Some years ago, I was among a group of journalists invited to an embassy function in Pretoria. To get the discussion rolling we were asked: what lies ahead for South Africa? “Will it be a Zimbabwe or a US?”, our host asked.
This was in the early 2000s, when there was still some optimism about our future, and we gave reasons why we would not become another Zimbabwe. These included the independence of our judiciary, our Constitution, and our advanced industrial economy.
In recent years Zimbabweans to whom I have spoken say they get the feeling that a Zimbabwean future awaits us.
The reasons for some of the outrage at President Cyril Ramaphosa’s State of the Nation Address last week were his failure to admit that the country is fast losing ground, and his failure to come up with credible solutions.
Since 2012 we have experienced stagnation and a few years of decline in per capita income. If the economy grows by one percent this year, with a population growth rate slightly below 0.9 percent, our per capita income will have shrunk.
Last year was the worst ever in terms of the frequency and duration of power cuts. Power cuts have become the barometer of our decline and the price of ANC rule.
Mess
Added to this is the mess on our railways and at ports. Because of the mess, Kumba railed nearly 20 percent less iron ore in the final quarter of last year than it did in the previous quarter. And increasingly there are water supply interruptions and water quality problems across the country.
Our daily reminders of decline are the power cuts and potholes, and the growing number of people on the streets asking for handouts. About a third of people who can work are unemployed. Other than those in the Western Cape, most municipal areas are in a dire state.
What is the path to economic decline, and what happens when the bottom approaches?
Zimbabwe and Venezuela are the most glaring examples of failed states. In Zimbabwe, seizures of white-owned farmland scared investors. The government deficit rose when it started paying out to liberation-war veterans. Ultimately the central bank was forced to accommodate the deficit. That resulted in hyperinflation. The attempt to use price controls brought on further shortages.
Venezuela’s decline was very similar to that of Zimbabwe. A populist government seized foreign assets, the central bank printed money for the government to spend, hyperinflation followed, price controls were imposed, local firms in the agricultural supply chain were seized, and food shortages ensued. In 2017, according to Reuters, citing a study released by three of the country’s universities, Venezuelans reported losing an average of 11kg in weight, and almost 90 percent lived in poverty.
Sanctions
Don’t blame western sanctions for these disasters. Sanctions were imposed on both countries well after the start of their decline and are targeted at individuals close to the governments. In 2019, in response to repression during the 2014 and 2018 Presidential elections, the US applied additional sanctions on the oil, gold, and banking sectors, but these have now been eased.
Sri Lanka is another case that shows how an economy can be brought to a virtual halt by a crisis. The government borrowed excessively and handed out freebies, which ultimately brought on a liquidity crisis, a currency collapse, and default. The crisis depleted foreign exchange reserves and resulted in shortages of food and medicine. About two years ago, the President, Gotabaya Rajapaksa, was chased out of office by a mob. Since then, the economy has partially recovered, but the government must still reschedule much of its debt.
One of the consequences of precipitous economic decline is mass migration, something that has been experienced in Sri Lanka, Zimbabwe, and Venezuela. There are now Zimbabweans across the world, including an estimated 800 000 in South Africa, out of a population of about 16 million.
According to the Center for Security and International Studies in Washington, DC, the outflow of people from Venezuela is the largest displacement crisis in the world. As of August last year, there were almost 7.7 million migrants and refugees from Venezuela, a country with a decreasing population, which last year stood at 28 million.
South Africa remains some way from descending to the depths of a failed state. However, if the ANC and EFF were to form a coalition after the election later this year, the Reserve Bank might be nationalised. Its independence might be ended if the coalition can achieve a two-thirds majority in Parliament to change the Constitution.
By the time our 2024 election takes place, the Expropriation Without Compensation Bill might be finally passed into law. The economy is far too weak to finance a National Health Insurance scheme and any large expansion of the grant system. Yet, in his State of the Nation Address last week, President Cyril Ramaphosa said the Social Relief of Distress grant introduced during the Covid pandemic would be made permanent.
Leaving
Many skilled and experienced South Africans are leaving as a result of a lack of economic confidence and political nervousness about the future.
The continued depreciation of the Rand is a big problem for the economy. Because of low investor confidence, it is not stimulating new dynamic exporters to the extent it should. It is driving up inflation and the cost of imported spare parts and new machinery, presenting problems for smaller firms.
Many of the building blocks of failed economies might soon be in place, together with populist pressures from dropping ANC support.
If the government cannot ensure that grants keep pace with inflation, there could be big problems on the street. The easy way to bring calm might then be to further raise grants.
The more educated upper middle class will contract, but they often have skills and could live in South Africa and run businesses that do not rely on local customers. They are already having to pay for their own security, children’s education, and the family’s healthcare. Many are self-sufficient with their own power supply, and have found ways to thrive behind high walls.
When the health care system runs short of medicines, the upper middle class can probably import the bare necessities. Wherever there are long queues or shortages, it is almost inevitable that bribery, corruption, and black markets emerge. And however inefficient, a barter system emerges in dire conditions.
It is the poor who will suffer the most. In a crisis they tend to have few options as there are no larger and much better places in the region to which they can move. Public healthcare systems will be plagued by shortages, access to clean water might be difficult, and the transport system could be crippled by a shortage of spare parts.
In a long economic crisis, there really is no bottom, as people do find ways to continue, albeit still in hardship.
It is not a future that people want for themselves, but governments push their people into this, through failure to change over many years.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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