Compared to its regional counterparts, South Africa is a wealthy country. It has a strong economy and a solid industrial base. It has the potential to become a regional leader and assert influence over all of southern Africa. And yet, South Africa today is focused almost entirely inward, its ability to project power constrained by competition between numerous factions.

This wasn’t always the case. During apartheid, the country was ruled by an autocratic regime that was able to develop a coherent – albeit extremely exclusive – national identity that revolved around the white Afrikaners who controlled the regime. By institutionalizing segregation, it was able to ignore the interests of the majority and pursue its security imperatives. And so, during the Cold War, South Africa projected power throughout southern and central Africa; the military conducted operations as far north as Zaire (now the Democratic Republic of the Congo) and collaborated with the U.S. in anti-Soviet operations in Mozambique and Angola. (South Africa currently has a small number of soldiers serving in U.N. peacekeeping missions, but these missions aren’t central to the country’s interests.) Also during this time, South Africa developed nuclear weapons, which it later voluntarily gave up.

But with the end of apartheid, the competing factions resurfaced, and South Africa turned its focus back to domestic affairs. The political liberation of South Africa’s population not only failed to fix many of the problems that decades of racial inequality had perpetuated, but in many ways it froze them in place. Post-apartheid governments have been more representative of the country’s population but have struggled to unite the diverging interests of various groups, creating a deadlock that severely constricts the country’s ability to establish a greater presence in southern Africa.

This Deep Dive will examine the constraints, most of which are domestic, that restrict South Africa from forming a more unified nation and prevent it from asserting greater regional power.

A History of Conflicting Interests

In 1948, South Africa formally adopted apartheid, a system of governance that excluded blacks and institutionalized racist practices that had become the norm but had not yet been codified in law. Unlike other colonized territories, such as the Americas, where the majority of the indigenous population died from diseases brought over by the Europeans, the indigenous population in South Africa remained the majority even after colonization.

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Groups identified today as black South Africans are mostly Bantu-speaking people who migrated to the area that is today eastern South Africa between approximately 1000 B.C. and A.D. 1700, consolidating their position in the region as farmers from A.D. 400 onward. They pushed into the region after the advent of agriculture, displacing the previous occupants, Khoisan-speaking nomadic herdsman. The Bantu people include a number of subgroups, such as the Xhosas, of which Nelson Mandela was a member, and the Zulus, of which current President Jacob Zuma is a member.

In 1652, a Dutch East Indies expeditionary group arrived at what is today Cape Town and established it as a stopover settlement for ships sailing around the southern tip of Africa on the way to Asia. Descendants of these Dutch settlers eventually became known as Afrikaners, and their language, which evolved from the Dutch spoken by the settlers, became known as Afrikaans.

European imperial powers were relatively unconcerned with South Africa until the Napoleonic wars, when Great Britain seized the Cape Colony to prevent France from taking it and potentially disrupting its trade route to India. The British clashed with the Dutch settlers, who saw them as foreign invaders, causing the Dutch to migrate to South Africa’s northeastern territories. They eventually created their own republics, which would operate largely independently of British imperial rule for the remainder of the 19th century. Once the British realized that this area was rich in gold and diamond deposits, the conflict between the British and Dutch settlers escalated, peaking with the Second Boer War, which lasted from 1899 to 1902.

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The British won the war, but the victory was not decisive, and the diverging interests that drove the two sides to fight went unresolved. Both sides recognized, however, the need for a political rather than a military solution. In 1910, a constitution was drafted that granted South Africa a great deal of independence from imperial rule, and the country was unified into a single state. It didn’t gain full independence, however, until 1931, formally leaving the British Commonwealth in 1961.

Afrikaners took control of the political system, but the British were allowed to keep control of their economic assets, particularly in the mining sector. This arrangement was similar to the compromise reached after apartheid when black South Africans gained political control, while white South Africans (both Afrikaners and English speakers) were granted rights to their existing property.

Black South Africans arguably enjoyed greater rights during the first half of the 20th century than they did during apartheid. For example, they were allowed to acquire freehold property and were not yet confined to “homelands” or subjected to mass forced migration. But they were by no means treated as equals. With much of their land seized, they were forced onto unproductive land. Many migrated to cities to seek employment, while others flocked to mining towns, where they faced appalling living and working conditions.

South Africa thus has a history rife with division within and between the white and black populations. Apartheid was able to temporarily suppress these divisions, but it did so by subjugating black South Africans under the rule of the Afrikaner government.

The Fall of Apartheid

In many ways, apartheid sowed the seeds of its own destruction. Economic inefficiencies created by apartheid forced the government to gradually make concessions that allowed black political organizations to exert greater pressure on the government and eventually led to the collapse of the apartheid system. Many believe that it was international sanctions that ultimately brought down the regime. These sanctions, according to this view, placed enough economic pressure on the government to force it to give blacks more rights and eventually end apartheid altogether. But there is evidence to indicate that sanctions had a smaller impact than is generally assumed. A 1999 study published in the Journal of Political and Military Sociology presents compelling evidence suggesting that labor distortions caused by apartheid laws were more responsible than sanctions for the economic crisis that forced business elites and the government to compromise with the anti-apartheid movement. An ensuing liquidity crisis and the end of the Cold War were also likely more instrumental in bringing down apartheid than international sanctions were.

During apartheid, blacks were prohibited from working skilled jobs reserved for white laborers. But in the 1960s and 1970s, South Africa’s manufacturing sector began growing, partly because of a government effort to boost the domestic defense industry, and companies encountered a skilled labor shortage. Skilled white workers were able to demand higher wages, which put pressure on companies’ profits. To address the shortage, the government began allowing blacks to fill certain types of skilled jobs. But the poor education available to most blacks – especially in rural areas – meant that this move alone did not increase the pool of skilled laborers enough to plug the gap.

The government then attempted to relax travel restrictions that had limited labor mobility from areas where blacks had been forcibly relocated. (Roughly 3.5 million people were forced to move to agriculturally unproductive land between 1960 and 1983.) In 1979, the government recognized black labor unions, which helped bring more blacks to areas with jobs. More labor mobility, however, also led to greater political mobilization. And this resulted in a rise in organized demonstrations against business interests and, when large unions teamed up with the African National Congress, political interests as well.

As social unrest escalated throughout the 1980s, the apartheid government responded with increasingly violent and repressive measures. Outside investors saw South Africa as more and more unstable. But the government had grown highly dependent on foreign investment to fund its import substitution industrialization plan, a key part of which was the defense sector. South Africa was highly reliant on foreign debt, much of which was short-term loans. Worried that the unrest would endanger borrowers’ ability to pay back their loans, foreign lenders decided to stop rolling over this short-term debt, which led to a liquidity crisis in 1985. This put even more pressure on the government to end apartheid in order to bring back investors.

The fall of the Soviet Union also opened up the government to compromise with anti-apartheid groups. Suspecting that the ANC, which was allied with the South African Communist Party, was covertly supported by the Soviets, the government feared that capitulations to the ANC could lead to a communist uprising. It was this fear – heightened by the arrival of thousands of Soviet-backed Cuban troops in Angola – that had encouraged South Africa to develop a nuclear bomb.

By the end of the Cold War, the government’s main fear was no longer a communist revolution but a civil war triggered by black nationalists. The Afrikaner government thus shifted its focus from regime survival in the face of a communist threat to maintaining as much political power as possible under a new regime. It no longer made sense to resist compromise, though the Afrikaners successfully fought to protect the property and wealth whites had accumulated under apartheid.

With the end of apartheid in 1994, many – not just in South Africa but around the world – believed that non-white South Africans would be liberated and that a future full of opportunities that had been denied them for centuries would be opened up. But this was overly optimistic. White South Africans may have been willing to relinquish their political power, but they refused to forfeit their economic interests. The constitution of the new, free South Africa was born of a compromise between these two groups that froze in place significant aspects of the asymmetric relationship between wealthy – usually white – business and land owners, and unskilled – usually black – wage laborers.

The friction between these two groups is one of South Africa’s core constraints. Faced with this domestic discord and unable to reform the economy to provide greater economic opportunities for all South Africans, the government has been focused on internal affairs rather than trying to shape the world around it. The country’s declining power may also be partly attributed to diminishing U.S. support for anti-communist regimes following the end of the Cold War. But South Africa’s military was not heavily dependent on U.S. aid even prior to the Soviets Union’s collapse. Its military strength dwindled after the ANC took power and cut defense spending. The new government didn’t see its interests being served with a large military that had the ability to project power in neighboring countries. It instead turned its focus inward and diverted those resources to development initiatives.

Economic Inequality Persists

The constitution that ended apartheid was a compromise between the ANC, which primarily sought political power, and owners of land and capital in the country, who sought to retain the wealth that they had accumulated during the apartheid era. Those with economic power were unwilling to turn over political power without enshrining in the new constitution enduring property protections. This essentially made asset and land redistribution impossible. Though wage equality has increased since the end of apartheid, wealth equality has not. A small black elite has emerged, but poor employment and educational opportunities mean most blacks are still far behind whites in terms of economic well-being.

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A large portion of the constitutionally protected wealth of white South Africans was generated through mineral and commodity companies that had access to suppressed wage rates. These companies generated enormous wealth in South Africa from the late 19th century through the 20th century, in part because white South Africans were familiar with the global system of trade. Though other African countries also had mineral resources, by the early 20th century South Africa had long-standing governing institutions that could provide continuity during the transition from British colonial rule to independence. South Africa thus avoided the political and economic collapse that so many other colonized African countries suffered. This is not the only reason South Africa is today wealthier than other African countries, but it is an important part of the explanation.

After apartheid, mining, commodity and manufacturing companies lost the ability to directly suppress wages in the same way they previously had done. They began incorporating new tools in labor contracts, such as production quotas, that enabled them to avoid paying workers standard wage rates. Industries that faced rising wages due to union activity were moderately successful in replacing cheap labor with technology. These factors, plus the lack of quality education for non-white South Africans, have resulted in continued high rates of unemployment among unskilled laborers.

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Some South African companies lament the lack of skilled labor in the country, but roadblocks in the public education system that existed under apartheid persist. As a result, some companies have turned to Zimbabwean immigrants, who are thought to have better English skills than black South Africans, for semi-skilled positions. Only about 30 percent of South Africans speak some English, and just 10 percent speak it as their first language. This has created an undercurrent of xenophobia, as immigrants are seen as taking away the few jobs available to the local population.

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Investment Barriers

Overcoming these challenges requires new industries that can incorporate a larger part of the population. And this requires investment capital – a fact not lost on those involved in the 1994 compromise. Indeed, many believed the end of apartheid would be a boon for foreign investment. But this did not materialize, in part because the ongoing lack of skilled labor in South Africa limits economic growth and, therefore, investment opportunities. In fact, the end of apartheid and lifting of international sanctions actually caused a surge in capital outflow, as South African investors sought better opportunities outside of the country.

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Today, total investment – including domestic investment – as a percentage of gross domestic product is about the same as it was in 1995.

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Risk capital for earlier-stage ventures is also in short supply, partly because of the high barriers to entry for new companies. Many investors fear that more populist policies could be introduced and that the risk of asset seizures will subsequently increase. This seems unlikely given the property protection rights outlined in the constitution and South Africa’s history of judicial independence – during apartheid, even Nelson Mandela commented on the fairness of certain judges in the Rivonia Trial, despite their membership in the apartheid-supporting National Party. But the fear that South Africa might empower an autocrat similar to Zimbabwe’s Robert Mugabe and initiate a campaign of property seizures nevertheless inhibits greater capital inflows.

The failure to attract more investment has resulted in an economy that is highly dependent on exports and consumption, even though unemployment is high and people have little money to spend.

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The need to attract investment presents another constraint for the South African government. On the one hand, it must attempt to solve the large-scale socio-economic challenges that the country continues to face, and one way to do this is to increase government spending on social programs. But on the other hand, if the government were to significantly increase its deficit, it would need to finance the gap with more debt, and investors would likely see this as a sign of poor financial management and increased risk. To encourage investment, therefore, the government must maintain fiscal discipline, which reduces its ability to meet the pressing social needs of its constituency with greater government spending.

A Dissolving Coalition

As investment has stagnated, the ANC and its unionist allies have increasingly seen their interests diverge. The South African political landscape is being reconfigured, with new groups forming to represent disparate interests that no longer align as they did 30 years ago. The coalition that broke apartheid is losing its ability to govern effectively.

During apartheid, the ANC allied with the South African Communist Party and the Congress of South African Trade Unions. This coalition, called the Tripartite Alliance, didn’t see eye to eye on everything, but the parties had enough overlapping interests – their opposition to apartheid being the most important one – that they could find sufficient common ground to work together. But after apartheid ended, the disparate aims of these organizations gradually overshadowed their similarities.

Members of COSATU and the SACP became disillusioned by what they believed was the ANC’s willingness to work too closely with white economic interests at the expense of workers and black nationalists whom they were supposed to represent. But the ANC needed to cultivate good relations with companies and wealthy individuals who were the source of the tax revenue it was so dependent on; it was this revenue that funded the social initiatives the party promised to deliver.

These political divisions represent an underlying reality in South Africa: There is no unified conception of a South African identity. This has for hundreds of years created competing loyalties and, therefore, interests that were only temporarily set aside to end apartheid.

Much of the ANC’s support is derived from rural leaders who have a certain degree of autonomy from the central government. To maintain their support, President Jacob Zuma has essentially constructed a patronage network – which many refer to as crony capitalism – whereby lucrative contracts are given to tribal leaders who are political supporters of Zuma and the ANC.

It’s no surprise, therefore, that much of Zuma’s support comes from rural areas. But given that the Tripartite Alliance is fracturing and new political entities are rising to challenge the ANC, the party needs these patronage networks to stay in power. The loyalty of people in these areas lies with local leaders, not the central government, so the ANC depends on their support.

There’s no reason to believe that this coalition of interests could be held together by another ANC leader who decided to do away with these patronage networks. This institutionalized dependence on patronage networks is a domestic political constraint that will continue to put pressure on the ANC and will likely drive further intra-party divisions. That loyalty is often developed and forged around local and tribal institutions further adds to the competition of identities in the country.

South Africa is essentially a collection of statelets, all competing for their own interests. Without a coherent national identity, the country will fail to find solutions to its social and economic problems for the foreseeable future. Considering that its economy has nonetheless outpaced other countries in the region, despite its high levels of inequality, South Africa has the potential to become a regional leader. And indeed, it has made some strides in terms of living standards since the end of apartheid. But these advancements have not been enough to enable the country to expand its focus beyond its internal affairs. A country can’t project power outside its borders if it’s struggling to build the basic foundation necessary to hold up any nation.

Xander Snyder
Xander Snyder is an analyst at Geopolitical Futures. He has a diverse theoretical and practical background in economics, finance and entrepreneurship. As an investment banker, Mr. Snyder worked in corporate debt origination and later in a consumer-retail industry group at Guggenheim Securities, participating in transactions ranging from mergers and acquisitions, equity and debt capital raises, spin-offs and split-offs to principal investing and fairness opinions. He has worked on more than $4 billion worth of transactions. He subsequently co-founded and served as CFO for Persistent Efficiency, an energy efficiency company that used cutting-edge technology to create a new type of electricity sensor for circuit breakers and related data services. In his role, he was responsible for raising more than $1.5 million in seed capital and presented to some 70 venture capital and angel investors in the process. He also signed four Fortune 500 companies as customers, managed all aspects of company accounting, budgeting and cash flow, investor relations, and supply chain and inventory management. In addition to setting corporate strategy, he helped grow the company from two people to a 12-person team. As an independent financial consultant, Mr. Snyder wrote an economics publication for a financial firm that went out to more than 10,000 individuals and assisted in deal sourcing for a real estate private equity fund. He is an active real estate investor and an occasional angel investor. Mr. Snyder received his bachelor’s degree, summa cum laude, in economics and classical music composition from Cornell University.