From Leader to Laggard: the Brain Drain & SA’s slide to the bottom

Johannes Wessels
@johannesEOSA1

Is South Africa’s ‘radical transformation‘ from a leader to a laggard in the upper middle-income countries the cause or the result of a brain drain? It is hard to tell.  What is certain, is that there is an extremely strong inverse correlation. 

In fact, it is so strong that one can use one statistic to deduce the other. And if high-skilled emigration is going to continue, the country’s decline towards the ranks of the lower middle-income countries will also continue.

In 1995 South Africa’s per capita GDP was 61,1% higher than the average per capita GDP of the upper middle-income countries (World Bank data).  In 2017 South Africa was no longer a leader in the upper middle-income countries, but a laggard:  the South African per capita GDP had shrunk to 75,7% of the average per capita GDP of the upper middle-income countries (red line in Figure 1).

During the same time, the number of South African born residents in high-income countries (HICs) has increased from 307 000 to 745 000 (United Nations, Department of Economic and Social Affairs, Population Division (2017).  In Figure 1, that is portrayed with the blue line with the 1995 number as base (1995 = 100).

The two lines form a mirror image and indicate an extremely strong correlation.

Correlations don’t prove causality.  One cannot therefore say (without further analyses) that emigration to HICs is causing SA to be radically economically transformed from a Leader to a Laggard. Likewise, one cannot deduce that SA’s slide against other upper middle-income countries is the cause and the driver of emigration to high-income countries.  However, the correlation is extremely significant: significant enough to confidently deduce that if one goes up the other will go down.

Tie white South Africans to a tree…

Even Ramaphosa seems aware of this correlation, indicating during the election campaign that he wanted to tie white South Africans to trees to prevent them from emigrating.

HICs in general have high standards for granting residence permits. One can assume that the majority of South Africans finding permanent residence in the HICs are either professionally qualified or possessing artisan skills (hair dressers / plumbers) that may be in short supply in the HICs.

Figure 2 plots (based on UN data) how the exodus of skilled emigrants to HICs increased linearly from 1990 to 2017.  Of significance is that during this period the number of the South African born in low-income countries, remained flat.  There was a decrease from 42 341 to 39 259.

The number of South Africans in middle-income countries decreased from 53 000 in 1990 to a low 40 000 until 2000.  However, by 2005, this number again reached 53 000 and has since rocketed to 115 000, including a 30 000 increase in Botswana.

(It should be noted that the 624 South African born residing in 2017 in Mauritius, appears to be a vast understatement of reality.)  

The rapid increase since 2005 of South Africans moving to other middle-income countries is indicative that these South Africans assess the immediate and long-term prospects in these countries as better than South Africa’s.

Fleeing a business unfriendly environment

This is a strong indicator that the economic deterioration in South Africa with a business unfriendly environment (high crime, high regulatory environment, deteriorating infrastructure, high port tariffs and low productivity, unreliable and costly electricity) is a driver of professional and skilled emigration.

More SA engineers heading for Australia

Chaining South Africans to trees (through prescriptive investment) will not stem the emigration of productive knowledge. There are clear indications that the brain drain is continuing and even accelerating. For instance, Emmanuelle Wintergerst, head of the Skills Assessment Business Unit of Engineers Australia, confirmed to EOSA that there has been a doubling in the number of South African engineers requesting a skills assessment in order to be allowed to practise in Australia (See Figure 3).

(The 2019 figure is an extrapolation based on the enquiries received year to date.)

This trend is collaborated by at least two other meaningful statistics:

The FNB Estate Agent Survey recorded an acceleration in residential sales motivated by households emigrating (see Figure 4).

A 4IR without IT professionals?

In April 2019, Ramaphosa appointed a commission to “assist the government in taking advantage of the opportunities presented by the fourth industrial revolution”. MyBroadband’s 2019 IT Survey conducted amongst 3 055 IT professionals, however, concluded that 46% of them were planning to emigrate or to seek work abroad. The reasons why these professionals were considering alternative countries rather than to participate in the prospects of the 4IR, included political & economic concerns, high crime levels and lower living standards than in other countries. Envisaging a better future for their children as well as the constraints of BEE and affirmative action on job and business opportunities in South Africa, also ranked high (Figure 5).

If Government is serious about changing the trend towards mediocrity, it will:

• Effectively combat crime (the cost of crime for SA business being the 5^th highest in the world);
• Stop propping up inefficient and bankrupt SOEs that are an opportunity tax on growth (think Eskom, as well as having port tariffs more than double the world average, simply to finance Transnet);
• Acknowledge that, as Ricardo Hausmann advised Government in 2008, BEE is effectively anti-growth and driving away productive knowledge and commit to a phasing out of BEE and making it for the remainder of its lifespan growth compatible.

In his 2017 New Deal manifesto, Ramaphosa promised as a first priority “an unrelenting focus on economic growth“, setting as a goal a 3% growth rate for 2018. The growth rate for 2018 was a mere 0.8%. However, since his inauguration as President, his focus was more inward, aiming at balancing the internal infighting within the ANC with the economy receiving insufficient attention.

It is unlikely that South Africa will experience a high economic growth rate in the short term. If low economic growth is prolonged it could lead to a further economic flight: in this instance not by the poor seeking better prospects, but by productive capital seeking opportunities where their skills and talents will be appreciated and accommodated.

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