The narrative that South Africa is starting to head in the right direction has been given a lot of attention recently.
In a long overdue admission, for example, President Ramaphosa said in his State of the Nation Address that jobs come from the private sector. And the commodity rally gave the finance minister something positive to talk about in his Budget Speech, while the deputy finance minister said that “reforms are on the way and if you are not seeing them then you are simply not looking”.
Last week, Stats SA released the latest GDP figures. These show the economy growing by a seemingly healthy 4.9% in 2021, a welcome reversal from the massive contraction of 6.4% in 2020. The three main growth drivers were the mining sector, which grew by 11.6% on the back of a global commodities rally; agriculture, which benefited from good rainfall, leading to an 8.3% increase; and manufacturing, which recorded a 6.6% rise.
Some commentators have been quick to call this the start of an economic recovery, but the underlying indicators do not support that interpretation.
The appearance of strong growth is largely owing to the low base created by the 2020 contraction, itself caused by harsh local lockdowns and global supply-chain disruptions.
To recover to its 2019 level, the economy would have had to grow by almost 7% in 2021; growth of 4.9% means that the economy is still almost 2% smaller than it was in 2019. This was a bounce-back, and not even all the way to the economy’s 2019 starting point.
Also telling are National Treasury forecasts which estimate an average GDP growth rate of 1.8% over the next three years. This is the lowest GDP estimate put on paper by Treasury since 2005, an admission that no fundamental shifts in growth are expected in the coming years.
Employment continues to show little sign of recovery. The number of people with jobs is almost the same in 2021 as it was in 2008, when Thabo Mbeki left office. Some 2.1 million jobs were lost compared to 2019 and there are no signs of those jobs coming back.
The pandemic-related loss of income has made consumers more pessimistic. Passenger vehicle sales have not yet recovered to pre-pandemic levels and remain far below their 2013 peak.
Similarly, business sentiment remains in the doldrums. The RMB/BER Business Confidence Index for Q1 2022 is projected to be at 46 points, well below the 50-point level that marks the threshold between contraction and expansion, and miles away from its high point of 82 points in 2006.
What is most important is that structural constraints on growth remain in place. Eskom is unable to provide enough electricity and the economy was once again beset by rolling blackouts. Ports, rail, and road infrastructure continue to be besieged by theft, banditry, and inefficiency, hobbling South Africa’s access to global markets. Reforms in these areas crawl along at a snail’s pace, while the broader policy environment remains hostile to investment. A sustained recovery is therefore not on the cards.
The government continues its assault on property rights. It has recommitted itself to expropriation without compensation and the effective wholesale nationalisation of the health sector, while doubling down on counterproductive labour legislation, including initiatives to introduce workplace race quotas and a blanket ban on foreigners, in sectors yet to be specified. These factors are not supportive of economic growth, which will therefore remain elusive.
Absent from the minds of policy makers is any sense of the highs costs of their policy failures. If South Africa had grown at the same level as emerging markets from 2008 to 2021, 23 million South Africans would have been employed compared to the current figure of 14.9 million. These costs are then paid by ordinary South Africans through the loss of income. They now face higher fuel prices and – because of the impact on transportation costs – higher food prices, which risk sparking social unrest.
In reality, South Africa has not experienced a major recovery and not made much progress in instituting the reforms that would make this possible.
Thus, the country’s potential is unrealised and its performance has failed to match that of other emerging markets. The truth is that the ANC is simply unwilling to reform and if this continues, it is likely to lead to its continued decline in voter support, and its likely defeat 800 days from now in the 2024 national elections.
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