging markets overall, where earnings per share are expected to shrink by between 3 and 4%. 

South Africa in general is far more economically and socially resilient than is often assumed. One measure of this is the fact that, looking at the democratic era since 1994, income per head has grown at the very pleasing compound annual rate of 2.4%. 

Another is South Africa’s surprisingly high “resilience ranking” —  according to the Swiss Re Institute, our economy is considerably more resilient than many other emerging economies and some developed ones, including Spain, India, Russia, Portugal, Italy, Mexico, Hungary, Brazil, Turkey and Greece.

Strong institutions

There’s no denying that there was severe decay during the state capture era. Even in the darkest phases of that time, however, we retained one of the world’s best central banks; a national treasury that is one of the most transparent and respected in the world; a respected and rigorously independent judiciary; a robust free press and a vibrant civil society. 

Now, several other important institutions and state organisations have returned to health. These include the revenue service and the National Prosecuting Authority. In addition to these we have some less-heralded, but equally strong and valuable, state organisations and institutions, including our department of science and technology and our very effective and advanced epidemiological capacity which, as you remember, led the world in the detection and sequencing of the Covid virus.

Springboard into the rest of Africa

A fifth — really powerful — source of competitive advantage for South Africa is that we are still — by far — the only sensible place to be based if you want to buy into Africa as a whole. Only South Africa can provide the necessary combination of deep and liquid markets, sound macro policy, legal certainty, local expertise and world-class managerial and technical know-how. 

International investors do very much want to buy into Africa, given our uniquely favourable demographics, immense natural resources, potential for low-cost industrialisation and last, but certainly not least, increasing market integration under the African Continental Free Trade Area.

It is now clear that the period of unipolar globalisation, which began around 1990, is over. That period has given way to a new era of heightened nationalism, increased tension between the great powers and their allies and, unfortunately, higher barriers to the free flow of ideas, capital, goods and people. 

But thanks to our relative detachment from the tensions that dominate the global north, thanks to the African Union, and thanks to the AfCFTA, Africa is an increasingly attractive exception to these trends of increased fragmentation and heightened tension. As Kwame Nkrumah said at the dawn of African independence, two generations ago, “We face neither East nor West — we face forward.”

This stance of active non-alignment is understood in the West. As The Economist pointed out in March, “America and its allies are trying to recalibrate their message to the non-aligned world … ’Countries don’t want to choose and we don’t want them to’ … America is [therefore] pursuing diplomacy in places it has neglected. Kamala Harris, America’s vice-president, Ms Yellen and Antony Blinken, its secretary of state, have all visited Africa in 2023. Mr Biden will soon follow.”

Thus, if we continue to make the right policy choices, the current geopolitical setup will enable South Africa and Africa as a whole to continue to grow faster and to attract a great deal more foreign direct investment.

Optimism

Sixth and finally, I’d like to mention a source of competitive advantage that is directly up to all of us — optimism. 

Realism, yes. But hopelessness and doom-mongering, very definitely no. This point is well made by Daniel Drezner in “The Perils of Pessimism: Why Anxious Nations are Dangerous Nations” in the July 2022 edition of Foreign Affairs, where he writes: “If leaders believe the future looks unfavourable, they will be tempted to take risky actions … In contrast, optimistic leaders foresee a brighter future ahead for their country … which tends to produce investments.”

Larry Fink, chairman of BlackRock, the world’s largest asset manager, makes the same point in his annual letter to investors this year:

“Long-term investing requires trust in the financial system and a fundamental belief that tomorrow will be better than today. We need leaders today who will give people reasons to be hopeful, who can articulate a vision for a brighter future. And we need institutions that inspire trust. So much of what we have lost over the past few years — through Covid, war in Europe, political polarisation, geopolitical fragmentation, and macro-economic shifts — has eroded optimism, trust, and a belief in a better future. There’s so much fear today: fear of economic insecurity, fear about what world the next generation will inherit, fear of how the ‘polycrisis’ that characterises the economic and political landscape will shape the future. But I remain an optimist. The world has faced major crises before. We got through them by confronting problems, imagining a better future, creating connections, and driving innovation forward. We need to do the same today. Our job as leaders is to show people how to see in challenges opportunities that can be captured.”

I very much agree with these thinkers. Indeed, I would say that we have both a moral obligation — and clear interest — to disrupt cycles of dangerous despair and to replace them with the realistic optimism that leads to investment, to enhanced competitive advantage in South Africa.

This is an edited version of a keynote address delivered at a Sacred Heart College business breakfast on 2 August by Sim Tshabalala, the joint chief executive of the Standard Bank Group and chief executive of Standard Bank South Africa, who matriculated at Sacred Heart College in Johannesburg in 1985.