EDITORIAL: End of recession brings relief, but SA remains in a holding pattern
The cause is not only corruption; a larger problem is economic missteps, as can be seen in the government's approach to mining
SA has emerged from what has been widely described as a “technical recession”, with the three months to end-September showing quarter-on-quarter seasonally adjusted annualised growth of 2.2%, which is respectably higher than the 1.6% increase anticipated.
This is a big relief but it is by no means a solution and it doesn’t come close to a clear indication that SA is on its way to a higher growth trajectory. Because of the surprising degree of the contraction in the first quarter and the fact that the second quarter was also negative, SA will be lucky to record 1% growth for the full year. This is a substantial underperformance compared with the 1.5% growth that then finance minister Malusi Gigaba expected in the budget in February.
SA is, to put it bluntly, in an economic holding pattern and very little we have seen from the government suggests a decisive breakout is on the cards any time soon. Getting a bit of a growth boost will be castigated by no-one, but one swallow does not a summer make.
Still, the good news is that manufacturing was the key sector that pulled SA out of recession (it was never “technical”; it was always definitely real) in the latest tally released by Statistics SA. Having contracted by -0.3% in the second quarter, manufacturing output jumped 7.5% in the latest quarter. The laggard was once again mining, which fell by a thumping 8.8%, again more than expected by SA’s economists.
If the world were going through troubled times and global growth was plummeting everywhere, SA’s economic woes would be lamentable but understandable. But for the past three years, growth in developing and developed economies has been on a slight upward trend. Global growth has been trundling along between 3.5% and 3.7% for the past five years. This is actually slightly higher than the norm over the past few decades.
SA’s economic trajectory has gone in the opposite direction, sliding from 3.3% in 2011 to a miserable 0.8% in 2017. The underperformance has of course played havoc with government finances, particularly since every year bar one over the past decade SA’s growth has come in less than anticipated at budget time. It seems 2018 will be no exception. Predicting economic growth is tricky at the best of times, but to be wrong nine times out of 10 suggests a larger problem.
Many other sectors are much more integrated into the mining sector than is generally known.
It would be easy to blame SA’s economic underperformance simply on the high levels of corruption during the Zuma years, but in fact the problem has many more dimensions. In some ways if the sole reason were corruption, then the solution would present itself very readily. Although corruption was no doubt a big contributor, particularly to dwindling public confidence, the problem starts but does not end there.
That larger problem vests in a variety of economic missteps, and one aspect of that problem is visible even in these better-than-expected results: mining. Notwithstanding the segmentation of SA’s economy into different components, the country’s largest and most obvious competitive advantage lies in its marvellous mineral bequest.
Many other sectors are much more integrated into the mining sector than is generally known. The construction sector, for example, needs new mining developments to underpin its other construction projects, as does the manufacturing sector.
Yet SA’s mining sector has been in terminal decline in the face of onerous legislative and regulatory burdens, which have added pressure to more difficult mining conditions. At the same time, soaring labour costs and electricity expenses have compounded the problem. As a result, new mining projects have been extremely rare events, and the closure of existing projects extremely frequent.
The government’s response to this and other economic problems has been bewilderingly inept. Instead of taking bold steps to reduce the regulatory and expense burdens on the mining sector, the government has signalled its intention to substantially increase them.
While the headlines have been dominated by corruption, economic ineptitude has been eating away at the fragile pillars that hold the fragile economy in place. Until that recognition really hits home and decisive changes to SA’s politics become visible, expect the growth rate to be only occasionally above expectations.