What South Africa can learn from these two Asian countries to save its economy

South Africa’s economy is facing an uphill battle, but China and South Korea’s rapid growth over the last century can provide a roadmap to how South Africa can grow.

South Africans are struggling financially, with load shedding, rising interest rates, inflation and increased market volatility taking their toll.

Dr Francois Stofberg said that South Africa’s ruling party has relied on redistributive policies to build a more economically-equal society over the last three decades.

As a result, South Africa’s Gini coefficient – a measure of inequality in South Africa – improved but only slightly, with South Africa currently the most unequal society in the world.

In addition, Stofberg said that South Africa is currently using the incorrect policies, which have led to the highest unemployment rate, mainly if youth unemployment is considered, with close to half the population living in poverty.

Life expectancy, which provides an aggregate on success in improving human life in a country, has also remained unchanged.

Thus, Stofberg said that the ruling party has failed South Africa fundamentally.

Look East

Amidst the policy failures in South Africa, he looked at China and South Korea to provide a road map for South Africa.

Despite now being major economies, China and South Korea were incredibly poor nations in the middle of the 20th century.

“After about four decades, the Chinese government used wealth-creative policies to significantly improve access to healthcare, education, and other services, while lifting more than 800 million people out of poverty. Life expectancy in China has increased from 70 to 78 since 1995,” he said.

“From this perspective, we believe that it is easy to conclude that what the Chinese government achieved is much more “just” or, put differently, equitable.”

Black economic empowerment (BEE) was the main social-upliftment policy in South Africa, whereas China and South Korea’s economic upliftment programmes focused on wealth creation.

“Even those social-upliftment policies that China had, for example, the redistribution of land, were tied to economic principles of productivity and surplus. Charity of this kind was to allow for subsistence farming, that is, to redistribute from one class (or race) to another,” he said.

Despite China’s ruling party being communist, its policies were still tied to market efficiencies, as civil servants and grant recipients were held accountable for their development.

In addition, companies that received subsidies were held accountable via export discipline.

“If any business or individual does not produce competitively, first in the local market and then internationally, they are cut off from state support,” he said.

South Korea used a similar strategy and was able to create Kia and Samsung – industry leaders in their respective fields – within three decades.

“By linking redistributive policies to the ruthlessness of market efficiency and export discipline, individuals, companies, and even the government are forced to invest in labour, capital, and technology to remain internationally competitive”

He said that this resulted in extreme surpluses and large amounts of wealth in both Asian countries.

However, he noted that China’s authoritative model will not work in democratic South Africa. South Korea, on the other hand, achieved growth whilst still allowing for freedom and individual expression.

“Wealth-creative policies are, therefore, able to create an environment of participative justice, equal access to private property, and opportunities to engage in productive work,” he said.

“It is important to note equal access, not equal result. Equal result speaks of charity, which is a result of redistributive policies that are unable to create opportunities like wealth-creative policies can.”

Thus, South Africa’s next stage of development should be centred on wealth creation, and all forms of government assistance – grants, subsidies and BEE – must be linked to productivity.

This will hold all recipients and civil servants responsible for their decisions and results.

“Finally, we must invest more in wealth-creative policies like education, healthcare, and infrastructure. But crucially, when we do, these too must be linked to export discipline through accountability,” he said.

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