South Africa suffers from very high unemployment

An article in Bloomberg news paints a gloomy picture of South African development since 1994 when Nelson Mandela came into power. Mandela promised jobs and a good business climate. However now in 2012 the unemployment rate is 24 per cent.

The article claims that the threat of raising mining taxes or even nationalizing the mines is deterring investment. Nationalizing the mines would ensure that the benefits of development would go to South Africa and not foreign companies but that fact does not dawn upon Bloomberg writers.

Eighteen years later, his country has a 24 percent unemployment rate and a debate over nationalizing mines is deterring investment. Although a growth rate of 7 per cent is required to cut the jobless rate the actual growth rate is less than half that. Still that is far better than many European countries including the UK are achieving.

Of course Bloomberg is irritated by the fact that stock market is not thriving. They are not doing as well as Brazil. Brazil has an ex-Marxist guerrilla woman as president. Maybe that is what South Africa needs!

President Jacob Zuma wants to push through a secrecy law that could block reporting on corruption. The article argues that South Africa needs to be more attractive for investment. But as the article points out the Youth Wing of the ANC is pushing for more radical policies including the takeover of mines, land, and banks as a means of increasing opportunities through state development.

The Zuma government is not likely to adopt any of these more radical policies. Poor blacks comprise about 90 per cent of the South African population and without jobs their situation is dire leading to high crime rates and unrest.

The state has insisted on protecting some labor rights or as the article puts it South Africa has a labor system as rigid as France or Sweden. But those two countries have not had a bad record of economic development and both countries have or had a good social safety net..France is rated as having the best health care system in the world. Sweden has rates best in equality. If investors are considering Australia as an alternative for mining investment they should know that Australia just imposed a 30 per cent tax on mining profits. For much more see the full article here..

The types of reforms the Bloomberg article would like are unlikely to be politically palatable although certainly less corruption is desirable and attempts to block reporting of corruption does not bode well for the future. However, South Africa will hardly be unique in passing laws that protect a government from revealing what it is up to!