Instead of blaming Zuma, look at reality of export trade
SOUTH Africa’s economy is performing below expectations and this trend is likely to continue, with 2017 growth projected at less than 1%.
This weak economic growth is projected to continue for the rest of the year before picking up moderately in 2018, as private consumption (and exports) is expected to rise on the back of a recovery in commodity prices and growth in export markets.
How did we get here? Most “experts” blame what they call President Jacob Zuma’s persistent political debacles said to be causing collateral damage to the economy. Specifically, ANC internal divisions and policy uncertainty have been cited as the more damaging effects of the Zuma presidency.
According to Judith February, who is based at the Institute for Security Studies, “Zuma cannot speak with any legitimacy or credibility on the economy since he has single-handedly done more to undermine and destroy the economy than any postapartheid president”.
Zuma himself, she says, is a major stumbling block to a growing, healthy economy, and, contrary to popular belief February says it is actually the president who is “a stumbling block to economic transformation and the redressing of the structural economic injustices of the past”.
Judith February is, of course, echoing views of many of the socalled economic experts who have gone over the edge to align their expertise with their deepseated sentiments on the political and economic dynamics of the country.
When you follow their arguments, in order to find causality, in order to determine the specific actions that Zuma has taken or not taken, and their direct impact on the economy, these arguments begin to follow an infinite regress.
The departure point for any conversation on the economy has to be “what are South Africa’s drivers of economic growth” and how have these been compromised or made ineffective by Zuma’s persistent political debacles.
Real investors in South Africa, particularly in mining, will tell you that many investors are actually more fearful of China’s slowdown as the planet’s main driver of growth.
China’s economy is still growing at higher percentages but what sparks the markets is anticipation than actuality and anticipation is that China’s growth is not going to continue at higher rates.
The result is the markets are adjusting to this reality before it even happens, causing it to happen sooner, a selffulfilling prophesy.
China’s slowdown has huge implications for most markets, particular suppliers of commodities – which ties in with RSA’s slow economic growth. RSA remains largely dependent on commodities as its driver of economic growth due to export markets.
Our mining industry accounts for more than 50% of the country’s exports. Reliance on mining for exports, along with the slowdown of export demand for commodities, has resulted in the steady decline in the value of the rand.
As a result, the economy heavily depends on global recovery of demand – something that has implications on the prices of commodities.
SA’s top 10 companies account for 70% of its 40 Index and mining companies dominate the list, which heavily affects both the health of our international and local markets.
In 2016, Stats SA found that the country’s GDP slowed to 0.3%, with the biggest contractions occurring in industries like mining, manufacturing and quarrying.
Despite the nation’s reputation as a tech haven, some 57% of South Africa’s economy is still composed of commodities, which as we have said, has been hard hit by declining worldwide demand over the past several years.
In fact, the frail export market has led to a significant decrease in the value of the rand, causing it to drop to an all-time low of R18 per dollar in 2016.
Yet another sector that has seen more than its share of difficulties is agriculture, long famous for its wines and more recently, its olive oil. This sector was once heralded as a potential saviour, with the promise of nearly one million jobs which, unfortunately, turned out to be overblown as employers use seasonal workers and face uncertainty because a huge amount of their income depends on global demand. To make things worse, South African farmers are also facing the worst drought in more than a century, which forced the agricultural sector to shrink by nearly 14%.
Coupled with inflationary pressures and poor farm output, food costs are rising by as much as 6.2%, resulting in a grim overall outlook for the nation’s economy.
It’s difficult to see how all these mining and agricultural economic debacles can be linked to Zuma’s so-called persistent political collateral damage.
Growing export revenues is a necessary condition for sustainable growth in South Africa.The surge in domestic spending between 2004 and 2007 was only possible because there was a commodities boom.
Since 2012, declining export revenues have taken their toll. A rising current account deficit has weakened the rand, eroding real personal incomes.
Mining investment has contracted. The machine driving growth has switched off.
This witch-hunt for who is responsible for our economic woes has seen people blaming the Zuma government for everything, from fiscal discipline, salaries of government employees, infrastructure backlog, inadequate education system and poisonous labour relations, all just to avoid facing the reality that we have an export market (and local economy) that is heavily depended on commodities and that global demand has been slowing down over the years, dragging our economy with it.
We don’t dare talk about private sector investment boycott in the economy, for some all the blame must reside with the government in bad times, in the good times, it’s the private sector that is responsible for growth and boom.
It’s the same thing that is happening to oilproducing and dependent countries, who have seen their revenues more than halved over the past few years, as global demand for oil has dropped drastically.
The problem, of course, with our country’s experts is that they are but private individuals with private interests – instead of being solutiondriven experts who help the country find real solutions.
WEAK RAND: Since 2012, declining export revenues have taken its toll on the South African economy while increased export revenues is a necessary condition for sustainable growth.