Our economy is in a deep slump. We are getting poorer, with our economic growth rate consistently below the rate of increase in our population. Almost all of our public enterprises, inefficient monopolies on the backbone of the economy, are in distress.
The ANC, which rules economic decision making, has no convincing plan to turn things around.
Yesterday, the ANC and the Democratic Alliance (DA) failed to reach a deal to ensure passage of the budget, and a possible breakup of the GNU looms. The ANC has refused to give way on the DA demands for no new taxes and a greater say in economic decision making. And the ANC seems determined to go into a fight with the US, in which we will be the real loser.
We are being taken into new and uncharted territory by ANC intransigence.
A breakup of the GNU, would mean that the ANC would scurry around trying to find new support. With that its diminished power would be evident. It might then live precariously on votes of confidence and supply – the budget – and much would be on hold until May 2027 when the Constitution allows for fresh elections to be held.
The ANC response to its reduced status will be to take up the fight and blame our economic woes on the opposition and the Trump administration.
With the ANC intransigent but its power reduced, could there be a benefit from a wider economic and political crisis?
Some of those who comment on my columns say we need to “hit bottom” for us to recover.
No bell
One problem is that no bell rings when we hit a bottom. The other problem is that there are always new bottoms. It is much like what mathematicians tell us about infinity. Mathematicians say they don’t know when infinity begins or ends.
There is no necessary assurance that a crisis and hitting bottom can bring about change. Many countries languish with the continuing contraction of their economies, hyperinflation, and authoritarian politics for years and there is absolutely no resolution. Zimbabwe and Venezuela are two examples, and there seems to be little prospects of a turnaround in either.
After many years of hyperinflation, rising unemployment, and people living in poverty, Argentina does seem to have reversed course under President Javier Milei elected nearly two years ago. But the long years of hardship have been an enormous price to pay in lost opportunities and massive economic waste.
In some of its most extreme forms, economic crises have involved some or all of the following – hyperinflation, access to foreign exchange drying up, the wipe out of savings, financial crises with credit drying up, critical shortages of all sorts – including critical spare parts and life-saving drugs, cut offs of water and power, long waits at hospitals, a rise in poverty, the emigration of the most skilled, and much else.
It is best not to go into crisis, and certainly dangerous to hope that crises will result in a fast resolution to underlying problems. More likely is that the rulers will resort to authoritarianism and economic hardship will continue indefinitely.
First prize
First prize is to embark on reform before the crisis hits head on, and at least use not waste the chance as an opportunity for change. India used its foreign exchange crisis in 1991 as an opportunity to substantially liberalize the economy, get rid of its “license Raj” which had been imposed by successive governments attempting central planning and control since independence. It took immense leadership from the then Prime Minister PV Narasimha Rao and his finance minister Manmohan Singh.
We are at the bottom, yet the ANC rulers thwart serious reform.
Last year our growth rate was only 0.6 percent, about one percent below the population growth rate of 1.6 percent. We are getting poorer, our infrastructure is deteriorating, business confidence has been hit hard, and more than a third of those who can work are without a job.
Nearly a year after what seemed to be the end of power cuts, these returned, albeit not on the same persistent basis. But due to years of poor maintenance, the power grid remains vulnerable.
Yesterday, Eskom whacked its consumers with a 12.7 percent average tariff increase. This significantly raises cost pressures for businesses, further undermining the competitiveness of South African business and adding new pressures to the cost of living.
The railways, ports, and roads are in a state of disrepair due to years of mismanagement at the behemoth of a state enterprise, Transnet. That means imports and exports are restricted and delayed, cutting economic growth. The plan is for the private sector to take over certain rail lines and run ports on behalf of Transnet. But the government will ensure that the same rules that govern Transnet’s operations will be applied to the private sector, which means there just might not be that much of an improvement.
Cities and dorps
Our big cities and most dorps are disaster areas, with the notable exception of those in the DA-run Western Cape. Big cities are mostly heavily in debt, using the cash flow from the sales of electricity to residents, to fund their payrolls, rather than municipal services.
The story goes on. Last week we heard that we hardly have an operating air force with many of the planes and helicopters grounded.
The Reserve Bank does a good job in fighting inflation and has halted approaching financial crises, but it can only plead for reform and cannot actually turn around the economy. Key is that it remains independent so the ANC and its allies do not print money to bail themselves out. That might be our saving grace in preventing a far deeper crisis.
Our system of proportional representation, unrestrained by requirements for parties to exceed thresholds to participate in a coalition, is creating chaos in municipal governance. And that will soon happen at the national level. It allows micro-parties which might only represent passing fads or personalities to hold the future of coalitions supported by a majority in their hands. It is the nature of our electoral system and is unlikely to help reform.
The Indian example can give us a degree of hope as Rao led a coalition government which was able to engineer the passage of reforms which allowed India to become one of the fastest growing economies. There is no sign that we have a Rao or a Singh to lead our reform efforts. India might stand out as an exception.
The real lesson is a frustrating and simple one. Pro-reform parties must win with massive majorities. The ANC is helping that cause.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
If you like what you have just read, support the Daily Friend
Image: DALL-E