Divide and conquer this recession!
The key is to tackle our issues sector by sector
AN uncle called me recently, and in his robust voice bellowed: “This thing you people are talking about of the recession, is it like what I’m experiencing with my hair?” I laughed nervously, since I share, in whatever little way, his genes and thus potential for such a recession.
While economic recessions represent a kind of receding of economic activity, they are not genetic, and thus more easily reversible than recessions of the hairline. And that is comforting. But we need to be serious about treating this recession, or it will grow into a depression.
US billionaire investor Warren Buffett was quoted as saying that it was the normal regenerative capacity of US business that would play a much bigger role in the country’s emergence from the 2008-09 recession than any government effort to stimulate the economy.
His statement finds good application here in South Africa, although only in part given our economic structure and stage of development.
In any case, we now have very limited space for government stimulus thanks to our public accounts.
What is clear from the data, though, is that business is pulling back, and this gives us a worse chance at recovery.
To remind ourselves of our context, let’s recount some very uncomfortable numbers.
According to Stats SA, a fifth of South Africans live in extreme poverty, which means not being able to afford basic nutrition. Equally of concern is that more than half, or 53.8%, fall under the widest definition of poverty — surviving on under R779 a month.
Exacerbating this problem is that the unemployment rate has risen to 27.7%, the highest rate in recent times. This means 20.8 million people are out of work and economic participation.
The numbers released on Tuesday by Stats SA showing we are in recession paint a wor- rying picture, not only about the state of the whole economy, but about its parts. Whereas we could always boast that even though growth was slowing down there were sectors that were growing, that hope is diminishing. The contraction in the first quarter of 2017 was much more widespread, and threatens to erode the base of the economy.
To be sure, economic growth has been in decline since its promising rebound after the 2009 contraction.
From the 3.2% growth recorded in 2011, growth has steadily slowed over a five-year period to record 0.3% in 2016. Over that time, while sectors like mining, electricity, and agriculture were slowing down or contracting, we could point at specific reasons why, and then boast and point to sectors like manufacturing, financial services, construction and trade as sources of growth. Data for the first quarter of this year changed that status.
Agriculture and mining are the only two sectors which grew. But consider this. While agriculture grew by an apparently impressive 22.2%, the sector is the same size it was five years ago. This is also underlined by the employment numbers released a week ago showing that agriculture actually lost 44 000 jobs in the first quarter of 2017, or 5% of employment in the sector. The lack of infrastructure for irrigation and storage of water, poor diversity in or highly concentrated production, and under-investment in modern agricultural technologies showed that we are not building a modern and resilient economy. In itself, mining continues to be volatile, and the 12.8% growth seen in the first quarter of 2017 merely served to return the sector to the size it was in third quarter of 2016, having declined 11.5% in the fourth quarter.
All this considered, the whole economy is smaller than it was this time a year ago.
If we were not so committed to the “technical” definition of a recession, we would have, and should have, declared a crisis a long time ago.
We would have done so when we noticed the decline in fixed investment, which has been a continuous feature for some time now.
We should have called out the problem when the volume of manufacturing production showed a declining trend since the first half of 2016.
But more tellingly, the crisis in the agricultural sector showed us plainly that we were not positioned for growth. The lack of infrastructure for irrigation and storage of water, poor diversity in or highly concentrated production, and underinvestment in modern agricultural technologies showed that we are not building a modern and resilient economy.
So we got caught in a drought, as if we were animals in the wild, or in the Middle Ages with no way to predict weather patterns.
There has been a constant call for this wide-ranging social contract or economic Codesa. At its heart, this signifies our mistaken commitment to the notion of the big economy and big government.
Should the focus not be on parts of the economy, of business, and the various sectors in which economic agents are forming pointed strategies of development and partnership, rather than a grand plan?
One can recognise this posture in the drive to a big growth number of the economy, rather than the development and activity in parts of the economy that in the end aggregate to give us a big number.
The South African economy faces challenges that are specific to its various sectors. The challenges in agriculture are demonstrably different to those in the electricity sector. This means any solution or economic compact must occur at that level so that solutions are that much more pointed and robust. This requires a strategic approach and leadership across sectors and social partners.
In a speech this week in the National Assembly, Finance Minister Malusi Gigaba, reflecting in part on the recession, said: “We cannot afford to become despondent in the wake of these developments; we must remain positive and must remain singularly focused on growing the economy and creating prospects for it to get out of the low-growth path.”
It is despondency that has landed us in this position. To get out of it, we need clear ideas and targets from all economic and social sectors, and leadership, wherever it is to be found.
And to repeat Buffett’s words, it will be the regenerative capacity of business that will play a larger part since the government now has little space for stimulus.
The agriculture crisis showed us we were not positioned for growth At sectoral level solutions are that much more pointed and robust