Our best eco­nomic foun­da­tion would be a thriv­ing black mid­dle class

Sunday Times - - Opinion - JA­SON MUSYOKA

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).

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