Picture: 123RF/RATTANASIRI INPINTA
Picture: 123RF/RATTANASIRI INPINTA

SA requires creative and innovative solutions to put the economy back on a sustainable financial path. Structural reforms are needed to enable a more business-friendly environment aimed at encouraging investment to grow the economy.

The country has benefited in recent months from a commodities boom, which provided an unexpected tax windfall. This has resulted in an unprecedented trade surplus — meaning more capital has flowed into the country than out of it — that has helped to underpin the rand, contain inflation and keep interest rates at historically low rates.

The state’s finances have benefited from the mining sector’s stellar results through improved tax collections which has, in turn, increased calls for a universal basic income grant.

However, no commodity boom lasts forever. What happens when the price of commodities inevitably cools, and the state’s finances are no longer able to benefit from better-than-expected tax collections? Any commitment to a universal basic income grant must be based on sustainable sources of revenue. 

All indications are that the recent economic tailwinds are not enough to alleviate the tenuous position of the country’s debt-to-GDP ratio, or avoid further future ratings downgrades, unless the government is able to significantly rein in public sector expenditure.

SA’s economy was in trouble even before the Covid-19 pandemic, characterised by low levels of growth, rising unemployment and poor business confidence. The pandemic has served only to exacerbate the challenges facing the country.

A deteriorating debt position is a risk to the entire economy. A financial crisis and deep recession will ultimately diminish confidence and reduce investment appetite.

The fragile state of the economy is reflected in the disappointing month-on-month manufacturing output figures. According to Stats SA, manufacturing production fell 0.7% for the third consecutive month in June, indicating that a recovery in this sector has stalled and failed to reach pre-Covid levels.

Expectations are that the July figures will be even worse, which will weigh on the sector’s contribution to GDP. In line with this, the latest Absa Purchasing Managers’ Index has fallen to a 14-month low, representing declining sentiment.

There is extensive research available that shows a strong correlation between economic growth and social stability. The former must urgently be prioritised with quick wins from low-hanging fruit. These include the introduction of a business friendly regulatory environment aimed at restoring private sector confidence, and encouraging investment into local operations.

Labour laws need to be amended so that they don’t dissuade businesses from hiring staff. We need to increase the beneficiation of extracted minerals into higher-value products and urgently increase the country’s manufacturing output. At the same time the country’s youth need to be armed with the necessary skills to ensure their employability in a rapidly approaching Industry 4.0 world.

SA requires creative but practical policies that enable inclusive economic growth, boost confidence and encourage investment. The country has the potential to create a more positive future for itself, fuelled by opportunities for greater levels of trade as a result of the African Continental Free Trade Agreement. The time is now ripe for meaningful reform.

• Obermeyer is MD at SEW-Eurodrive SA

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