A good chance to reset the economy

The South African economy is likely to contract by 10% and over one million people could lose their jobs due to the impact of Covid-19, according to the preliminary modelling findings. While a number of institutions have made reasonable attempts to predict the impact to the economy and subsequent job losses, most of these predictions are grinding above the surface and could be misleading.

The reality is that we are headed for an economic depression if the lockdown continues. The signs of a worsening economic situation are already unfolding and these include a gradual increase in unemployment, the GDP contracting by over 2% and ratings agencies downgrades.

While the informal economy contributes about 18% to the GDP and accounts for over 20% of the country’s employment, the sector continues to be grossly overlooked.

The majority of the participants in the informal economy such as mechanics, electricians, spaza shop owners and plumbers are overlooked in policy-making and even under lockdown regulations their guidelines came as an afterthought.

While most informal economy employees might not be registered to pay income tax, surely we must appreciate that they contribute a lot in terms of VAT.

Probably this is the time to implement the much-spoken about structural reforms. In SA reforms such as the Occupational Specific Dispensation of 2007, National Minimum Wage 2018, Pension and Welfare Policies Reforms, Financial Sector Accord and National Skills Accord Reforms have been implemented.

However, these reforms are inadequate as they are premised on neoliberal economic ideologies. But in a country that has not embraced long-term planning, it is still going to be difficult to craft a long-term macroeconomic plan to both take us out of fast-approaching economic depression we are confronted with and ensure the economy is better able to realise its growth potential in a balanced way.

In order to chart a way forward, SA needs to make some difficult yet necessary decisions.

A post-Covid-19 economic relief plan or macroeconomic plan that has measurable short-term to long-term accumulative returns is long overdue.

Finance minister Tito Mboweni has led the development of what they called “Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa 2019”.

Mboweni believes this is a hybrid plan that will turn around the economic fortunes of SA.

However, it is my submission that the proposals in this 77-page document will not salvage the economic downturn because it is a neoliberal economic framework. It purports the idea that political and economic realms exist virtually independent from one another.

SA must phase out neoliberal subsidiary policies such as privatisation, free trade, reduction in government spending, as well as austerity measures.

Recently national treasury admitted the current conditions would lead to scarring and economic dislocation that policy measures are unable to fully offset. Structural reforms need to be implemented now.

Historically reforms take some time before accumulative returns can be seen. Of course, resistance should be expected from some of the political and economic stakeholders involved in the decision-making.

For now we need to prioritise structural reforms that encourage inter-trade and investment in order to advance social fairness and inclusion.

2021 presents us with an opportunity to press the reset button. We should embark on a new journey to stimulate economic activity.

We need to prioritise structural reforms that encourage inter-trade and investment in order to advance social fairness

Ndzwana Makaula is an independent economist and works for Eastern Cape Planning Commission as an economics researcher. He writes in his personal capacity