Curiouser and curiouser
MUCH OF THE CAUSE OF THIS CALAMITY LIES SQUARELY IN THE COURT OF THE GOVERNMENT
SA is an economic anomaly. In theory, as the rand declines at least three things should happen simultaneously: exports should increase, economic growth should rise and inflation should rise. If the rand declines, exports should by definition increase because they will seem cheaper to foreigners. By the same token, imports should decrease because for locals they should be more expensive. Economic growth should follow because a decrease in the exchange rate should mean the country becomes more competitive. And inflation should increase because of the “cost-push” factors that result from an increase in the price of inputs such as labour and raw materials. Yet none of these things is happening. Why? The anomalous nature of our economic present is extraordinary, and not only for the reasons above. The whole point about having a floating currency is that in times of economic stress, a fluctuating currency acts as a kind of shock absorber. A currency decline might make foreign travel more expensive for the elite, but for the rest of the population it’s often a good thing because it naturally rectifies the competitive balance. In very short order, exports become much more valuable and money starts flooding back into the country.
Yet SA is defying the economic norm, and not just by small degrees. Take the rand for example. The rand is a structurally weak currency and consequently highly volatile. But even for volatile currencies, the movement and weakness of the rand is exaggerated. The rand slid precariously during the economic crisis of 2008, but quickly recovered. Manufacturing production got hammered during that period, as you would expect, but by 2010 it recorded solid, uninterrupted growth for just more than two years. Since then, manufacturing growth has been flat. During that same 2010-17 period, the currency went from around R7 to the dollar to R14/$. There was the brief period in late 2015 when the conversion rate was R16.80/$, but even in that period, manufacturing growth was totally unmoved.
To make things more curious, after the calamity of 2008 in which inflation did jump it declined and for the past five years has hovered between 4% and 6.5% — a fairly narrow band historically. Consider, that in the early 2000s, inflation gyrated between 0% and 13%. During the rand’s most calamitous period, inflation has been comparatively tame.
As for growth, we know all about that. For all intents and purposes, there hasn’t been any. Growth has trundled along at about 1.5% a year, massively lower than the population growth, which means we have all been getting poorer.
The situation is so anomalous it strains the bounds of logic. But in some ways the reason is totally obvious: confidence. Business has lost confidence in SA’s future. Politics have become messy, fractious and haphazard. Ratings agency downgrades have hung over the markets like so many swords of Damocles. And borrowing is expensive; the yield on the 10-year government bond is 9.5%, not much less than Brazil’s 10-year bonds, even though the South American country is rated two notches below SA by Moody’s. The gap between South African and US treasuries has widened alarmingly since 2015.
Much of the cause of this economic calamity lies squarely in the court of the government. Its antagonism towards business, its lack of logical planning and its terrible implementation have contributed greatly. The state enterprises at the core of the economy have lurched from disaster to calamity. Corruption is manifest everywhere. Even black economic empowerment has gone from a joint national project into the unilateral imposition of economic retaliation and sometimes a cloak behind which freeloaders and get-rich-quick tenderpreneurs skulk.
Whoever wins at the ANC’s elective conference has a huge task ahead, and candidates should be aware that sprouting the same platitudes they have during the election campaign is just not going to cut it. We need more, and quickly.