Can Tito call back the past?

South Africa has been on a steady downward trajectory since the Nelson Mandela years and Finance Minister Tito Mboweni has the unenviable task of turning things around when he delivers his budget speech today.

Bold reforms needed as the ‘Ramaphosa Effect’ wears thin.

Finance Minister Tito Mboweni has to plan to climb a mountain today. He has to plot a path to take the country back to the economic heights of the Madiba and Thabo Mbeki years – out of the financial pit into which it was plunged during the Zuma administration.

The steady downward trajectory of the South African economy post 1994 is obvious:

Under Nelson Mandela, the average annual growth of gross domestic product was 2.7%; unemployment was 25% and government debt (including that inherited from the apartheid era) was 48% of GDP.

Under Mbeki, GDP growth averaged 4.1% annually; unemployment went down to 23.7%, as did debt – to 44.5% of GDP (including apartheid debt).

In the Jacob Zuma era from 2008 to 2017, annual average GDP growth shrank to 1.7%, unemployment rose to 26.7% and debt spiralled to 62.2% of GDP.

Under Cyril Ramaphosa, GDP growth (after Covid-19 in the third quarter of 2020) was just 0.2%, while unemployment rose further, to 32.5% (third quarter 2020 after lockdowns), while debt increased to 63.3% of GDP.

Ramaphosa has limited options because he must undo not only the corrupt political systems of the Jacob Zuma years, but reverse his own dismal economic performance legacy while the Covid-19 pandemic stares him in the face.

The initial “Ramaphosa Effect” – after his triumph over Nkosazana Dlamini-Zuma for ANC leadership at the Nasrec elective conference – brought hope, but undoing the damage done to key pillars of the economy, including state-owned enterprises, has been an almost impossible task. The pandemic then forced Ramaphosa to put those recovery plans on hold and to dedicate much of the country’s resources to social relief and economic support packages.

Statistics South Africa reported a GDP growth of 13.5% in the third quarter of 2020, giving an annualised growth rate of 66.1% compared to the 51.7% in the second quarter during the hard lockdown months of April, May and June. A sudden surge in economic activity in the third quarter saw GDP growing by an estimated 12.5% coming off a very low base in the second quarter.

Despite the growth late last year, things have begun to unravel on employment under Ramaphosa. As late as yesterday, the unemployment rate grew by 1.7% to 32.5% from 30.8% earlier.

What is needed, says political economist Danile Silke, is for Ramaphosa to implement reforms in all aspects of the economy and that requires boldness.

“South Africa needs to switch its focus – instead of the government being the centre it needs to switch focus to the private sector,” Silke says.

But, he adds, government needs to play an enabling role so that it can dictate how the private sector emphasises social issues.

Julie Smith, researcher at civil society body Pietermaritzburg

Economic Justice and Dignity Group, said the poor were bound to suffer more because government did not want to borrow to save the economy.

Despite the World Bank encouraging countries to borrow and spend to get out of their crises, South Africa chose austerity measures which, in itself, was risking economic collapse. The government must find way to put more money into people’s pockets so as to drive demand, she said.

Spending should not only be enough for basic consumption goods, transport and electricity.

Smith said there was a need to introduce basic income grants and other measures to put money into people’s pockets. The national minimum wage should go up more than the 4.5% hike recently announced, which would enable people to spend.

“It’s not true that it’s a small minority that is struggling but the majority of black South Africans are struggling. So we need massive policy intervention to ensure workers could cover their basic expenses and to try and drive the rejuvenation of the economy,” Smith said.

She said the government must either increase wages or find a way to reduce people’s expenses, to overturn the 15.63% electricity tariff hike.

South Africa needs to switch its focus

Also it must:

Increase subsidies to public transport.

Increase the minimum wage. Unfreeze public service wages, which support the poor.

Fix the collapsed rail network because it is cheaper transport for poor households.

Silke said, under Zuma and the aftermath of his time in office, the country “lost 10 years” of potential progress.

He said there was a urgent need to incentivise the private sector to create jobs, at the same time noting the explosion in government jobs had been destructive.

“You need labour reforms when it comes to state-owned enterprises to manage down the destructive nature of the SOEs and the bloated bureaucracy that is that exists.”