Photo by Leon Sadiki/Bloomberg via Getty Images
Two decades ago, analysts at Goldman Sachs floated the idea that South Africa be included in the emerging market grouping, Bric.
Their reasoning at the time was that the comparably small economy at the tip of Africa was set to grow at about the same rate (3.5%) as Brazil’s and Russia’s over the 50 years that followed. Declining population growth rates would cause South Africa’s per capita incomes to rise rapidly under these projections.
But when South Africa joined Bric — adding an “s” — in 2010, the story of the country’s economy Goldman Sachs analysts had followed seven years prior had become an addendum in the form of a global financial crisis.
In the decade that followed, South Africa’s economy stagnated and growth in per capita incomes slowed to just 0.15% a year. Contrary to what the Goldman Sachs analysts expected, the country’s population growth rate had accelerated since the early 2000s, creating an ever-deepening unemployment crisis.
This brings us to today, when we are staring down the chilling prospect of close to zero percent growth in 2023. South Africa’s population will grow by more than that.
In these conditions, it should go without saying that a 0.4% GDP bump is nothing to celebrate.
We may have technically avoided a recession but, in truth, South Africa is already in the thick of an economic downturn. Like a winter’s chill, it is in our bones — making for an economy that creaks when it moves.
The solution to this condition, we are told, is to change the economy’s structure by removing the long-standing brakes on its growth.
According to the International Monetary Fund and others, these impediments include labour market rigidities and monopolistic state-owned entities. For them, structural reform has become shorthand for deregulation and privatisation, the retreat of “big government” — a term which became a pejorative in the late 1970s and which prompted policymakers to make the unlikely connection between austerity and growth.
But South Africa’s dalliances with privatisation have not always worked out for the best. After state steel company Iscor was privatised and eventually sold, prices (thereafter determined by the international market) soared. The higher steel prices led to a number of companies having to close shop, hamstringing the country’s industrialisation.
Policymakers have been warned that the privatisation of Eskom will force the country’s economy into a similarly uncomfortable position, its structure forever altered — for the worse.
So, yes, the structure of South Africa’s economy needs changing. We may never turn the tide on inequality if it doesn’t. But, if reforms sacrifice growth and deepen inequalities, we won’t just have an economy that creaks — we’ll have an economy that screams.