The Covid-19 pandemic has forced issues on South Africa’s political agenda that it has long tried to avoid. Foremost among these is whether the country will seek financial support from international financial institutions – or perhaps, more to the point, on what terms it will do so. The implications of this will be profound for the country’s present and future.
South Africa’s fiscal position has been deteriorating for the past decade in tandem with declining economic performance. As RW Johnson recognised in his 2015 book How long will South Africa survive?, this would soon become unresolvable, with a bailout becoming a matter of the country’s survival. Given the scale of the funding that this would imply, there would be little alternative to approaching the International Monetary Fund.
At the time, Johnson’s contentions seemed to many like the stuff of apocalyptic alarmism, and many would dismiss it out of hand. Somehow, this couldn’t happen. Surely – that being an often invoked word! – good sense would prevail.
The accession of President Ramaphosa to the presidency may have offered some reassurance that South Africa could avoid this fate, but the trajectory has continued more or less apace. Indeed, the GDP growth rate in 2015 was 1.2%; last year it was 0.2%. In 2015 the budget deficit stood at 4.2%; last year it was at 6.3%
At the beginning of this year, the National Treasury put projected growth at a paltry 0.9%, with the budget deficit remaining at some 6.3%. These were disturbing numbers.
A mere two months later, with the intervention of the Covid pandemic, they had turned catastrophic. We are looking at a GDP shrinkage of between 5% and 10%. The deficit could come in at as much as 15% of GDP.
This is staggering. And it raises the prospects of our being forced into seeking a bailout – and so much more (if this is possible) to finance some sort of stimulus to inject some energy into the economy. Given that the most obvious candidate for this is the IMF, the bête noire of the ‘left’, doing so would be vigorously opposed by many within the ANC and the government. We have seen this opposition emerging in recent weeks.
It is important to keep in mind just what is at stake here. South Africa’s predicament has been amplified by the pandemic; it was not created by it. Rather, its origins lie in years of misgovernance and policy choices antithetical to the growth and development that the country so desperately needed. It needs to be addressed on this basis.
Indeed, over the years we have heard repeated exhortations from some in government about the need for ‘reform’.
Nothing is more important in this respect than property rights. The sham ‘debate’ around land reform and the drive to introduce a policy of expropriation without compensation (EWC) have been a defining feature of South Africa’s policy environment since the beginning of 2018. Policy suggestions to degrade property rights have been mooted regularly for around a decade before that.
Ideological in motivation, and a distraction to addressing the real problems in South Africa’s land reform endeavours, these have done no small amount of damage to the country.
With EWC hanging over South Africa, the prospects for securing the finance it is likely to need are radically curtailed. The loss of our last investment grade rating – on the day the lockdown went into effect – explicitly referenced the threat to property rights. Creditors are unlikely to be impressed with a South African response that seeks their money while continuing with the very suite of policies that produced the problem in the first place. The United States, notably, has an effective veto over IMF loans. (Whether any other source could come up with money on an equivalent scale is doubtful, and it’s highly unlikely that anyone else would look favourably on a reckless policy course either; creditors of whatever stripe want their money and interest repaid.)
More importantly, the retention of a policy of EWC would smother the prospects of an economic recovery, much as it sabotaged a post-Zuma, Ramaphoriac windfall. This would render any bailout pointless.
South Africa’s problems are not only financial in nature. They are not even predominantly financial in nature. We dare not let the Covid-19 pandemic obscure this. And in sourcing whatever funds we can, it is imperative that South Africa unambiguously renounces the counterproductive policy course on which it had set itself.
EWC must be abandoned as a central element in repairing the damage done to the country by the pandemic, and by the malfeasance that preceded it.
Fortunately, changing a policy course is a choice that can be made. Much has been said about how the pandemic will reshape the world’s political economy. Whether that is true for South Africa will be shown in how it approaches this issue; whether it seeks a path of growth and pragmatism, or pays an escalating price for adhering to a destructive ideology.
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