‘SA on the wrong side of recovery hopes’. So reads the headline of a recent piece by Claire Bisseker in the Financial Mail. Setting out in detail South Africa’s structural limitations, it presents a bleak picture of a country likely to be mired in stagnation if not decline for a long time to come. It will, in all likelihood, not join others in the proverbial V-shaped rebound. This is not only because of the pandemic, but also because of its long-term economic retardation.
South Africa, bear in mind, never quite recovered from the 2008 global financial crisis.
Quoted in the article is Hugo Pienaar of the Bureau for Economic Research: ‘All in all, the pre-Covid growth constraints haven’t gone away and, on top of that, you have this 100-year shock which has exacerbated everything, so it’s going to be extremely hard for us to recover.’
He added: ‘One doesn’t see enough oomph in terms of policymakers’ understanding of the severity of the crisis.’
True words. South Africa has underperformed for a decade. Since 2012, real GDP growth has never exceeded 2.5% – and even that is kingly compared to the 0.8% in 2018 and 0.2% in 2019. This year, there is likely to be a fall in the order of 7%, although the actual outcome may be worse.
Note that the National Development Plan (NDP) called for 5.4% growth over a sustained period to deal with the country’s socio-economic problems. Note also that the projections for growth before the pandemic hit fell far short of this.
There are, of course, various reasons for this. One of them is simply that the investment is not there. While the NDP talked of escalating investment to 30% of GDP, this level was last seen in the 1970s. In 2019, it stood at below 18%.
So, whether or not South Africa can pull itself out of the Covid-19-induced malaise, and – more importantly – out of the longer-term one will depend on whether it is able to attract investment.
This will not happen without a suitable policy environment. Policy has been a significant hindrance to – if not the Achilles heel of – South Africa’s economy. Here again, the NDP is instructive, noting gingerly that ‘regulatory and policy frameworks that hinder investment’ would need to be dealt with.
‘Policy uncertainty’
This is otherwise typically identified as ‘policy uncertainty’. And not only by government. Business for South Africa’s recent economic proposals make much of this. If only there were stability and predictability – at least, so the argument goes (and it’s one I’ve heard from time to time) – firms could work around it, and everything would be fine.
Partly true, and partly false. Certainty allows planning; this includes the informed decision not to commit to a particular course of action. Certainty in itself is only going to encourage investment if the environment it creates makes investment attractive.
South Africa has all too often managed to achieve the worst of all worlds: enough evidence to have certainty about bad or constrictive policy; yet not enough certainty to plan clearly to mitigate it.
This, in broad terms, has been the conundrum facing mining. On top of structural changes in the industry and frequent power outages, the onerous regulatory demands and the changeable mining charter overseen by an often hostile and inept bureaucracy signalled very clearly that the mining industry was becoming ever more inhospitable – but gave no sign of what it would look like in future.
Consider, too, the question of property rights, which have come to be defined in the political debate since the end of 2017 as expropriation without compensation. Amidst a blaze of hostility towards commercial farmers, mismanaged land reform and a number of indicators showing that the endgame is extensive state control over landholdings, the message to the country’s farming community is one of a dim future. Indeed, despite the rhetoric about redistribution, government fought a protracted legal battle to prevent a black commercial farmer from gaining title to the state-owned land he was working. This would dovetail well with what we at the IRR believe: that a very possible goal is to vest all land in the state as custodian – something proposed in the state land audit.
Soothing thought
On the other hand, exactly where this is going – officially – is unclear. The African National Congress (ANC) and the government it leads seem intent on amassing power and expanding latitude, but not disclosing precisely what they intend to do. Having forced through the idea that the Constitution needed to be changed to degrade private property rights, the ANC subsequently declared that an amended constitutional clause on compensation should vest powers in the executive, rather than the courts. The soothing thought that the amendment would merely ‘make explicit that which is implicit’ seems rather passé now.
So, enough certainty to disincentivise investment, not enough to allow for planning around it.
And if the latter morphs into certainty of bad policy, the result will be predictable in its destructive impact on investment and on South Africa’s economic prospects.
Paradoxically, this need not be the case. Of every challenge the country confronts, nothing is as firmly within the South African government’s power to change as policy. It needs scant resources to do so, merely pragmatism.
If the present course is maintained, ‘recovery’ – like ‘reform’ – would become a meaningless piece of verbiage. The country could find itself on the wrong side of those recovery hopes long after the Covid-19 crisis has receded into memory.
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