Only NDP can save SA from low-growth trap

IS a recession in South Africa inevitable? The dreaded word “recession” is technically defined as two successive quarters of negative growth. Whether a “technical recession” will develop in the immediate future remains a close call because there are still just too many cross-currents in the economy.

What is certainly true is that we have a fragile economic outlook that could go either way given the shrinkage in growth in the first quarter. Which direction we go will depend on whether the performance of certain sectors of manufacturing, agriculture, exports and the rest of the economy is positive enough in the second quarter to offset the nasty losses from the platinum sector.

Reserve Bank governor Gill Marcus is right to caution everyone against assuming the worst. Lopsided negative talk, after all, can tip the scales and create a self-fulfilling economic prophecy. Even a small percentage swing in the growth rate on the margin is important to perceptions of the economy, rather than to the reality on the ground.

What makes it more complicated is that when the overall growth number changes, a number of other key ratios shift statistically — such as the fiscal deficit picture.

With red lights now flashing about South Africa’s economic performance, credit-rating agencies are sharpening their pencils again. This would be particularly nasty: another downgrade would raise borrowing costs and cause a ripple of negative effects on the economy.

It is not as if South Africa is without potential solutions — provided the leadership is there in the public and private sectors to grasp them.

Right at the top of the list right now is avoiding collateral damage to the economy from the strikes going bad.

It would be an unconventional move, but it might help to get the economy moving in tandem with longer-term plans were the new finance minister, Nhlanhla Nene, to hold a “budget” or “mini-budget” early in the term of the new parliament. The government needs to stay strongly on message that the National Development Plan (NDP) must be implemented now and provide tangible evidence of policy alignment.

In particular, the business community wants to see policy coherence and a timetable for implementation. President Jacob Zuma is due to give a state of the nation address this month and he would do well to make the economy the centrepiece.

There have been disconcerting hints being dropped about possibly raising taxes to “rebalance” public finances. This would be a mistake. If the choice right now is between a higher temporary deficit and higher taxes, additional borrowing is the lesser of two evils. This would create breathing space for longer-term measures to kick in.

Of course, it is essential that the state’s wage bill be contained.

The emphasis should be on effective infrastructural spending that will “crowd in” the private sector. Mobilising the private sector on a larger scale to help in making things happen should be driven by pragmatism and not be obstructed by ideology or mistrust.

The bottom line is that raising taxes on the back of a weakening 2% growth rate in 2014 is just looking for the kind of trouble that the economy does not need now. If we want a real recession instead of merely the Reserve Bank’s “downside risks to growth”, we should surely go for fiscal overkill.

We do need to strike a new fiscal balance to see us through the next 12 months, but this must be linked to the essential thrust of the NDP.

The big worry for South Africa is not really the possibility of a shortterm “technical recession”, even should that occur, but a longer-term “low-growth trap” from which it will be difficult to escape.

South Africa is not at a crossroads where we have numerous options — we are actually at a T-junction. Either government, business and labour throw their weight fully behind the NDP, warts and all, or South Africa fails to find the magic in itself to generate high inclusive growth rates of 5% to 6%, of which some other competing emerging economies have found themselves capable.

The wrong decision means we will end up on the “low road” again.

Parsons is a professor at North-West University’s Potchefstroom Business School and former special policy adviser to Business Unity South Africa