South Africa needs economic transition 2.0
Thirty years since democracy, it would benefit from a radical shift to steer it out of stagnation
‘Much of South Africa’s economic future will depend on what happens in the next few years.” This was the opening line of a World Bank report on South Africa’s economy published 30 years ago, when voters were about to cast their ballots in the first democratic elections.
The World Bank made its assessment of the economy after the country emerged from its longest-ever recession, which was partly the result of blows to consumer and business confidence inflicted by the political turmoil that characterised the period.
“Yet South Africa’s economic problems run much deeper,” the report surmised. “For 30 years, GDP growth has been declining; unemployment has increased dramatically; and inequality between blacks and whites … is almost as wide as ever.”
Now, the state of South Africa’s economy 30 years into democracy will no doubt weigh heavily on voters’ minds as they head to the polls in just over a month.
Political parties are promising a path out of stagnation. But addressing the country’s deep economic problems requires a true policy course correction — something that doesn’t seem to be on the horizon.
In January 2014, then finance minister Pravin Gordhan addressed a Mail & Guardian gala dinner.
In his speech — titled “South Africa: Twenty Years of Economic Transformation” — Gordhan recounted some of the strides the government had made since the end of apartheid.
“After 20 years of democracy, during which we began erasing the legacy of over 300 years of colonialism and apartheid, we begin the next step in our journey towards deeper transformation and further gains for the millions of citizens of this country,” he said.
“Political rights are meaningless if they are not followed by fundamental economic change and tangible changes in people’s lives.”
Gordhan cited a Goldman Sachs report, published two months prior, written by Colin Coleman, which countered the somewhat negative narrative about South Africa which had emerged at the time.
According to Coleman’s report, South Africa’s economic achievements included higher disposable incomes, a bigger black middle class and a dramatically increased number of social grant beneficiaries.
But these gains came with some significant caveats, chief of which was the country’s stubbornly high unemployment rate. At the time, the official unemployment rate stood at about 24%, slightly above the 23% recorded in 1994.
The effects of the global financial crisis had also started to take hold, as the benefits of the commodity cycle dissipated.
“The challenge is how, in the face of the current downward cycle, we ensure that these trends are not reversed — but are in fact enhanced,” Gordhan noted in his speech.
As we all know, the decade that followed has been particularly taxing.
The official unemployment rate has risen to north of 30%.
Household disposable incomes have stagnated and the country’s much vaunted black middle class remains vulnerable to economic headwinds.
The government’s policy of fiscal consolidation — which was implemented from 2013 after the financial crisis-induced blow to the public purse — hasn’t helped.
A 10-year review of the National Development Plan, adopted in 2013, showed Gordhan’s fear had materialised — on a number of its economic targets, South Africa has regressed.
During a PSG Financial Services event earlier this month, former head of the treasury’s budget office Michael Sachs was asked why, 30 years into democracy, South Africa’s economy continues to be defined by stagnation.
Current policy, Sachs noted, is failing to achieve growth and economic transformation.
“We don’t need to remind anyone of the depth of the crisis we are facing as a country … I think there is this mantra that particularly people in government like to repeat that we have good policies and bad implementation,” he added.
“If we acknowledge that for 10 years the economy has not grown, that unemployment has more than doubled in that period, the starting point has to be that there is fundamental reform of policy that is required.”
But reform is easier said than done, Sachs said, adding that it inevitably changes the profiles of the winners and losers.
A number of polls suggest that the ANC will lose the majority vote in the upcoming national elections. But many agree that the party will continue to govern in a coalition or government of national unity, in which case it will continue to steer policy — albeit with added pressure from the right or the left, depending on its chosen partner.
If the ANC’S election manifesto is anything to go by, the party won’t champion a major change of course after 29 May. That means its coalition partners will have to become very persuasive backseat drivers.
A recent Social Research Foundation poll suggests voters would prefer an Anc-democratic Alliance (DA) pact, although the survey notes that there “is no majority position currently anchoring public opinion on the ideal coalition make-up”.
Between the DA and the Economic Freedom Fighters, the latter is more likely to rock the boat when it comes to policy but many believe an ANC-RED Beret coalition is out of the question.
Either way, the bigger shift will probably come only five years from now — in which case the World Bank’s opening sentiment back in 1994 still applies.
‘If we acknowledge that for 10 years the economy has not grown ... the starting point has to be fundamental reform of policy’