SA’s economic value trap
The fiscal consolidation SA has embarked on so far may have been illusionary and doing more of the same could be self-defeatingfeature economy
Economists like to recount this old joke: While on a foreign trip a government official of country A visits the glamorous apartment of his friend B, a bureaucrat in a poor country. A admires the fine residence but wants to know how his friend can possibly afford it on his salary. Taking his friend to the window, B replies: "Do you see that highway running through town? 10%." Subsequently B visits the even poorer country of his friend C, who owns an even more luxurious apartment. When B asks how this is possible, C takes his friend to the window and says: "See that highway running out into the jungle?" After straining his eyes for a minute, B replies that there is none. "Exactly," says C with a wink, "100%."After the end of Nigeria’s military government in 1998, reports emerged that $2bn had been siphoned from the project by various government officials. Pritchett’s point is that while a public steel mill may absorb billions as a capital investment, if it cannot produce steel it has ...
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