Our eighth downturn: just business as usual

IF economics is the “dismal science”, I have a perfect countercyclical case study that might help you identify future crises. It’s called the “Whitfield property barometer”, and serious economists need to include it in their modelling.

This column warned in January that 2017 was going to be a rough year economically. That forecast was based only on the fact that when the Whitfield household embarks on significant capital expenditure, economic calamity follows.

We bought our first home just before the dotcom bubble burst, the second just before 9/11, and have timed upgrades to coincide with the global financial crisis. Our most recent major works have been timed perfectly to the current recession, now six days old and counting.

Recessions are a perfectly normal part of the economic cycle. They can prove a useful inflection point for agile policymakers to rethink how economies are managed.

In economics, all policy decisions have a limited life span. The best can boost growth for several years, but will run out of steam. Growth remains critical if governments are going to deliver on lofty election promises, which is why it’s ironic that so many recessions are triggered by poor political decision-making.

There was a brief recession in 1971 after an extraordinary decade of economic expansion for South Africa. The ’60s saw average annual growth of nearly 6%, thanks to huge, deliberate industrialisation.

The oil crisis of the early ’70s as Opec flexed its muscles brought bouts of recession in the first half of the decade, but the most significant slowdown came around the political instability of 1976.

The economy recovered, but the crippling droughts of 1982 to 1983 brought the most protracted slowdown in decades, exacerbated by the 1985 Rubicon speech, in which president PW Botha failed to announce key political reforms, leading to a debt standstill and a final phase of disinvestment as foreigners packed their bags in the face of growing pressure from the anti-apartheid movement.

The next round of uncertainty and most serious economic decline in nearly six decades was the catalyst for our longest period of unbroken growth. Nelson Mandela’s release and the unbanning of political parties caused confidence to wobble. Between 1990 and 1992, there were only a few months of sub-1% growth, otherwise the economy went backwards. The recovery was by no means certain, and there was extraordinary volatility through the ’90s as the ANC built up global credibility and a reputation for fiscal discipline.

We were finally classified “investment grade” by the end of that decade, and the economy grew steadily for 14 years, with periods of growth in excess of 5%. The country seemed to be reaching its potential.

The global financial crisis hit in 2008. Although massive investment in 2010 soccer infrastructure brought much-needed short-term recovery, ratings agencies warned our spending would cause trouble.

We are now in recession again, the eighth time since the country became a republic in 1961. And it’s come as something of a shock to mainstream economists. However, economic growth for the past two years has been below population growth, which some economists classify as a recession long before it comes out in GDP numbers.

The National Treasury has sought to calm jitters, reassuring South Africans that global positives will help lift us out of the funk, but there is little urgency in the new leadership of our finances to lift the country from the doldrums.

President Jacob Zuma can talk “radical economic transformation” until he faints, but without radical new thinking on growth we are condemned to bumble along.

Telkom’s results this week provided the best example of “radical economic transformation”. They showed an entity dealing with baggage embracing technologies and markets unparalleled by another company with public sector involvement in recent years.

Telkom remains proof that public sector dinosaurs can perform.

How can I forecast things will be OK? The Whitfields have no further immediate capital expenditure plans. I will be sure to warn you when we do.

Whitfield is a public speaker on the political economy and an award-winning financial journalist and broadcaster