R1-TRIL­LION MALEFACTOR

The Zuma years cost SA an ab­so­lute for­tune in terms of lost growth, taxes and jobs, a new re­port es­ti­mates

Financial Mail - - FEATURE - Claire Bis­seker bis­sek­erc@fm.co.za

The SA econ­omy could have been up to 30% or R1-tril­lion larger and cre­ated 2.5-mil­lion more jobs had the coun­try kept pace with other emerg­ing mar­kets and Sub-sa­ha­ran African economies over the past decade.

The govern­ment could also have col­lected R1-tril­lion more in tax had the econ­omy per­formed closer to that of its peers and had tax col­lec­tion re­mained ef­fi­cient.

These are the key find­ings of a Bureau for Eco­nomic Re­search (BER) re­search pa­per, “Ten Years Af­ter the Lehman col­lapse: SA’S Post-cri­sis Per­for­mance in Per­spec­tive”, by BER econ­o­mist Harri Kemp.

He sets out to de­ter­mine what could have hap­pened had the Zuma years not robbed the econ­omy of its po­ten­tial. His es­ti­mates for what might have been had SA’S eco­nomic growth path sim­ply re­verted, af­ter 2010, to pre-cri­sis trends pro­vide a ball­park mea­sure of a lost decade’s eco­nomic costs.

The re­sults are stag­ger­ing, es­pe­cially as the num­bers don’t in­clude the di­rect cost of the mal­ad­min­is­tra­tion, cor­rup­tion and pol­icy mis­steps over the 2010-2017 pe­riod, which are es­ti­mated to run to tens of bil­lions of rands.

De­pend­ing on the as­sump­tions used, SA’S over­all real GDP could have been be­tween 10% and 30% higher in 2017; 500,000 to 2.5-mil­lion more jobs could have been cre­ated by 2017; and cu­mu­la­tive tax re­ceipts could have been R500bn to R1-tril­lion larger over the 2010-2017 pe­riod.

One thing is clear, says Kemp: if do­mes­tic post-cri­sis growth had matched that of SA’S peers, ci­ti­zens and the govern­ment would have been in a much bet­ter po­si­tion than is now the case.

SA’S real eco­nomic growth rate tracked the global av­er­age be­fore the global fi­nan­cial cri­sis. How­ever, since 2010 there has been a ma­jor di­ver­gence. SA’S econ­omy has un­der­per­formed rel­a­tive to its emerg­ing-mar­ket peers, av­er­age global growth, and even its own his­toric av­er­age (see graph).

Its lack­lus­tre per­for­mance has been driven by a range of com­plex fac­tors, in­ter­nal and ex­ter­nal.

The ex­ter­nal fac­tors in­clude slug­gish global growth and fall­ing com­mod­ity prices. But these don’t fully ac­count for SA’S un­der­per­for­mance, says Kemp.

In his view, do­mes­tic fac­tors — pol­icy un­cer­tainty, mis­man­age­ment of state-owned en­ter­prises and fall­ing busi­ness and con­sumer con­fi­dence — all weighed heav­ily on do­mes­tic eco­nomic ac­tiv­ity.

The up­shot is that the un­em­ploy­ment rate is close to 30%; per capita GDP has stag­nated; pub­lic fi­nances have de­te­ri­o­rated; and SA’S sovereign credit rat­ing has been junked.

Kemp sets out to de­ter­mine what the

“lost years” of SA’S eco­nomic stag­na­tion be­tween 2010 and 2017 cost the coun­try in terms of the growth, taxes and jobs for­gone. Ac­cord­ing to his es­ti­mates:

● If do­mes­tic ac­tiv­ity had re­verted to its pre­cri­sis trend of broadly match­ing global growth, real GDP would have been 15.4% (R481bn) higher by the end of 2017.

● If it had matched that of other com­mod­ity-ex­port­ing economies, SA’S real GDP would have been 10.5%-14.7% (be­tween R329bn and R458bn) higher in 2017.

● Had it matched the growth of emerg­ing mar­kets as a whole and/or that of Subsa­ha­ran Africa, SA’S real GDP would have been 25.5%-29.3% (about R1-tril­lion) higher in 2017.

● Un­der these dif­fer­ing as­sump­tions re­gard­ing post-cri­sis growth, as well as var­i­ous job elas­tic­i­ties, SA’S jobs growth could have av­er­aged 2%-4% a year in­stead of the 1.7% av­er­aged since 2010. This equates to be­tween 500,000 and 2.5-mil­lion more job op­por­tu­ni­ties.

● As­sum­ing un­changed labour force par­tic­i­pa­tion and labour force growth rates, un­em­ploy­ment would have been 12.5%-22.5% in­stead of over 27%.

The de­te­ri­o­ra­tion in pub­lic fi­nances is an­other di­rect con­se­quence of

SA’S post-cri­sis malaise, notes the re­port. As cur­rent ex­pen­di­ture bal­looned and tax re­ceipts peren­ni­ally fell short, the debt-togdp ra­tio climbed from

28% in 2007 to about 55% now.

“While not all of the rev­enue short­falls can be as­cribed to broader macroe­co­nomic de­vel­op­ments (the Nu­gent in­quiry … speaks to the loss in ef­fi­ciency at the rev­enue ser­vice), there’s no ques­tion that the un­der­per­for­mance of the SA econ­omy did con­trib­ute to the un­der­recov­ery,” states the re­port.

Kemp con­cedes it’s dif­fi­cult to con­struct al­ter­na­tive sce­nar­ios for tax re­ceipts since tax col­lec­tion is a func­tion of var­i­ous fac­tors, in­clud­ing tax pol­icy de­sign, tax code changes, macroe­co­nomic per­for­mance and the ef­fi­ciency of tax col­lec­tion. But he be­lieves that had the SA econ­omy grown at rates closer to its peers, and sus­tained im­prove­ments in col­lec­tion ef­fi­ciency, to­tal cu­mu­la­tive tax re­ceipts would prob­a­bly have been R500bn to R1-tril­lion higher.

“It will take sev­eral years to undo the dam­age done over this pe­riod through do­mes­tic pol­icy mis­steps and the mis­man­age­ment and un­der­min­ing of key in­sti­tu­tions and state en­ter­prises,” he says.

“The new ad­min­is­tra­tion needs to ur­gently reignite con­fi­dence through clear and well-ar­tic­u­lated pol­icy in order to boost pri­vate in­vest­ment and con­sumer spend­ing. Only then can SA start along the path to re­cov­ery.”

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