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S Africa is in an economic crisis it cannot afford to waste
October 3, 2018, 8:11 am

South Africa, a member of the BRICS nations and G20, is a beacon of hope for Africans beyond its borders. Her unique history and the exemplary negotiated political settlement following Apartheid remains one of the most highlighted periods of the end of 20th century.

During this year’s UNGA in New York, the world once again paid tribute to South Africa’s founding president and statesman President Nelson Mandela in celebration of what would have been his centenary birthday. The celebrations will culminate in a grand international music festival in Johannesburg in December this year hosted by Global Citizen Foundation, which helps children in education.

Ten years after the global financial crisis and its global recession, South Africa as a leading African economy with a more globalized economy than any other in the continent, was not left untouched by the negative effects rocking international markets.

Key industries like mining, tourism, agriculture and financial services were all affected with many companies shedding jobs. The government immediately introduced some measures to protect its burgeoning car manufacturing sector by injecting direct stimulus specific to the industry.

Relative gains were experienced a few years after the epi-period which caused policy planners at the Treasury to believe the worst was over. In the past years the damage on the economy has revealed itself particularly in the industrial sector, mining and tourism.

These sectors shed alarming number of jobs with many companies failing. The drought experienced across the country two years ago made matters worse as agricultural output shrank markedly. The drought also had direct effects on tourism particularly in South Africa’s premier destination of Cape Town.

Land wealth

As South Africa is still a new democracy, there is a lot of reconstruction to take place. This includes economic expansion and expanding economic participation in particular by the majority of South Africa’s previously disadvantaged groups who in the main are Africans. Africans make up just over eighty per cent of the population and it is estimated that their economic participation is below ten per cent.

Land ownership by Africans or black people in general is estimated at 7 per cent with the bulk owned by corporations and individuals classified as white.

Land is seen as an economic driver and economic multiplier by the African National Congress. The African National Congress resolved to make land a key piece of economic reforms to eradicate poverty and rampant inequality.

A key feature of the economic malaise in South Africa is its massive unemployment of young people with over fifty-seven percent of youth estimated to be unemployed. The official unemployment rate is twenty-seven percent.

The wage disparities are still defined by race where white households out earn black people by up to eight times. The level of unemployment amongst black university graduates is destabilizing.

South Africa’s economy is currently in recession having moved back to decline in industrial and agricultural output with a negative growth rate in two consecutive quarters.

The opposition party leader Mmusi Maimane of the Democratic Alliance (DA) announced his proposed economy intervention package which I reviewed as a recipe for further disaster in our economy.

DA laid out its plans for the economy as it launched its 2019 Election Campaign in Johannesburg on September 22.

The party believes some workers rights must be walked back to enable worker choice not to partake in wage bargaining agreements. This implies the DA sees wages too high and prohibiting hiring. This assertion is not supported by evidence as South Africa has had to introduce minimum wage law to mitigate the poverty wages paid to workers across industries.

Should Ramaphosa establish a Growth Commission? [GCIS]

Fiddling with workers rights and removing the workers ability for collective bargaining and employment equity are in any event unlawful and unconstitutional in terms of South Africa’s legal framework.

This will be regressive and would produce low wage jobs and institutionalize them once again. This will counter the progressive Minimum Wage Bill before the president. This together with calls for privatisation of some state owned companies was an expected feature from the DA.

Mr Maimane repeated the same tired song that; “the government cannot go on living beyond its means”. This is simple and pedestrian common sense. He will insist on cuts on spending, which will ensure we remain in a prolonged recession.

Not the same economics

Austerity measures and deficit obsession are some of the reasons the economy has contracted. Home economics and national economics are not the same; at home, if you spend less, your income is more, however in national economics your expenditure is your income. If you cut expenditure, you are inadvertently cutting your ability to grow your income.

The focus on cutting public debt means you are focused on cutting Gross Domestic Product and everything else that is associated including employment. Cutting of public debt lends the economy to rely on private debt, which in turn means greater risk for financial bubbles like mortgage bubbles and so forth.

In South Africa, we have agreed that the levels of consumer debt are unsustainable hence the measures to assist low-income earners with debt relieving legislation enabling the restructuring of consumer debt.

Fiscal consolidation, or tightening, always leads to pressure on private debt due to the tightness in money supply.

South Africa requires a different cause as articulated in the ANC National Conference that elected President Cyril Ramaphosa as our president.

Our focus should be on how much growth our public expenditure is relative to GDP growth.

It is also important for Treasury to slow the aggressive relaxation of exchange controls.

A Growth Commission is Needed

Policy makers must also remember that South Africa has monetary sovereignty. We have our own currency reserve bank, and should always prefer to borrow in our own currency rather than a foreign currency. We have our own lender of last resort – we should start there first before being at the mercy of international markets.

South Africa has the three components needed to stabilize the economy – we have our own economy, our own Treasury, and reserve bank. This means the government is capable to act in similar ways as the UK or US governments: that is, the government can get into debt with itself i.e. Quantitative Easing.

This deals better with the issue of public and private debt. The Government must consider issuing bonds to our own reserve bank. There is a problem with the structural issues relating to how the South African Reserve Bank operates.

The country’s monetary policy goals ought to target employment, growth and inflation in equal measure – as is, it would appear the South African Reserve Bank places inflation above all else. There are other structural matters to attend to beyond the monetary policy.

Having established a panel to advise on land reform, perhaps a proposal to President Ramaphosa to institute a Growth Commission that must report back to him after 30 days of its establishment is something to seriously consider. The Growth Commission would look into all these matters including interest rates reduction, the easing of monetary policy, monetary policy mandate and goals and Quantitative Easing and so forth.

The suggested Growth Commission should include persons such as Joseph Stiglitz, Steve Keen, Tito Mboweni, Ben Bernanke, Nico Kelder, Cheng Xiaonong, Cui Zao, Haroon Bhorat, Ben Turok and Chris Malikane, Simon Wren-Lewis and others.

The Growth Commission could also be given a task of assisting the presidential panel on land with the framing of the best outcome principles for expropriation of land without compensation, without negatively affecting the banking and financial sector.

It is important that the Commission has international bias in its form because South Africa has only one impediment – that it is African led and for the financial market to trust that proper thought has gone into the plan the country unfortunately requires to widen its net in terms of influence.

The attitude of the dark and chaotic continent has not left the psyche of our international partners. The country currency is also highly politicized by the global markets.

An economy that has locked its most productive and majority population out is not likely to succeed. Solutions to the current crisis must not be squandered as they present an opportunity for grand plans and reform.

 

The views expressed in this article are the author's own and do not necessarily reflect the publisher's editorial policy.

One Response to S Africa is in an economic crisis it cannot afford to waste

  1. RT Reply

    October 4, 2018 at 3:45 pm

    Thanks for critiquing austerity. Great piece.
    SA needs to be more careful in following failed economic policies that only help those who earn dividends here get lots more USD/BP/EU out of the country.
    The real problem is the current payments on the current account – and not even the DA talks about that.
    FDI is the solution – but look at the current account deficit and you will see SA is already renting this country from foreigners!
    And Prez thinks mining is a sunrise industry. Meanwhile ROI in mining has been tanking.

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