SA’S economy neither Gear nor there
Amid directionless policy after 30 years of democracy, the country’s prospects continue to be driven by the whims of miners and their financiers
‘Making promises is easy — especially during election campaigns — but carrying them out as a government is much more difficult.”
This is one of the many gems contained in the Reconstruction and Development Programme (RDP), South Africa’s somewhat utopian post-1994 policy framework, drafted in an attempt to rectify the economic degradation created by apartheid.
South Africa’s economy, which had drawn strength from its mines and financial sector, only benefited a tiny section of society — a fact which the RDP recognised would weaken the country’s new democracy.
Despite some of the plan’s successes, the economy remains the most unequal in the world. Unemployment has soared and is especially high among black women. Meanwhile, the majority still doesn’t benefit from the country’s economic gains, meagre as they are.
Reflecting on South Africa’s economic predicament 30 years into democracy, political economist Patrick Bond made this grim observation: “The processes that made this economy so depraved — inequality, unemployment, poverty, ecological degradation and the oppressed role of women in subsidised social reproduction — all of those apartheid characteristics have got worse.”
The country’s track record for inequality is well known.
It ranks first among 164 countries in the World Bank’s global poverty database. The 2022 World Inequality Report had this to say about South Africa: “While democratic rights were extended to the totality of the population after the end of apartheid in 1991, extreme economic inequalities have persisted and been exacerbated.”
According to the report, postapartheid governments have not implemented land, tax and social security reforms sufficient to correct South Africa’s dual economy system — which has created extreme levels of income inequality, while the country’s wealth remains concentrated in the hands of its elite.
The unemployment rate is another stubborn stain on the economy. While a 32% official unemployment rate is shocking enough on its own, this level is higher among black South Africans at 36%. The unemployment rate among black women was close to 40% a year ago.
This crisis has deepened in the wake of the economy’s stagnant growth. According to a recent analysis by the Stellenbosch-based Bureau for Economic Research, the economy grew at an average rate of 3.6% a year during the first 15 years since 1994. The GDP growth has more-orless flatlined since 2009, recording an annual average rate of 1.1%.
Last year, the World Bank remarked that, while South Africa had made significant progress in reducing poverty since 1994, its retreat came to a halt in 2011.
In a separate report, the bank noted that, at nearly 20%, the country’s poverty rate is almost twice the average for countries with similar income levels.
According to the report, economic growth — which has been in short supply — is less effective at lifting people out of poverty in the context of extreme income inequality.
Meanwhile, South Africa (one of the highest emitters of greenhouse gases on the continent) continues to record high levels of carbon inequality, which have remained constant since the 1990s, according to the World Inequality Report.
This means the big emitters — which include Eskom, Sasol, as well as the likes of Arcelormittal and Anglo American — have consistently contributed to ecological degradation to the detriment of South Africans.
Climate-related shocks, such as droughts and floods, are often most acutely felt by the poor and stand to exacerbate inequality.
For Bond, the author of Elite Transition, South Africa’s mineralsenergy-finance complex is at the heart of this economic crisis.
In 2013, economists Sam Ashman, Seeraj Mohamed and Susan Newman argued that South Africa’s minerals-energy complex — which was at the centre of the apartheid economy — had become increasingly financialised as domestic financial markets were liberalised. South Africa’s highly-concentrated banking sector is among the most profitable in the world.
Financialisation and the economy’s increased dependence on the minerals-energy complex converged to create the conditions for the large-scale capital flight since 1994, according to the 2013 paper.
“A vast share — treasury admits up to 7% of Gdp/year — worth of liquid wealth has flooded out of the country — mostly in the hands of rich whites who, during apartheid, had an unfair advantage in wealth accumulation,” Bond noted.
This can’t be dismissed as some fringe view. A 2018 World Bank report, titled An Incomplete Transition, noted that much of South Africa’s wealth is held abroad, which it attributes to policy uncertainty. The concentration of assets overseas deprives the country of muchneeded capital for domestic investment, the report notes.
Wealth is also lost through depletion of non-renewable resources, or natural capital, which requires adjusting GDP to arrive at net savings. In 2018, South Africa’s adjusted net savings stood at under 2% of gross national income, which is well below that of other emerging markets. At the time, Brazil’s adjusted net savings was about 10% of gross national income.
This is how Bond explained the consequences of this arrangement: “If commodity prices go up and we therefore have more mining and smelting — and therefore more electricity use — we are getting much poorer, because the reinvestments from non-renewable resource extraction are never enough.”
In 1999, political economist
Sampie Terreblanche wrote about the sudden abandonment of the RDP and the drafting of a new strategy — Growth, Employment and Redistribution (Gear) — championed by Thabo Mbeki, who became president that year.
Terreblanche — who died just after Cyril Ramaphosa became president, ushering in another difficult period in South Africa’s economy — was well known for his seminal work, A History of Inequality in South Africa.
Outlining the differences between the RDP and Gear in 1999, Terreblanche noted: “[W]hile the former expected from the state to conduct a people-oriented developmental policy, the latter saw South Africa’s economic ‘salvation’ in a high economy growth rate that would result from a sharp increase in private capital accumulation in an unbridled capitalistic system — nationally and internationally.”
Gear — which hinged on the view that South Africa would attract huge amounts of foreign investment by establishing macroeconomic stability — is widely considered to have failed, at least insofar as boosting the real economy is concerned.
The tight fiscal policies adopted under Gear contributed to meagre growth and thus low job creation, according to the 2018 World Bank report, which notes: “[B]oth picked up in the early 2000s — only to stall again during the global financial crisis and economic downturn in 2008.”
Despite the political rupture precipitated after Jacob Zuma trounced
Mbeki at the ANC’S 2007 elective conference, Gear continued to colour macroeconomic policy — although it never created the levels of certainty needed to charm investors.
This, as the tumult created by Zuma’s presidency left policy more anchorless than ever.
“We have never been in a more uncertain situation,” former statistician general Pali Lehohla remarked.
“In 1994, we were certain that apartheid had to go. And it went. This time around, there is a level of uncertainty. At least we are certain that poverty will still continue.”
Commenting on the ambivalence that emerged during the Zuma years, and which has seemingly persisted, Lehohla said: “In the main, the treasury remained intact, as Zuma came with a leftist agenda — at least at the propaganda level. But in practice the agenda was neither to the left nor the right … It was best defined as the economics of commotion, rather than economic policy.”
He suggested that this maelstrom is typified by the endless back-andforth over privatisation, which has both battered state-owned entities and left investors whiplashed.
“We have this situation in which the pillars of the economy have been destroyed by ill-defined policy … Gear at least was clear around intention and action. The system was very coherent. You could see an economic policy, which was free market fundamentalism,” he said.
“This time around it is neither Gear nor anything.”
‘The pillars of the economy have been destroyed by ill-defined policy’
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