Painful poli­cies

SA hit by host of ad­min­is­tra­tive and po­lit­i­cal de­ci­sions in­trin­si­cally hos­tile to pri­vate busi­ness

Finweek English Edition - - In The Spotlight -

THE CLEAR SLOW­DOWN in un­der­ly­ing eco­nomic growth in South Africa is partly a re­flec­tion of Gov­ern­ment pol­icy er­rors. The other crit­i­cal rea­son is the much weaker per­for­mance from 2006 in the global econ­omy. Ta­ble A shows the de­clin­ing trend in rises in real gross do­mes­tic prod­uct in all the ma­jor de­vel­oped na­tions. The fig­ures for each of the seven coun­tries in­di­cate the per­cent­age rate of pos­i­tive change in GDP for each quar­ter from April to June 2006 com­pared with the same pe­riod one year ear­lier.

That de­cel­er­a­tion in growth in the lead­ing in­dus­trial economies would have taken an ad­verse toll on SA even if its over­all macroe­co­nomic man­age­ment had been bet­ter. But SA has also been hit by a host of ad­min­is­tra­tive and po­lit­i­cal de­ci­sions in­trin­si­cally hos­tile to pri­vate busi­ness and thus in­im­i­cal to op­ti­mum GDP growth. The un­cer­tain po­lit­i­cal cli­mate has also taken its toll.

The rel­a­tively dis­mal per­for­mance of SA’s min­ing in­dus­try in a pe­riod of ex­traor­di­nary boom in com­mod­ity prices is a par­tic­u­lar ex­am­ple. Two ap­palling blun­ders by the State were cru­cially re­spon­si­ble.

First, the Eskom de­ba­cle. The fall-out from that catas­tro­phe con­tin­ues to be heav­ily felt. For ex­am­ple, Mar­ius Klop­pers, CEO of in­ter­na­tional met­als and min­er­als gi­ant BHP Bil­li­ton, stressed last week that ma­jor con­cerns about the sup­ply and cost of elec­tri­cal power meant his group had no in­ter­est at this stage in new alu­minium smelters in SA.

Sec­ond, Gov­ern­ment min­is­ters – and their se­nior of­fi­cials, es­pe­cially – have made the mantra of “trans­for­ma­tion” a for­mi­da­ble ob­sta­cle to much-needed mas­sive new fixed in­vest­ment in min­ing.

There’s also enor­mous un­cer­tainty about how the SA econ­omy and all linked is­sues will be run from 2009 in the postMbeki era. It’s still widely as­sumed, though no­body can pos­si­bly have any au­thor­i­ta­tive knowl­edge, that Ja­cob Zuma will be SA’s next pres­i­dent.

But whether that will fi­nally hap­pen with all the as-yet-unan­swered le­gal ques­tions hang­ing over it, is nec­es­sar­ily un­known. So, too, is any gen­uine in­sight into just what eco­nomic and fi­nan­cial poli­cies Zuma might pur­sue if he were SA’s po­lit­i­cal supremo.

Vi­tally, both do­mes­tic and for­eign busi­ness in­ter­ests have no re­motely def­i­nite pic­ture of what role the hard left leaders of the SA Com­mu­nist Party and the Cosatu trade union bloc will play in a “Zuma SA” – or, in­deed, in any regime that fol­lows Mbeki’s.

There’s nat­u­rally great con­cern about the growth prospects for SA. Anx­i­ety about the out­look for al­most all emerg­ing mar­ket and de­vel­op­ing economies is also called for.

But wor­ries about the world’s tra­di­tional rich, de­vel­oped economies – those are nu­mer­i­cally quite a lot more than the “big seven” listed in the ta­ble above, but it’s large in­dus­trial economies that nec­es­sar­ily have the great­est im­por­tance for the poorer na­tions – need to be seen in proper per­spec­tive.

Look at what’s hap­pened to the OECD na­tions over­all in the past 50 to 60 years. • Av­er­age liv­ing stan­dards in the United States are now three times higher than they were in 1950. Con­sid­er­ing how ex­cep­tion­ally wealthy the US was rea­son­ably seen to be in the post-1945 era, it would seem as­ton­ish­ing to those who can still re­mem­ber that era that the US is sup­posed to cur­rently have “crises” if its econ­omy has a brief pause, even a short-lived tech­ni­cal re­ces­sion. France and Bri­tain are both about four times bet­ter off than they were in 1950. Ja­pan’s per capita wealth has grown 10 times in that pe­riod, while South Korea – poorer than ei­ther Zam­bia or Ghana in the early Six­ties – has en­joyed a 16fold rise in real in­comes. Of course, that surge in av­er­age liv­ing stan­dards hasn’t fol­lowed a sim­i­lar pat­tern world­wide. Africa has broadly done well over the past 10 to 15 years but much of the con­ti­nent went back­wards or barely bet­ter than side­ways be­tween 1965 and 1995. Self-in­flicted causes were cen­tral to that, as SA in its own way demon­strates.

The SA Re­serve Bank says av­er­age real dis­pos­able in­comes were lower in SA in 1999 than they were in 1975. There’s been a healthy im­prove­ment from 2000 – but SA is among the many coun­tries that still ur­gently need strong and sus­tained rises in eco­nomic growth.

HOWARD PREECE howardp@fin­week.co.za

Ma­jor con­cerns about elec­tri­cal power. Mar­ius Klop­pers

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