Thursday, February 03, 2011

On South Africa's wasted human capital

A post on Egypt's population is coming up, I assure you all. The importance of the subject merits doing it right. For now Suffice it to say that Egypt's key to the future of the regions of Nasser's Three Circles, the Arab world, Africa, and wider Islamic civilization.

In the meantime, let's take a look at South Africa, the other middle-income African country of global import. South Africa's invitation and eventual admission to the BRIC organization was perplexing.

[T]he man who coined the BRIC acronym, economist Jim O’Neill from Goldman Sachs, even interrupted his holiday to write a head-scratching note to investors about this development.

“While this is clearly good news for South Africa, it is not entirely obvious to me as to why the BRIC countries should have agreed,” O’Neill wrote. To give a sense of scale: South Africa’s economy is only a quarter of the size of Russia’s, the next-smallest of the group.

South Africa has a relatively small population of about 50 million, an economy worth $286 billion and growth of only about 3 percent last year — far from scorching. There are many other emerging markets that would better fit the BRIC grouping, O’Neill wrote, including South Korea, Turkey, Mexico and Indonesia, all of which have GDPs that are two or three times bigger than that of South Africa, and much larger populations.

“How can South Africa be regarded as a big economy? And, by the way, they happen to be struggling as well,” O’Neill told a recent investment summit.

I'd have invited Indonesia, myself. (It's difficult for me to understand how South Korea could possibly be an emerging market when it's richer per capita than Spain or Italy.) South Africa's admission to the BRIC group seems to be a matter of geographic parity, of having the group of the world's expected future world powers have representation from the African continent and South Africa's relative wealth and stability making it a much more attractive than the only other possibility of Nigeria. Whether or not the rest of Africa wants to be represented by South Africa is another question, notwithstanding the South African suggestion that their country is a suitable proxy for the continent. South Africa may be a more suitable proxy for the Southern African Development Community--ironically, founded during the apartment era to provide alternatives to trade with South Africa---but despite South Africa's economic weight its population is only a sixth of the 233 million-odd SADC residents, and the SADC itself is not very integrated.

Still, South Africa is going to have to bet its future on its ties to the rest of the continent: the country's population is expected to start shrinking after 2030, according to a local think tank.

By 2030 South Africa’s population will be 53.81 million. The population will then decrease to 53.74 million by 2035, and to 53.28 million by 2040, according to data from the Institute of Futures Research at the University of Stellenbosch cited in the Survey.

One of the main reasons for this is the long term impact of HIV/AIDS.

In South Africa, the number of deaths in a year is making up an increasingly higher proportion of the number of births. In 1985, deaths were 25% of births. This was expected by the Actuarial Society of South Africa to increase to 87% of births by 2021.

Thuthukani Ndebele, a researcher at the Institute, said, ‘If this trend continues, there will soon be more deaths than births in South Africa. It is evident that the HIV/AIDS pandemic has resulted in an increasing number of deaths. These deaths are mostly among people in the child-bearing age group, which will result in decreasing numbers of births.’

However, a lower fertility rate will also contribute to population shrinkage. Between 2001 and 2010, South Africa’s fertility rate decreased from 2.86 to 2.38 births per woman.

By 2040, the fertility rate will have dropped to 1.98 births per woman. This is lower than the replacement rate of 2.1 births per woman, which is needed for the population to reproduce itself.

Ndebele said, ‘Lower fertility rates are related to an increase in access to education and contraceptives, which results in women having fewer children.

‘A combination of increasing deaths as a result of the HIV/AIDS pandemic, as well as lower fertility rates will result in population shrinkage after 2030. This can be positive as there will be less strain on resources in South Africa. However, it will also be negative, as there will be fewer people to contribute to the economy and its internal consumer markets.’

As people in the comments there noted, these projections don't seem to take into account the possibility of new treatments for HIV/AIDS, or the near-certainty of continued immigration from South Africa's hinterland: high levels of income inequality in relatively wealthy Botswana and Namibia, never mind very low incomes elsewhere in southern Africa, practically ensure a continued economic incentive for migrants. Assuming that the South African population will start to age significantly over the next three decades is a safe bet, even if it mightn't be wise to bet in favour of a contracting population.

This projection has implications for the country's economic growth. With an aging population shifting towards rapid aging and below-replacement fertility, South Africa's continued economic growth in aggregate would require increased consumption per capita and productivity. The former is possible; the latter, with the historical record, may not be a good bet. The country's dependence on high-skills but capital-intensive industrial and service sectors and low-skills and low-productivity primary sectors, not to mention the profound disconnect between the formal and informal segments of the economy, does not bode well.

South Africa's economic growth record certainly hasn't been impressive, a recent news report placing the country's growth in GDP per capita at 0.6% per annum from 1970 to 2008. (This compares to 5.9% in Botswana, 7.9% in China, 3.6% in India, 4.3% in Indonesia, 3.5% in Ireland, and 1.9% in both the United Kingdom and the United States). South Africa has slid rapidly down world tables: A quick glance at the Penn World Tables and Wikipedia, comparing GDP per capita and HDIs in South Africa relative to the four founding BRIC members in Indonesia, suggests that Brazil and China have nearly caught up, with Russia staying in the lead and the remaining two countries making progress. South Africa's lead over the rest of the non-North Atlantic world has vanished.

Why? South Africa's population history--more precisely, the reaction of South African whites to their country's population history--is to blame. Apartheid did terrible things, especially (from the demographic perspective) the systematic destruction of cultural capital and sustained efforts at disdevelopment among the non-white majority. Left-wing miners early in the 20th century opposing black employment; the country had a public education systems that provided much more funding for white students than for black students (who, it should be noted, were discouraged from being professionals); the scandalously poor public health system that let tuberculosis run rampant with (according to Laurie Garrett in The Coming Plague) official claims that South African non-whites suffered so badly from tuberculosis not because of horrible living standards because they were genetically predisposed to catch the illness. The South African apartheid state even stripped most non-blacks of South African citizenship, creating a nightmare world of overpopulated rural slums, ill-serviced urban slums, and a tradition of oscillatory labour that helped HIV/AIDS spread so rapidly. In its 1994 Human Development Report, the UN observed that while South African whites enjoyed the human development indices of Spain, despite their country's wealth South African blacks suffered the levels of human development found in Congo-Brazzaville.

The sheer wastage of human capital over generations, all pursued in the name of a protectionist labour policy, is a tragedy. Botswana, at the time of apartheid's inception much less developed than its larger neighbour, went on to surpass South Africa in terms of GDP per capita and human development, even with its more severe HIV/AIDS epidemic. If--if, granted--South Africa's government hadn't decide to protect the living standards of a minority at the expense of everyone else, and had abandoned anti-non-white labour protectionism and disdevelopment for more rational policies, given South Africa's relatively higher level of development immediately after the Second World War than the BRICs it's easy to imagine a South Africa where many more people would have been able to exercise their talents for the betterment of all. The improvements in life chances in South Africa and its neighbourhood are scarcely imaginable. Such a South Africa--richer, less unequal, more developed broadly-- would have a significantly stronger claim to BRIC membership. As things stand now, South Africa is caught up in a desperate race to improve its human capital stock, to give more people chances, before its already-attenuated demographic sweet spot disappears.


Razib Khan said...

these projections don't seem to take into account the possibility of new treatments for HIV/AIDS

also, the people who die may have different mores & dispositions than those who live. so mores and culture may simply change through attrition.

Randy McDonald said...

Behavioural change is a possibility, especially as South Africans start to constitute new patterns of family formation, but I suspect the new treatments will be key.

Apart from their reduction of the transmissibility of HIV in the first place, the experience of many MSM communities has been for slow increases in prevalence as HIV-infected people live longer and healthier lives thanks to the disease's treatability. If--not to say we're close now--HIV/AIDS becomes as much of a problem as diabetes, well.