EDITORIAL: Sluggish reform reflects in depressing GDP

A 0.1 percentage point increase in GDP for the first quarter can hardly be called growth. Worse still is that Statistics SA has revised down last year’s growth number to 0.5%, from the 0.6% it estimated previously. It’s just a fraction, but when the economy is hardly growing at all every decimal point counts.

The 0.1% is a quarter-on-quarter growth figure, whereas comparing this year’s first quarter with last year’s gives an 0.8% increase. That’s a better guide to the year as a whole, but it’s still not good — at about half the population growth rate, at this level the economy is growing at just half of what’s needed for overall living standards just to stay steady. Instead they are going backwards, as they have done for several years now, with all the consequences that has for unemployment and the social fabric.

The first-quarter outcome would have been even worse without agriculture, that often-ignored sector that makes up just 3% of the economy but has been a major driver of its fortunes over the past year or two. Agriculture was a negative drag last year: now it is a positive. Weather matters, of course, but the impact the sector has had lately on economic outcomes should be a clear message to policymakers that the government needs to do whatever it takes to enable more investment in the sector, and do more to forge trade deals that will make the most of its potential to export — especially while it stands to lose its African Growth & Opportunity Act benefits into the US market.

Likewise the dire picture in mining, which recorded a quarterly decline of more than 4%. This hardly seems the time for mineral & petroleum resources minister Gwede Mantashe to be publishing proposed legislative amendments that would deter what little investment there is in the sector, and have an even more chilling effect on mining exploration than the government has already had. Where are the measures to boost confidence and attract investment in the sector? The government may claim to be keen on private sector investment, but this is one sector where that’s just not evident.

Nor, sadly, are the many important structural reforms to which the government has committed, reforms which if they were implemented in full could lift growth towards 3%. There has been much welcome progress in electricity and areas such as visas, telecoms and water licensing. There has been progress in freight logistics too, at least in stabilising Transnet’s performance and regulatory reforms to open up the market.

But it is all frighteningly slow. Most countries started liberalising markets in energy and transport from the 1990s: SA has come very late to the party and its efforts tend to get bogged down in vested interests and bureaucratic inertia. The sluggishness of the reform process is amply evident in the depressing official GDP figures.

The message is that SA simply doesn’t have time to waste, especially in a global environment that is becoming more unfriendly by the day. We cannot rely on rapidly slowing global demand to bail us out: all we have is our own impetus, such as it is.

Presenting the Organisation for Economic Co-operation & Development’s latest report on the SA economy last week, its economists pointed out that most of what SA needs to do to make the economy more dynamic involves regulatory changes, not anything that need burden the budget.

Many other emerging economies need to spend more to implement reforms to boost growth, but this is not the case in SA, where there are regulatory areas the country can address that would open up space for companies and jobs.

“That is an asset for SA and a window of opportunity to act, to make the most of what you can do that will not cost anything for the budget,” a senior OECD economist said at the launch of the report. How hard can it be?