Thoughts on South African and international politics and culture

Thursday, January 17, 2008

The curse of SA's mineral wealth
Moeletsi Mbeki, Thabo's brother, wrote an op-ed piece in the New Statesman, about the problems inherent in trying to build a newly democratic economy with mineral wealth. Moeletsi proposes that SA's resource wealth allows the leadership to 'get away with' not restructuring the economy but rather trying to placate the poor with handouts. This isn't a long-term strategy...
A country develops when it is able to harness the energies of its people and put them to productive use. There are, of course, exceptions to this rule. Oil-producing countries are one. For very little effort, petroleum-producing countries pump crude oil from the ground and sell it for fabulous prices to foreigners.

South Africa is similar to oil-producing countries in that it, too, has natural resources - gold, platinum, diamonds, coal, iron ore, and so on - that are valuable to foreigners, who are willing to pay South Africa top dollar for them. While it takes more people to dig out South Africa's minerals compared to those employed to pump up crude oil, mining is still a small employer. Despite employing very few people, mining, however, makes a huge contribution to the country's wealth, in that it accounts for more than half of export earnings. The value that the few people employed in mining produce far exceeds their income. The government, therefore, has large revenues from mining activity that it can redistribute to the rest of society that does not work in the mines. This is what is called a resource curse - governments of resource-rich countries think their people need not work and will be happy living off social grants.

That is precisely the trap into which the ANC government has fallen. At least a quarter of the South African population receives social grants that would not be possible if South Africa were not mineral-rich. Without mineral wealth to redistribute, the government would have to work harder and be more creative to find solutions to unemployment and poverty.

Resource wealth makes it possible for the government not to have to put an effort into redeveloping the economy to create more jobs, and instead it sustains the unemployed and their dependants with social grants.
I'm not sure I follow Moeletsi to his end-point here, given the vast restructuring in the South African economy since the late 80's hay-days of mineral wealth. However, his point on the social grants is well taken, and it makes the piece a good read.