How graft, bad poli­cies are stran­gling SA

Sunday Express - - BUSINESS JOURNAL -

THE sprawl of cranes around Sand­ton, South Africa’s swanky fi­nan­cial district, and a dearth of empty beds in Cape Town, its tourist Mecca, point to an econ­omy that shows some signs of re­bound­ing from a deep slump ear­lier this year.

Taken in­di­vid­u­ally many in­di­ca­tors are buoy­ant: good rains mean that farm­ers are likely to plant 35 per­cent more maize this year; a weak rand has en­cour­aged a 20 per­cent jump in the num­ber of in­ter­na­tional tourists.

Yet add these num­bers up and the equa­tion still turns out badly: the econ­omy will be lucky to limp in with growth about 0.5 per­cent this year and will not do very much more than 1.5-2 per­cent over the next few years.

This is a per­cent­age point or two be­low the long-run trend rate of 3 per­cent.

So what ex­plains this black hole in the econ­omy? The an­swer is al­most en­tirely poor gov­er­nance by Ja­cob Zuma, a pres­i­dent who may soon face 783 charges of fraud, cor­rup­tion and rack­e­teer­ing.

Fool­ish poli­cies play a part. Take tourism. Although the num­ber of hol­i­day-mak­ers has soared, the gov­ern­ment it­self reck­ons that there ought to have been many more bot­toms on South African beaches.

Thou­sands have been turned away by ab­surdly strict rules re­quir­ing fam­i­lies to carry birth cer­tifi­cates for their chil­dren.

But cor­rup­tion is also hurt­ing the econ­omy. A re­cent re­port by an om­buds­man re­vealed de­tails of how the gov­ern­ment and Eskom, the state-owned power mo­nop­oly, mus­cled an in­ter­na­tional min­ing com­pany into sell­ing a coal mine to friends of the pres­i­dent.

The ef­fect of mis­man­age­ment and cor­rup­tion is best seen in mea­sures of busi­ness con­fi­dence and the cur­rency, both of which have plum­meted since the start of Mr Zuma’s pres­i­dency in 2009 (see chart).

In­vest­ment has fallen to 20 per­cent of GDP from 23 per­cent over the same pe­riod.

With growth so slow, cred­i­trat­ing agen­cies fret that the coun­try may strug­gle to re­pay its debts. Moody’s, which in May said it was minded to cut its rat­ing, was due to de­liver a ver­dict on Novem­ber 25th.

Stan­dard and Poor’s, which rates the coun­try’s debt one notch above junk, will give its as­sess­ment a week later.

Some 80 per­cent of econ­o­mists polled by Bloomberg, a news agency, ex­pect the rat­ings firms to down­grade South Africa in the next year.

The threat of a rat­ing cut is prompt­ing fever­ish at­tempts to open up the econ­omy by Pravin Gord­han, the re­spected fi­nance min­is­ter.

On Novem­ber 20th the deputy pres­i­dent, Cyril Ramaphosa, an­nounced a new na­tional min­i­mum wage of 3,500 rand ($247) a month in a bid to get unions to agree to labour-law re­forms that would make it harder for them to call strikes of the sort that shut down the coun­try’s plat­inum mines for al­most half of 2014.

The chief ex­ec­u­tives of ma­jor banks are also in­volved in ef­forts to lib­er­alise the econ­omy by, among other things, get­ting big firms to agree to hire hun­dreds of thou­sands of young­sters on oneyear in­tern­ships.

“In the last year South Africa’s re­formist voices have been as­cen­dant,” says Goolam Bal­lim, an econ­o­mist at Stan­dard Bank.

“Af­ter al­most a decade of po­lit­i­cal and eco­nomic drift, 2016 may yet prove to be the in­flec­tion con­fi­dence and in­vest­ment.”

But with­out better lead­er­ship, such op­ti­mism is likely to prove short-lived. — Econ­o­mist

SA Pres­i­dent Ja­cob Zuma.

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