Growth up, but long way to go

RAMAPHOSA WAS LUCKY ENOUGH TO INHERIT AN ECONOMY THAT WAS ALREADY PICKING UP

Oh, they were such heady days. In 2012, SA, like the world, was emerging from the global economic crisis when the National Planning Commission dropped the National Development Plan on the table with a mighty thump.

Many of the ideas in the plan remain valid, but its projections are an illustration of the huge difference between SA’s hopes at the time and the actual outcome now.

The plan’s growth proposal was met with hopeful admiration. “To achieve full employment, the country needs to create about 11-million more jobs in the next 20 years. We estimate that the economy would have to grow by about 5.4% on average every year over this period to achieve this aim.” And so was born the “target” of 5.4% growth a year.

A quarter of the way into the designated period, GDP growth has not come even vaguely close to that target.

On Tuesday, there was a grand round of applause for SA achieving growth higher than forecast of 1.3% for the last year compared with 2016’s. As for sectors, the big surprise was agriculture — not necessarily for rebounding because the drought in 2016 meant a rebound was inevitable, but for the extent of the rebound. In the last quarter, the agriculture sector grew by a thumping 37.5%. More applause.

However, even these improved levels suggest a growth rate that is a quarter of what is needed to start making a dent in SA’s unemployment catastrophe. Confining the scope to just the past two years, it is worth noting that a big improvement in agriculture is really a consequence of the weather gods rather than positive changes in SA’s economic environment.

That’s not to say there was no good news. Economic advisory firm Capital Economics, which expects growth to strengthen further as the year progresses, points out in a note to the market that having contracted for seven of the past eight quarters, gross fixed capital formation rose by 7.4% quarter on quarter seasonally adjusted in the last quarter. “This suggests that confidence was returning even before President Cyril Ramaphosa took office this year. Indeed, [Tuesday’s] figures show that Ramaphosa was lucky enough to inherit an economy that was already picking up,” it says.

Reasons for increased confidence include the fact that the quarter-on-quarter growth is substantially larger than when comparing 2017 with 2016, suggesting the growth rate is picking up. Growth is present in almost all sectors, and it’s noteworthy that the trade sector is growing at the second fastest pace.

This means that retail trade is starting to turn. That is particularly good news because the South African economy is now loosely correlated to the retail sector, with mining and manufacturing having become progressively smaller parts of the economy. So, an improving trade sector is a positive.

Interestingly, the stock market is anticipating the trend with three retail groups entering the JSE’s top 40 index recently, joining the five big retail or retail-centric groups already there.

It is easy to get carried away with good news when it happens so seldom. Even at its improved rate, SA’s current growth rate year on year is lower than those of any global region. It is half that of sub-Saharan Africa; it is lower than the current growth rates of its two big continental rivals, Egypt and Nigeria; and it is lower than those all of the countries of similar size, notably Argentina, Thailand and Columbia. In fact, it is hard to find a country that SA does not trail and which is not involved in some calamity.

With good infrastructure, excellent financial systems, reasonable expertise and a growing population, SA’s economy retains enormous potential.

The fact that it is not reaching that potential is a pressing and depressing problem that needs to be fixed quickly. That will take a fundamentally reformed government and a more engaged and confident private sector, and careful planning.

A start has been made; let it continue.