Growth requires expansionary policies
After a study tour of China I returned to SA last week to re-engage with the economic content of President Cyril Ramaphosa’s new dawn.
Finance minister Tito Mboweni delivered his maiden medium-term budget policy statement on October 24. The next day the president hosted the second of two summits he had promised would kick-start the economy. Ramaphosa has now played all his cards on the economy, but the results have not been forthcoming.
According to the latest labour-force survey, and using the more realistic expanded definition, 9.8-million South Africans are unemployed. The national unemployment rate is 37.3%. The figure for black Africans is 42%. Although highspending frequency economic data suggest the economy could get out of the recession in the third quarter, GDP per capita will decline for the fifth consecutive year in 2018. The number of unemployed South Africans will increase to more than 10-million people.
Yet there was not a single new idea in the medium-term budget policy statement to get the country out of its worst post-apartheid economic crisis. While the main budget in February introduced austerity measures of R63bn to close a R50bn revenue shortfall, Mboweni decided against a new round of austerity to close an expected shortfall of almost R30bn. He simply allowed the deficit and the debt-to-GDP ratio to increase. Otherwise, the budget was no different from those presented by Mboweni’s four predecessors over the past decade. There were no details about a proposed R400bn infrastructure fund. The so-called stimulus is not a stimulus. It is so puny, it will not affect the economy.
The policy statement’s diagnosis and prescription for the economy’s deep problems have not changed for at least a decade. As Polish economist Michal Kalecki has said: “Under a laissez faire system, the level of employment depends to a great extent on the so-called state of confidence. This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis.”
Based on this logic, every year in recent times the budget has announced confidenceboosting measures to revive the economy. The February budget even modelled the positive impact these measures would have on growth. But each year they have had no impact. The Treasury has responded by reducing growth and revenue forecasts and increasing estimates for the deficit and the debt-to-GDP ratio. The forecasts are not credible.
The two summits have not delivered a social accord or contract to decisively transform the economy as had been suggested. The scope of the jobs summit was too narrow. It focused on projects that do not have the scale to confront the scourge of unemployment. The investment summit was a beauty contest of companies parading infrastructure plans.
In 2018, there will be investment of almost R1-trillion in the economy. Therefore, R290bn in pledges over five years will not shift the dial significantly. It is unclear how much of the pledges refer to projects that have previously been announced. For example, $2.2bn of the $6bn Anglo American pledge refers to the construction of the Venetia diamond mine, a project that was launched in 2013.
There is no evidence that investment responds to business confidence or policy certainty. Investment responds with a lag to increased aggregate demand or growth in the economy. It cannot miraculously emerge through a political process by some people in business to support the Ramaphosa presidency.
The only way to revive the economy is through expansionary economic policies. The Chinese monetary and fiscal stimulus in September 2008 was deployed so quickly it started working within one quarter. It included spending $300bn on a 30,000km high-speed rail network across the country.
Travelling from Beijing to Shanghai, I realised it is one of the wonders of the world.
● Gqubule is founding director at the Centre for Economic Development and Transformation.