MAMOKETE LIJANE: So much activity with so little to show
The failure to grow the economy explains why the government finds itself in a fiscal mess
As I get older time appears to move slowly in the moment, yet fast in retrospect. It seems like just yesterday that 2023 was starting. I have been so busy, but where is the progress? I feel like I have been running to stand still.
Unfortunately, SA and I are in the same boat. So much activity, so little to see. Results are needed as a matter of urgency. Stats SA announced on Tuesday that real GDP growth — growth adjusted for inflation — shrank 0.7% in the third quarter compared with the same period a year ago. Compared with the second quarter, the economy was estimated to be 0.2% smaller.
These numbers are a bit miserable, but hide an even deeper misery. The technical definition for a recession is two quarters of negative GDP growth. The data does not yet reflect a technical recession, but GDP is a miserly 0.3% higher than it was in the last quarter of 2018, suggesting this economy has not grown in five years.
It is also 0.5% below its third-quarter 2022 peak. The economy may not have shrunk in a straight line, but it is smaller. If you feel like things are awful, it is because they are. The economy has lost steam, and we can all see and feel it.
Adjusted for SA’s population growth of about 1% a year, today’s numbers reflect a shrinkage of just less than 2% in real GDP per capita in the past year. This reflects how much better, or worse, the average SA citizen is doing, and the economy’s ability to sustain its people. So according to Stats SA, the ability of SA to support its citizens has eroded yet again in 2023.
Standard Bank’s economists expect GDP will expand by just less than 1% in 2023, and growth is forecast to accelerate to about 1.5% in 2024. These annual numbers suggest progress, but if adjusted for population growth the truth is there is little to see. The economy has, at best, stalled relative to the needs of its citizens.
The IMF estimates that SA’s per capita GDP is now about 6% below where it was in 2014, and forecasts that it will barely grow into the end of 2028. We are now running to stand still. Our citizens are in a worse economic position than in 2014, and unless something profound changes they will remain in their current state for the next five years.
The failure to grow this economy explains to a large extent why the government finds itself in a fiscal mess. It has failed to stabilise debt, nor has it maintained service delivery. Such failures are all around us, at municipal, provincial and national government level. While not the full story, the failure of revenue to keep up with demand must account for some of this.
The government gets money by levying taxes on economic activity. If the economy has delivered less activity per person in real terms since 2014, the government has fewer rand to pay for our children’s education, healthcare, policing and so forth. A smaller economy has also delivered fewer jobs, leading to increased demand for state services.
In other words, demand for state services has increased even as the resources available to deliver said services declined. The math, as my 12-year-old daughter often says, is not mathing. This is unsustainable, and unsustainable things cannot be sustained.
Many of the pages in this publication opine about the proposals and progress of various initiatives to boost growth, and I will not add to that caucus. It is heartbreakingly clear, though, that what is happening to growth in this country is not good.
It is impossible to address fiscal sustainability without dealing with the growth dynamic, and vice versa. Left unaddressed, the current economic dynamic will lead to deeper crisis.
• Lijane is global markets strategist at Standard Bank CIB.
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