A New Leader Emerges

South Africa is having a triumphant July. Earlier this month, a summit of African leaders accepted South Africa’s political and economic vision for the new African Union, handing Libya’s Col. Moammar Kadafi an embarrassing defeat and confirming South Africa’s role as a leading engine of African renewal and growth. Nelson Mandela, perhaps one of the most respected persons on Earth, celebrated his 83rd birthday to worldwide acclaim. Now, Thabo Mbeki, Mandela’s successor as president, has traveled to Genoa, Italy, to participate in the G-8 summit of the world’s most powerful leaders.

Even international financial markets are breaking South Africa’s way. As Argentina’s debt troubles rattled global markets, South Africa’s embattled currency, the rand, emerged as one of the strongest currencies in the developing world. In contrast to similar economies, its interest rates are falling and prices remain stable.

What seems increasingly clear is that Mbeki’s government has completed the work Mandela began: turning South Africa into a recognized leader, not only of Africa, but of the developing world. As his presence at the Genoa meeting confirms, Mbeki is the one Third World leader with the authority and credibility to put the concerns of the world’s poor countries squarely on the agenda of the wealthy, industrialized North. While other aspiring Third World leaders like Fidel Castro and Indonesia’s Gen. Sukarno rejected Western notions of democracy, free markets and the rule of law, South Africa has built its leadership by embracing them.

The revolutionary legacy of the African National Congress and its victory in the struggle against apartheid gives South Africa its credibility in the developing world. The country’s firm commitment to responsible economic policy, democracy and the rule of law gives it credibility in rich countries. By bridging the gap between the two worlds, South Africa can maintain a position of global leadership and influence and make a vital contribution to the evolution of a just and prosperous world.

The trouble is, for South Africa to continue to play this world role, the standard of living for ordinary South Africans will have to rise. Fast. Substantial progress has been made since the end of apartheid. More than 1 million homes have been built for the poor; electricity, water and sewage have been provided to millions; education for the majority has dramatically improved; municipal services have been extended to the once-ignored townships; and the South African government took the lead in persuading drug companies to offer AIDS drugs at affordable prices to poor countries.

Yet much remains to be done. Unemployment exceeds 30%. Half the population lives on less than $200 a month. Millions of South Africans suffer, at least periodically, from hunger and malnutrition. A backlog of more than 3 million households still lacks a roof over their heads. Police forces, generally, continue to lack the honesty, competence and resources to deal with a crime wave fueled by economic desperation. Worst of all, the wildfire spread of HIV/AIDS through South Africa, with infection rates well above one-third of the population in hard-hit Kwa-Zulu Natal province, could derail both the economic and political progress.

While sympathy for the government remains strong and the political opposition is both weak and divided, South Africans increasingly judge the ANC by results, not rhetoric. High-profile political scandals--inevitable, possibly, when revolutionary veterans are suddenly faced with the temptations of power and money--don’t help. South Africans resent the way the world press criticized some of Mbeki’s statements on HIV/AIDS, but most agree that the government’s response to the disease’s spread was too little, too late.

Next to stopping the spread of HIV/AIDS, the biggest challenge facing the government is to make the country’s financial system work better for the majority. South Africa inherited from the apartheid era what was in some ways a world-class banking sector, but it was and remains largely focused on serving the needs of affluent customers and big business. While affluent South Africans can get conventional bank mortgages, low-and middle-income people must turn to “micro-lenders,” some of them fly-by-night operations, whose interest rates are five and 10 times higher than U.S. credit-card companies. These often unscrupulous finance companies have entangled many South African households in a never-ending spiral of debt. Entrepreneurs trying to start up small businesses, which would create jobs and serve community needs, face similar obstacles.

Some banks, both foreign and domestic, are more aggressively serving the average household and emerging business (Citibank, for example, has an innovative lending program to help black entrepreneurs finance franchises). Having created a legal framework for a market economy, government needs to work with the private sector to ensure that the majority have access to the power of these markets to improve their daily lives.

Another area where South Africa needs to make markets work better is municipal finance. In the United States, much of the infrastructure that people use in their daily lives--schools, roads, and water and sewage systems--is paid for through municipal bonds. Towns, cities and states go to credit markets to raise money for large capital expenses and pay these costs gradually over many years. Without the ability to borrow money cheaply and repay it over time, U.S. cities and towns could not afford even basic infrastructure projects.

Building mortgage, small-business and municipal-bond markets is a lot less romantic than struggling against apartheid. It is a lot less dramatic than drafting bold and innovative plans for African political and economic integration. But if South Africa is to build on its current role as a world leader, it will have to build a new kind of capitalism in the developing world: A market economy that empowers the average working person and small entrepreneur. Those in the West who stood by South Africa in its struggle against apartheid and who welcome its constructive contributions to international life need to support South Africa once more as this remarkable, gifted country sets off on the next stage of its historic journey.