Wake-up call for the nation
South Africa got another shock this week. The economy is in recession. There have been rumours and signs of an impending recession for at least two years, but now we have confirmation.
This latest jolt follows on the fallout of the Cabinet reshuffle that saw Pravin Gordhan replaced as finance minister by Malusi Gigaba. That change caused two international agencies to cut South Africa’s rating to “junk”.
All of this should be a wake-up call for the country, and politicians in particular, that something urgently needs to be done. However, government isn’t seized with any visible action and one can only wonder what it would take before a new path of action is chartered.
The country’s economy can’t afford any more political shocks that damage confidence and lead to credit rating downgrades or any other loss in economic performance, jobs or investment.
Things aren’t looking up. Early signs are that South Africa could have continued being in recession in the second quarter of this year, or at least limped along with slow growth.
The recession will weaken tax revenue, which will increase government’s budget deficit and could see state debt rise and the country’s credit rating placed under further pressure. The contraction in the economy is likely to see jobs lost.
Worryingly, Gigaba has yet to come up with any plan to avert further credit ratings downgrades or to get the economy growing. He has yet to mend fences with the local business community, with trust being low. He has not re-established the alliance with labour and business that Gordhan set up to get the country growing and stave off any further ratings downgrades.
In a week in which President Jacob Zuma kept completely silent about news of the recession, Gigaba needs to restore confidence, corruption needs to be tackled and the governance of stateowned enterprises fixed – to name a few things that need to be attended to. Right now, the focus of government seems to be either self-preservation or protecting individual interests, rather than addressing macro issues such as the state of the economy.
Gigaba himself is compromised, so restoring confidence is going to be difficult as his credibility and true intentions are going to be questioned.