So obviously, the Rugby World Cup has dashed all other ideas out my head. So here is an attempt to say something about rugby and the economy.
(And don’t worry, there will be a long post with lots of numbers about fiscal policy just after the MTBPS).
Right, here goes.
How come some countries are better at some sports and rubbish at others?
Football – soccer – is played by 275 million people. There are 211 countries that are members of FIFA, the Fédération Internationale de Football Association. Four countries out of 211 have won 16 World Cups between them. Brazil has won five times. Germany and Italy rank joint second, with four titles each. Argentina, winners of the 2022 tournament, have won three World Cups.
There is something special about those countries that makes them naturally good at football. It can’t be anything about the people – Germans, Brazilians, Italians and Argentinian are all very different people. It is, once again, about the institutions and systems that create the environment that makes them just have a comparative advantage in football.
They didn’t naturally become good at football. It was a process of learning, understanding and improving.
While rugby is played by a smaller group of countries, it is still dominated by a few. South Africa, with four Rugby World Cups, yes four; the people that shall not be named with three; and then some others. I forget their names.
We didn’t just become good at rugby. We do have some natural comparative advantages. As a very physical sport, rugby favours bigger guys. Johan Fourie, Kris Inwood and Martine Mariotti have done some fascinating research showing white South Africans have always been very tall - closely related to our not so nice history. There is some evidence of convergence as incomes slowly improve
Then there is the full rugby value chain – a strong culture of school rugby , university rugby, competitions – all of which are designed to pick up outstanding players as quickly as possible and groom them. Of course, Siya Kolisi is one of them.
What lessons can we take from something we are clearly good at (rugby) for something we are not so good at (the economy)?
Just as some countries are good at some sports and not at others, some countries are naturally good at making some things, and others at good at making others.
That’s obvious. But there are two tricks.
The first is to focus on what you are good at (your comparative advantage) and then to relentlessly aim at getting better at it. The second is to jump from one thing you are good at to other things – diversification - which is to add to what you are good at.
Let’s start with the first. What is our comparative advantage? The data show some unsurprising things: Daan Steenkamp over at Codera shows that our revealed comparative advantage is in basic commodities. Gold, platinum, diamonds, iron ore and coal together make up a third of our exports. In agriculture, we export citrus fruit, corn, grapes and wine. We are the third biggest exporter of wool in the world, with over 80% of our wool exports going to China. This is our business model.
South Africa’s gross exports are dominated by metals and ores
Source: Harvard Kennedy School, Atlas of Economic Complexity
The reasons for this are largely historical – our great economic jumps forward have all been related to discoveries of minerals: diamonds in 1867 and gold in 1886, both of which led to amongst the largest gains in per capita income in South Africa’s history. Over the years, capital intensive industry has relied on cheap electricity plus generous tax rules and other incentives.
Are we focusing on becoming relentlessly better at these thing? Not really. Our mining policy has hardly focused on improving mining exports.
And here, dear reader, is the core South African challenge. We are not naturally good at things that absorb large numbers of the unemployed.
The temptation is to think that “beneficiation” is the answer – that it would be best for us to add value to things that we currently export (like gold and platinum). But this misses that point that the economics of beneficiation rely very much on what makes sense.
Take wool. It might seem obvious that the world’s third largest wool producer should try become “move up the value chain” to make, say jerseys and wool clothes. But the things that make us good at wool production – lots of sheep spread across vast tracts of empty land in the Karoo – do not make us good at knitting. They make us good at lamb and sheep. Not knitting. And so the better move is to jump into high-end lamb production, and try and create a name for ourselves in producing high-end trademark protected lamb, exactly what agricultural economist Wandile Sihlobo recommends.
Similarly, countries advance by progressing naturally to things that are related to what they are good at. In mining, South Africa has not developed into a manufacturer of gold jewellery. This is because jewellery manufacturing is something best done right at the consumer – the huge Chinese and Indian jewellery markets rely on consumers designing and picking their jewels right there.
Rather focus on complementary things. David Kaplan, former chief economist at the then Department of Trade and Industry, and now a professor of trade at UCT, shows that South Africa has become remarkably good at mining equipment. Other research by Simon Roberts, also a former DTI chief economist, and others shows that is the types of firms that do this are mainly mid-sized local companies that are super specialised in particular things - underground and surface mining equipment, off-road equipment, mineral processing, and material handling.
Why mining equipment? It is obvious. Mining is really complicated – and you need to work out how to do it right there and then. You can’t wait to bring in new machines from elsewhere – you have to build them yourself where you are mining. On the back of this, South Africa has developed a respectably sized mining equipment export cluster.
Mining equipment is exactly the type of export that we should become even better at, catapulting us forward to being an industrialised nation.
That takes us back to the rugby example. We are naturally good at certain sports that we have built a strong pipeline of skilled players.
We need to pick a lateral expansion. And take lessons about not choking from one sport to another.
So our best move is to win the Cricket World Cup next.