Minister’s magical thinking disguises financial stagnation, low confidence
Amid the saturation media coverage of the yawn fest that was the 2017 ANC policy conference, Finance Minister Malusi Gigaba made a couple of announcements. The first was an oblique reference to SA perhaps resorting to external funding to help kick-start the economy. The second was a bold announcement that he would unveil his plan to grow the economy at 6% a year, due July 7. Well, that deadline came and went, and at time of writing there is no peep of Gigaba’s unbelievably ambitious intentions.
On the first point, of SA passing its begging bowl around to external funders, does the minister fully appreciate the implications of securing outside assistance? We could certainly make a good case to the IMF for a loan or even a bail-out. But depending on the size and scope of that funding, there would be a whole host of accompanying conditions. Help from similar organisations such as the Brics Development Bank (which is effectively China) would carry an equally long list of terms.
If history is anything to go by, such conditions could include an insistence that state-owned enterprises be sold off or shut down; that wage increases be kept very low; and that government spending be brought firmly under control and indeed reduced. This would result in a period of extended austerity, with suffering consumers being squeezed even further. The latitude for the government to unaccountably squander any money coming from IMF loans would be extremely limited, as dole-outs would come directly from Washington, with frequent report-backs required.
And that’s not all that would emanate from the new puppet master. Depending on the size and scale of a bail-out, the IMF would at best demand to see all budget documentation from its earliest stages onwards. In a worst-case scenario, it would practically write the entire document for the Treasury.
If warranted, SA would effectively surrender its sovereignty to the IMF for the period of any lifeline.
And while Gigaba promises to deliver a grand plan, the South African economy continues to flounder. The consumer sector, being the largest component of GDP, is under relentless pressure and there is no respite in sight. Mining is in the doldrums, as is manufacturing. If consumer spending remains subdued, the outlook for growth in the economy remains bleak.
In 2017, we have already witnessed the demise of long established clothing emporium Stuttafords and House of Busby has closed its stand-alone Mango and Nine West franchise stores. Local outfitters such as Truworths and TFG, which owns Foschini, @Home and Totalsports, are seeking growth in the UK as local opportunities dry up. We are sleep-walking into a period of prolonged stagnation.
And we are dreaming if we think we can somehow rustle up a plan that will miraculously deliver us the holy grail of 6% economic growth on any sustainable basis. The last time SA remotely approached a quarterly 6% figure was in 2008. Back then, SA had a capable and seasoned finance minister in Trevor Manuel and the commodity supercycle was in full swing.
Since President Jacob Zuma’s disastrous Cabinet reshuffle, business confidence has ground to a halt. The only thing that prevented the rand from going into free fall was the relative attractiveness of emerging markets in general. But that is no more as the US economic recovery reveals greater longevity than was originally thought.
Sentiment is shifting away from emerging economies back to developed markets, especially the US, and we see the dollar strengthening again.
On balance, the rand seems destined to experience a period of relative weakness, along with emerging market peers.
So, wake up, Mister Gigaba. Wake up and smell the ashes.