Our best economic foundation would be a thriving black middle class
This is election year in SA and politicians are looking for every opportunity to win votes, by hook or crook. So the dominant public discourse will be politics. As we get closer to elections, politicians tend to become temporary Father Christmases.
They hand out gifts and food parcels, they visit the poor in run-down houses and they kiss babies — a lot of them. The fixing of broken public services, including housing, is likely to gather speed, given that these are visible actions that could boost voter turnout. No major policy decisions are expected until the second half of 2019, when the elections will be in the rear-view mirror. But politics is closely linked to economic performance.
The economy emerged from recession in the third quarter of 2018, partly due to the government’s efforts to stimulate investment, and the sentimental “wages” paid to the government by investors in anticipation of a “New Dawn”. Thus the growth realised in the third quarter was shaped by the manufacturing, transport and finance industries.
It is difficult to attribute the bounce-back to President Cyril Ramaphosa’s stimulus package, which seemed to be focused on the medium and long term. Investment in infrastructure, education and health care, the revision of the mining charter, and even a revised visa regime are among the medium- to long-term strategies. Moreover, the stimulus package was announced at the end of the third quarter, in September, whereas the growth reported by Stats SA was for July, August and September.
As elections approach, economic growth tends to slow down, given prevailing political uncertainties. But for SA, at least under the ANC, political uncertainty is mainly applicable during the run-up to the party’s national conference, especially when the ANC presidency is due to change hands. During general elections in SA we know which party will win, we know who the president will be, and consequently we know that development policy ideology is unlikely to change.
The point is that in SA we do not expect policy surprises, simply because traditionally there is no political uncertainty in the general elections, unlike in local government elections. The rule that economic growth slows down as elections approach will therefore not apply in the run-up to the 2019 elections. So what should we expect?
Goldman Sachs offers a bullish prediction of SA’s GDP growth, which it estimates at 3% in 2019. But macroeconomic indicators such as high unemployment (27.8%) and reasonably high inflation (5.2%) will play a notable role in constraining the sort of growth predicted by Goldman Sachs. The government holds that GDP will grow at 1.7% in 2019, roughly the same expectation as that of S&P Global Ratings (1.8%).
The World Bank is more cautious, predicting 1.3% GDP growth in 2019. This low growth is based on low production in the mining sector, low business confidence and political uncertainty. The bank is right about the lagging performance of the mining industry. It is, however, inaccurate on business confidence and political uncertainty. If GDP grows anywhere around 1.3% this year (which is highly unlikely), it will be mainly because of external factors such as the trade disputes between the US and China, interest rate hikes by the US Federal Reserve, unstable commodity and oil prices, and other unforeseen turbulence beyond national control.
In light of the above, it seems that 1.6%-1.9% is the most probable growth band. Domestically the government has its ducks in a row, and investor confidence is unlikely to wane in the foreseeable future. By and large, it will be a good year in terms of GDP growth.
But the essential question is the extent to which this GDP growth will spread benefits to the poor, the working class and the middle class — if it does so at all. Much of the benefit distribution to the poor and the working class will depend on the government, whether through social grants or the minimum wage. What is a lot less clear are policies to sustain the productivity of the black middle class, which in turn could lead to high and consistent growth — if, that is, this class is located in the productive sectors rather than the government sector.
Under current policy conditions, 2019 will not be pro-middle class, and nor will GDP growth be. While taking from the rich to give to the poor will win votes and avoid immediate social conflicts, supporting the productivity of the black middle class is the way to sustained future growth. But a focus on the black middle class is not good politics in the short term.
Musyoka is a development economist at the Centre for the Advancement of Scholarship, University of Pretoria, and the world economic report analyst at The Voice of the Cape (91.3FM).