When there is a fire, yell fire!
They say you should never yell “fire” in a crowded theatre, but there is a time and place for a well-considered panic. That time is right now, when it comes to the parlous state of SA’s economy.
On Tuesday, we learned that the country was officially in recession following two consecutive quarters of negative growth. Stats SA reported that the economy contracted by 0.7% in the second quarter after a disastrous contraction of 2.6% in the first.
What is particularly alarming is that there is no sign that the third quarter, which is already in its final month, has been any better. News of the recession led to the rand taking a big hit, plunging to about R15.20 to the dollar by noon — levels last seen in June 2016 when former president Jacob Zuma was mired in crisis after crisis.
Even as the rand weakened, the oil price strengthened to about $79, a rise of about $8 in a few weeks. This suggests the market is not convinced that Opec’s promise to increase production to bring the price under control has been effective.
It would be some consolation if the weaker rand had led to an improvement in exports, boosting the manufacturing sector. But the recently released Absa purchasing managers’ index (PMI) statistic showed that manufacturing was in decline. The index dropped from 51.5 points in July to 43.4 points in August. A PMI figure below 50 indicates a contraction in this sector.
The latest round of bad news follows the most recent unemployment statistics, which show that a near 15-year high of 27.2% were unemployed, with youth unemployment sitting at a staggering 38.8%.
SA is entering a destructive cycle of currency weakness and lower economic output that threatens to gather steam, chewing up the country’s future economic prospects.
The problems are amplified by the ascension of Cyril Ramaphosa to the presidency. While few in the global investor community or in local business expected his predecessor to fashion effective policies to stimulate growth, expectations of Ramaphosa were high. But instead of playing to his strengths and fashioning a new economic accord that brings business, labour and government together, he has chosen to be divisive and pursue the short-term aim of convincing sceptics in his party — and an imagined pool of radical voters – that he has solid left-wing credentials.
His decision to follow the EFF down the rabbit hole of amending the constitution to effect land expropriation without compensation when even his own party has concluded that such an amendment is unnecessary, has cast doubt on his bona fides.
It has suggested that, far from being driven by the priority of rescuing the economy, he is prepared to take some pain in order to win populist political victories.
Donald Trump was misinformed and prejudiced when he infamously tweeted about SA’s land reform programme. But the mishandling of the land reform policy handed him the opportunity to display his prejudices to the world. Like it or not, this has damaged SA in the eyes of the global investor community.
Ramaphosa has begun to build a healthy and essential relationship with China, which may bring dividends should Chinese investment in infrastructure lead to job creation and greater efficiency. But he cannot ignore the global capital markets because he has promises of future investment. Such promises will quietly disappear — or be postponed — should investors begin to wonder about their returns.
Ramaphosa needs to get his head out of the populist political clouds and start attending to the repair of the economy with urgency. He needs to do what he does best and build a consensus on how to kickstart the country’s economy. And he needs to start implementing the regulations and policies that will achieve this, seeing off his critics with a show of leadership.
There is no time to spare.
RAMAPHOSA NEEDS TO GET HIS HEAD OUT OF THE POPULIST POLITICAL CLOUDS