/ 26 April 2019

ARCHIVES: SA economy is stuck in the political mud

The ANC says 1.5-million jobs were created in the past five years
The ANC says 1.5-million jobs were created in the past five years, but unemployment still rose because the economy is sluggish and the population is growing. (Siphiwe Sibeko/Reuters)

The backdrop for the 2019 general elections is an economy in crisis. With record unemployment and persistent low growth, the country’s economy is feeling the heat like a frog in a pot of boiling water.

Ahead of the polls, the country experienced 26 days of load-shedding, fuel price hikes and rising food and household costs. The Reserve Bank predicts that if load-shedding persisted for the rest of the year, the country would experience almost no growth and could lose 100 000 jobs.

Political parties’ election manifestos in the main promise little reprieve from the lived realities of South Africans across the socioeconomic spectrum. But they are alive to economic realities and unemployment is a theme running through their interactions with the electorate.

On Wednesday, the consumer confidence index, compiled by the Bureau for Economic Research, revealed consumer confidence had plummeted to 2017 lows, indicating that expectations of economic recovery dimmed ahead of arguably the most crucial election since 1994.

Politics is at the heart of the country’s economic woes, as the Reserve Bank states in its monetary policy review for April: “It is becoming clearer, however, that the damage done by ‘state capture’ is worse than previously understood. Capital expenditure, especially by state-owned enterprises, has been less productive than anticipated.

“To take one highly visible example, the economy has less electricity than it had a decade ago, despite massive Eskom investments in new generating capacity. Repairing the state, and parastatals, is also proving expensive, requiring higher administered prices and taxes.”

In the same week, Bloomberg’s misery index found South Africa was the most miserable economy in the world after Venezuela and Argentina and that the country’s performance on a range of social, economic and governance measures had deteriorated in the past 12 years more than any other nation not at war.

The situation is dire, says Michael Sachs, of the Southern Centre for Inequality Studies and former head of the budget office at the treasury.

“It is dismal. The realisation is slowly dawning that this is permanent — an endemic and chronic condition. There is no magic bullet to take us out of this situation.

“Most of the challenges are more political than they are economic. So per capita income has fallen for five years, and unemployment has risen by 10 percentage points over the last decade,” says Sachs. “We are failing to grow the economy as fast as the population is growing and so the idea that the NDP [national development plan] was going to take us to 6% growth is clearly not going to happen.

“We need to construct a political coalition that enables us to make difficult trade-offs about important issues that are going to leave some people unhappy. But you have to construct a political coalition behind some programme that confronts the challenges and moves forward.”

Opposition parties do have detailed manifestos about how they would stimulate growth and fix the economy — but they don’t have to worry about implementing their plans because an ANC national win appears to be on the cards, says Sachs.

What would the two largest opposition parties do immediately if they were to take power on May 8?

The Democratic Alliance’s spokesperson on the economy, Geordin Hill-Lewis, says the party would regain the trust of the global markets to stimulate investment by ending “dangerous discussions” about the nationalisation of the South African Reserve Bank and the expropriation of land without compensation.

The DA would allow major cities to buy power from independent producers and, in the long term, privatise Eskom’s generation capacity.

The Economic Freedom Fighters’ spokesperson, Mbuyiseni Ndlozi, says the EFF would take a hardline stance against corporates’ illicit financial flows if Julius Malema was elected president on May 8.

“Even if you collected just 25% of the illicit financial flows out of the country, the collections would help stimulate the fiscus,” he said.

Both Hill-Lewis and Ndlozi say jobs and unemployment are front and centre in the minds of the electorate.

The ANC will probably win the elections to govern in the sixth administration. A member of its economic transformation subcommittee, Ronald Lamola, says the groundwork for turning the economy around has been laid by President Cyril Ramaphosa, who embarked on an ambitious $100-billion investment drive last year.

Lamola said 1.5-million jobs were created over the past five years, but the low growth trap resulted in unemployment rising.

The ANC was exploring job creation in the manufacturing industry, with the department of trade and industry moving to revitalise the sector, he said.

But Sachs cautions that there is little evidence that the ANC is “building a strong platform for economic governance” in the period ahead.

“The [ANC] manifesto continues to consist of many different ideas, but no main theme. The Eskom crisis is central and one needs a clear and unambiguous way forward,” he said.

The key question for Sachs is whether the ANC has the stomach to take the “hard decisions” that could risk a backlash from its allies.

On Eskom, whose financial state is placing government finances at risk, the state would hesitate to, for instance, decide that it would permanently subsidise electricity through taxation and then acknowledge that another area such as free higher education or the National Health Insurance would have to “take a back seat”.

“You don’t get a sense that there is a preparedness to take on those kinds of issues,” says Sachs. “You get a sense that we are going to try to manage to do everything, deliver to every constituency, keep everyone ticking over — and in that context it’s highly unlikely that we are going to generate some new path of development.

“We’re stuck because we’re trying to deliver everything to everybody and we are failing to deliver anything to anybody,” he says.

But Lamola disagrees, saying Ramaphosa and the ANC have already shown that they are willing to take hard decisions for the sake of the country. He cites the decision to unbundle Eskom and the appointment of a commission of inquiry into the Public Investment Corporation.

Lamola says trade unions were still not on board with the unbundling decision, although the parties are closer together in terms of dealing with the crisis at Eskom. The ANC has made it clear that the unbundling is going ahead but has also assured that there would be no privatisation.

Lamola admits the government cannot fix the country’s economic fortunes on its own. A priority was to “grow South Africa together”, which is why the ANC centred its campaign on this slogan.

“The president has laid that foundation, and we have to begin to bring everyone together. It cannot be done by the government alone,” he said.

The 2019 general election is likely to go down as one that hinged on the economy.

The parties that arose to contest it — from the Capitalist Party to the Socialist Revolutionary Workers Party — are a testament to this. With policy offerings that include firearm training for high school pupils and the outlawing of trade unions on the one hand to the abolition of the free-market system on the other, the electorate is likely to remain where they have historically remained: safely in the middle, backing the larger parties.