Seven sobering articles on SA's economic crisis
Top writers identify key issues facing the economy while we count the cost of the surprise recession
In his Business Day column, Anthony Butler writes that President Cyril Ramaphosa will now have to make good on his foreign investment promises as there is little fiscal room to move:
SA’s descent into a technical recession has come as a blow to President Cyril Ramaphosa’s economic hopes. Given limited fiscal space, heavily indebted parastatals and a nervous private sector, Ramaphosa will now need to make good on his promises with regard to foreign direct investment.
He will come under heavy pressure to conjure up some good news at the investment conference scheduled for October. Ramaphosa initially claimed the tidy sum of about $100bn in new investment would be raised over five years.
The investment drive has become the signature theme of Ramaphosa’s tenure in the Union Buildings. He has sought out investment partners on the African continent, in the Middle East, across the global South, and among the countries of the Organisation of Economic Co-operation and Development.
This article looks at five key economic indicators that are signalling danger for the South African economy.
Natasha Marrian reports that the ANC blames the mess generated by years of Jacob Zuma maladministration for the country's economic problems. She writes:
The ANC’s head of economic transformation, Enoch Godongwana, admitted that mismanagement over the past five years had damaged the economy, which is in recession for the first time since 2009, when the global financial crisis caused a worldwide slowdown.
Now, with the right leadership and economic framework, the economic situation was likely to stabilise, Godongwana told Business Day on the sidelines of a media briefing in which the party detailed its plan to turn the situation around.
President Cyril Ramaphosa, who served as deputy president under Zuma, returned Nhlanhla Nene to the helm of the Treasury in a February cabinet reshuffle, but the economy has yet to improve, with unemployment remaining near record levels.
The immediate impact of the rand's deterioration following the announcement that we were in a recession is illustrated by this article, which calculates how much the price of basics on a foreign trip have risen.
A Big Mac meal would have cost you R68.89 in February. Today it would cost you R93.32.
Also writing in Business Day, Tim Cohen argues that the charter reveals how the ANC thinks about the economy. He writes:
The new Mining Charter to me is a reflection of how the ANC has changed from the Mbeki-era approach to the economy and business to that of the Zuma era, and now under the new Ramaphosa administration. This is a kind of subset of the broader political argument about whether the ANC should be trying to regain the central ground it held in the Mandela/Mbeki era, or whether it should stay where it is and contest most fiercely the space on the left.
Left-wing commentators in SA still regard Mbeki-era economics as a failure, and see its rejection as an understandable and laudatory refutation of centrist politics. In these pages recently, Jonny Steinberg wrote: "A version of moderate, centrist governance was paraded before South African voters in the 1990s and is deemed by many to have failed." The Mbeki government, in his view, was pro partial privatisation and a "policy of fiscal austerity was strictly enforced".
This view is common in SA and it totally infuriates me. If commentators think the Mbeki era — SA’s most successful economic period in a generation — was characterised by "austerity", then they have no idea what austerity really means.
In this article published in the Financial Mail, agriculture is singled out as the biggest culprit:
"There is [hardly any] way of sugar-coating the first-half GDP performance," says BNP Paribas economist Jeffrey Schultz, noting that there was weakness across nearly all sectors of the economy.
"While positive contributions were made from mining (up 4.9% quarter on quarter) and finance, real estate and business services (up 1.9% quarter on quarter), these remain tepid at best and don’t particularly instill confidence that the economy is on a rapid road to recovery," adds Schultz.
Agriculture is the big culprit once again. In the first quarter it contracted 24.2% quarter on quarter (revised to -33.6% quarter on quarter). At the time this was attributed to the high base established in early 2017 as the sector rebounded after the drought. However, in the second quarter, agriculture contracted as steeply — by almost 30% quarter on quarter.
Unless this is entirely due to the Western Cape’s water crisis, something else must be dragging the sector down. Several economists are blaming the ANC’s decision to expropriate land without compensation. If this is so, agriculture is likely to exert a steep drag on SA’s overall growth rate for the foreseeable future.
Writing in the FM, Claire Bisseker argues that South Africa desperately needs to identify a few core actions to turn the economy around:
Part of the problem is that SA has been unable to unite around a set of economic priorities — a short list of reforms that are deemed essential to get growth going. This work seems to have been relegated to back-room committees and summits, on jobs and on investment, about which the details are sketchy.
What SA needs is strategic focus and co-ordination, not the interminable dialogue of summits. Most people would be hard-pressed to name Ramaphosa’s top priority. Is it growth? Jobs? Transformation? Ending corruption? Rehabilitating the state? Education or land reform? That we have to guess is an indictment of his leadership.
If his top priority is growth then surely the time has come to shelve the search for consensus and do what must be done: clear away the regulatory hurdles, improve the national logistics system and cut red tape. Dealing with these binding constraints is the fastest way to kick-start growth.