Mo Leo

I believe that almost everyone I had a conversation with over the past two months now knows that I went to Cape Town in April this year. Together with 29 other students from the faculty, I explored the city in the two weeks we had. Apart from the nice (touristic) activities we did — we of course visited the Table Mountain, Lion’s head and Robben Island, did some wine tastings, and went to see penguins — we also visited a lot of companies to learn about the South African business culture, as well as the current economic situation of the country. The companies we visited range from an established insurance company to a technological start-up, and therefore provided us with a broad insight in South African business. Also, April has been a very moving month for the political and economic situation in the country, and that is one of the reasons why I keep talking about the country after the two weeks I spent there. Today, I will try to explain to you what is so interesting about South Africa and Cape Town in particular.

A brief history of the country
South Africa is known for the apartheid, Nelson Mandela, its wine industry, the fact that the country has got three capital cities and eleven national languages, the 2010 FIFA World Cup, and unfortunately, for its ever remaining inequality. In short: the country is very diverse and full of contradictions. The country that used to be a Dutch and British colony respectively became independent in 1931, after which segregation started to take severe forms. The years that followed were characterized by growing discontent, and Nelson Mandela became the arch image of the fight against racism. In 1994 Mandela became president of the Republic of South Africa and his political party, the African National Congress (ANC), has remained in charge ever since. Although the election of Mandela 23 years ago seemed to herald a completely new political, social, and economic era, the country has still not fully recovered from its moving history. Politically, the country is often considered unstable and corrupt. Looking at the country from the social perspective: half of the people in South Africa live in poverty, and the poorest 10% accounts for only 1.3% of the Gross Domestic Product (GDP). Especially in the townships of the big cities, poverty and criminality are huge problems. Furthermore, the country has the biggest HIV epidemic in the world. Approximately 7 million people (out of roughly 54 million) are infected with the virus. Some state that this huge number should have been prevented by the government, but due to the political unrest, it never came to that.

As to the economy: the South African market used to be a promising one. Being the second largest economy of the African continent, international trade is becoming more and more important to the country. Due to the variety of natural resources in the country, South Africa is an interesting country to trade with and invest in. However, 26.8% of the labour force is unemployed. High unemployment has been a problem in the country for decades now, and the government appears to be unable to tackle the problem. In fact, the current government is not doing so well for the economy.

Recession
Ten days ago, the government announced that the economy is facing a recession. The expectations for GDP growth are negative, and one of the explaining variables for this is the decreased investment. This decrease in investment brings us back to the moving month of April this year. After president Jacob Zuma fired nine of his ministers — of which one was Pravin Gordhan, the minister of Finance — the credit-rating agency’s Standard & Poor’s, and Moody’s and Fitch lowered the credit rating for the country to junk status. Their main argument was that Gordhan secured stability for the South African economy, whereas his discharge was a signal of political instability. Due to the downgrade to junk status, a lot of pension funds and other investment funds are no longer allowed to invest in the country of South Africa. As a result of the downgrade, the South African Rand (ZAR) started to depreciate against the U.S. Dollar (USD). This depreciation could in turn lead to higher exports, but until now it has not resulted in an increase. The ZAR now remains constant at a higher level, which causes an upward pressure on the government debt, since that is mostly denominated in the USD, which has become relatively more expensive due to the depreciation. Whether the government debt is sustainable is therefore not easy to say.

Company visits
During our company visits, we talked about the current economic situation a lot. What all executives of the visited companies agreed upon, was the fact that corruption is a serious problem within the country. As long as the president of the country puts his own interests above the people’s, crises will not be avoided. However, what I found really remarkable was the focus on the entire economy. Many companies emphasized how much potential the South African economy has and that it is such a shame that it does not show off. In their opinion the actions and unstable policy that President Zuma is pursuing dominate the opportunities that lie within reach of the country.

I think that this is what I found most interesting about the country: South Africa has got everything it takes to become a successful player on the world market, but they are still not succeeding in eventually becoming it. There are many natural resources; the location of the country is perfect for international trade, and the community in really diverse. In business studies you learn about organizations and how diversity is going to lead to more successes, but in South Africa it is apparently not paying off. Economic growth could be the key to more welfare throughout the whole country, since unemployment could be partly solved by more economic activity, but of course there is more to it. The political situation reflects the contradictions within the society: There is a lot of welfare, but there is also a lot of poverty. There is a lot of potential, but also very little success. There is a lot of faith in that potential, but there is no trust in the government.

If you cross the streets of Cape Town, you can experience these contradictions yourself. Many people are living on the streets and the townships that lie next to the heart of the city show that there are still a lot of problems to solve. At some point, it felt as if I was in a well-developed European city. But in for example Amsterdam, I can cross the streets on my own at night. In Cape Town I could not. This shows that Cape Town appears to be well-developed, and I think that a lot of people think about South-Africa as a relatively well-developed country, but that it in fact is not. There is so many inequality, but so many potential. The biggest contradiction of the country might not be the differences among people, cultures, poverty and welfare, but mostly between the expectation of the country and reality.