R1-TRILLION MALEFACTOR
The Zuma years cost SA an absolute fortune in terms of lost growth, taxes and jobs, a new report estimates
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.”