Merely a coincidence?

Terence Corrigan | Jun 07, 2019
Current trends and issues which have at their vortex the dreadfully deficient state of South Africa’s economy and the crippled prospects of millions of people are almost certainly intimately and causally related.

The concept of synchronicity, advanced by the Swiss psychoanalyst Carl Gustav Jung, holds that events unfolding independently of one another within a given period of time, may nevertheless exist in a relationship (a ‘meaningful coincidence’) to one another, suggesting on some level a sense of unified existence.

This is an illuminating framework for understanding recent developments in South Africa’s economy. 

Stats SA’s just-released GDP data for the first quarter of 2019 exposes the extent to which South Africa is in trouble. Year-on-year growth idled at 0%, while it fell quarter-on-quarter by 3.2%. Year-on-year contractions were seen in agriculture, mining, energy, construction, and trade sectors. 

There is no way to spin these figures. They are dire in themselves – especially for a first quarter of the year, since this is when firms pick up after the end-of-year slowdown – but frankly catastrophic if seen against the (supposed) objective set out in the National Development Plan of getting growth to 5.4% annually.

Rather, we are likely heading for another recession. 

As we at the Institute of Race Relations have pointed out, this reflects a failure of investor confidence. 

Investment – without which growth is not possible – is in decline. In the first quarter of this year gross fixed capital formation decreased by 4.5% quarter-on-quarter and 0.9% year-on-year. In the period between the start of the year and the end of May, foreigners disposed of some R44bn of South African equities.

The announcement of these numbers and the crisis they denote took place in the shadow of a number of unrelated – but profoundly indicative – events.

In the background was the thrust of policy over the past eighteen months. An improvement on the ham-handed, grab-what’s-going venality of the Zuma era, but in policy terms hardly a clear alternative to it. An incapacitated state would remain at the centre of the economy, its latitude for intrusion bolstered by such initiatives as expropriation without compensation (EWC) and the nationalisation of the Reserve Bank (both of which would probably require some pretty far-reaching constitutional changes).

More immediate was the election. President Ramaphosa finally had his ‘mandate’, and – following the ‘long game’ theory that many had ascribed to him – he could not get to work seriously doing what needed to be done to put the country on the road to growth and prosperity. 

Following that, came the appointment of the cabinet. A mixed bag, but nothing to suggest a major push towards reform is on the way. A member of the South Africa Communist Party – who had only last year written in support of the nationalisation of all land in the country – as the deputy minister of finance was hardly likely to be reassuring to business, especially as there are questions about the long-term future of the minister. Neither was the appointment of a minister of justice who had called for legislation ‘as forceful as war’ to drive EWC. Even on the minimalist symbolic signalling of reducing the size of the cabinet, the outcome was tepid, with the cabinet’s size falling by only 8 places, from 72 to 64.

From other quarters came audible warnings about what was in place. Moody’s – the last of the ratings agencies to accord South Africa an ‘investment grade’ rating – commented a mere three weeks ago that ‘fading prospects of policies that will sustain fiscal and economic strength, alongside any signs of diminishing resilience to shocks, would put downward pressure on the country’s rating’.

The International Monetary Fund, this very week, underlined the absolute imperative of structural reforms: ‘The fiscal deficit is set to worsen as weak growth constrains revenue, current expenditure remains rigid, and public enterprises require additional support. As a result, debt pressures are likely to further increase in the near term. Weak finances and operations of public enterprises, particularly Eskom, represent a major downside risk to growth and the fiscus. Against this background, action is needed to reduce the fiscal deficit, reverse the ongoing increase in public debt, and restore much-needed fiscal buffers to protect the government’s development objectives and its ability respond to shocks.’

Meanwhile, on the very day that the dismal GDP statistics were released, a statement from the Secretary General of the African National Congress, Ace Magashule, indicated that the lekgotla of its National Executive Committee had decided to alter the mandate of the Reserve Bank, and to explore ‘quantity easing’ (presumably quantitative easing, which many will recognise uncomfortably as looking rather like the short-term palliative of printing money). Later his colleague, Enoch Godongwana, contradicted this, saying no decision on either had been taken.

Finance Minister Tito Mboweni took a refreshingly candid position: ‘What is this obsession with the South African Reserve Bank? I am now reaching a point of total exasperation with [these] continued attacks and obsession with the South African Reserve Bank. I have explained on many occasions the purposes and functions of the South African Serve Bank. What is the issue?’

He continued: ‘Let us stop shouting at business and embrace them as partners in economic growth, investment and job creation. Let us embrace all farmers, black and white to grow agriculture.’

A positive message, but within the political milieu, a rather lonely one.

Business Day journalist Carol Paton remarked on a morning radio interview that the ruling party’s internal politics seemed to be taking precedence over the management of the economy.

Together, these things present a mosaic of trends and issues that have at their vortex the dreadfully deficient state of South Africa’s economy and the crippled prospects of millions of South Africans. To wax Jungian, they create a web of ‘meaningful coincidences’.  Or perhaps something more: perhaps they are in fact intimately and causally related.

 

Terence Corrigan is a project manager at the IRR.

 

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