Cu­ri­ouser and cu­ri­ouser

Business Day - - OPINION -


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.

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