THERE’S NO “SHOCK” about the fact that South Africa is now officially in recession. That outcome was certain many months back. The South African economy is overwhelmingly dependent on global macro trends. When the world as a whole booms – or at any rate secures a reasonably satisfactory level of growth in real gross domestic product – this country invariably fares at least moderately well.
But when the broad global economy suffers a major setback (and the current crash is the most extensive in post-1945 history) that has a major adverse impact – sooner or later – on SA. Though many instances can be cited in support of that view, perhaps the most illuminating is what happened in 1988 and even over the three years 1987 to 1989. SA then faced chronic “insurgency” problems domestically – and was under increasingly intense siege from sundry foreign financial and trade sanctions. On the surface SA’s economy should at that stage have been in a state of immediate chronic disaster. However, the reality was somewhat different.
In 1988 our economy grew by 4,2% in real terms – the best performance since the artificial gold-based surge of 1979/1980.
Also, between 1987 and 1989 the aggregate rise in GDP was almost 9% – better than, for example, the equivalent records of both 1993-1995 and 1997-1999.
That clearly seems completely counterintuitive. How could “polecat” SA have done slightly better – in terms of economic growth – in the late Eighties than the internationally hailed “rainbow nation” did for most of the Nineties?
The answer is that had very little – if anything – to do with SA’s internal politics and economic policies. The world economy flourished in the late Eighties and, vitally, that fuelled strong global demand for SA raw materials exports. Over 1988/1989 SA enjoyed an average annual rise of 7,6% in the real value of exports of goods and services. That wasn’t quite as buoyant as 1995/1996 (9%) or as sustained as 20052007 (7,2%).
But it was what periods of strong SA economic growth have always been traditionally founded on. Sharply increased foreign demand for SA products in 1987/1988 was especially noted from Asia. Then as now, the Far East was far more interested in what it needed from SA than in debating political morality. So SA could get by, in good times, even with sanctions.
Yes, there were big long-term burdens building up from those sanctions. But, with bitter irony, those would ultimately fall primarily on the new democratic order that came into place from 1994.
Crucially, though, commodity export volumes and prices are capricious. They can change swiftly from the greatly beneficial to the gloomily dismal. When that latter development occurs SA is inevitably hurt. We’re now painfully reminded once more of that truism. Grievous hard times internationally – see accompanying graph – are taking a heavy toll on SA.
That brings a critical question right back into glaring focus: What can SA do, if anything, to reduce its vulnerability to the ups and downs of the commodity cycle?
That vital issue is where the ANC Government has been largely unsuccessful economically – not that the apartheid regime did any better.
It’s a recurring leftist/populist complaint that from 1994 ANC economic policymakers have paid too much attention to financial discipline and too little to creating more jobs and more output. Maybe so – to some very limited extent.
However, the assumption of many (though most definitely not all) of those critics is that this basic discipline is largely inimical to optimum economic growth. That is, of course, a long-discredited primitive economic fallacy. But there are occasions, as now, when budgetary and monetary restraint may have given way temporarily to economic pump-priming.
The emphasis, though, is heavily on temporary. Interest rates in the United States, Western Europe and in many other regions and countries will some time ahead need to show proportionately hefty rises from near-zero levels. Handling the transition down the line from fending off the dangers of deflation to combating the far more familiar threat of inflation will present massive renewed challenges globally for central banks, finance ministries and governments.
But here, at least, is one area where SA shouldn’t have too many difficulties. If SA has erred on the cautious economically then necessarily it will have less need for dramatic future policy changes.
It can obviously be argued SA’s financial authorities might have done more than they have to fight off recession. But until this country gives economic growth a higher priority than social engineering it’s folly to believe cheaper money and a weaker currency will provide a relatively painless solution.
Meanwhile, SA will still lurch from time to time between the edges of boom and bust, mainly as the global economy dictates.
HOWARD PREECE email@example.com