SA economy in deep trouble

DESPITE former finance minister Tito Mboweni’s recurring theme of cutting down government spending, data released by Statistics South Africa (Stats SA) on June 30 shows that spending was 12 percent higher in 2019/2020 than the previous year. This was before the pandemic had any effect on the economy.

Charts show that most of the spending was on resource allocation to organisations. Notably, this was in the form of grants to other government spheres. It is the 12 percent or R205 billion expense in interest paid to service public debt that is worrying.

Two reasons immediately come to mind. First, National Treasury projects debt servicing to increase by R236,4 billion in 2020/21, or from 4 percent of GDP to 4.9percent of GDP. Debt-service costs are expected to reach R301,1 billion, or 5.4percent of GDP, in 2022/2.

Second, at the current borrowing rate, by 2022/23 gross national government debt is projected to amount to 86 percent of GDP, or R4.,83 trillion.

The pandemic and the consequent excessively hard lockdowns will hamper any debt reducing mechanism, instead the current trajectory of spiralling debt will set in.

In turn this will stunt any chance for GDP growth and revenue to recover.

Subsequently, stabilising government debt will become impossible.

Inevitably, any economic measure of boosting medium to long-term growth will be overshadowed by increasing public debt and debt-service costs. In short, unsustainable public finances is the key barrier to recovery and growth.

Unemployment

Both employees and employers have been negatively impacted by the imposition of lockdowns. Even with the easing of varying restriction levels, medium and small companies across industries have closed their doors for good, resulting in job losses.

It is axiomatically given that the lockdown has led to increased poverty and unemployment.

In a country that has chronic unemployment, the effects of the pandemic on employment are obvious, as the Quarterly Labour Force Survey (QLFS) for the second quarter of 2021 shows.

For example, pre-pandemic unemployment was above 30percent, while the 34.4percent in the second quarter as shown in the figure below is the highest level on record. Further, if you consider people who have given up looking for jobs the unofficial unemployment rate is above 43 percent.

Tellingly, black African women continue to be more affected than any other group, their unemployment vulnerability is 41percent, or 4,2 percentage points higher than the national average.

Thus, women unemployment is the first problem. The second one is the persistent increase in the number of young people of working age who are unemployed, including graduates. If the figures on women are worrying, how do we describe youth unemployment that is double the national unemployment rate?

If you are wondering why these two categories of unemployment (women and youth) matter, remember that in a country of high inequality and poverty, unemployment is unequal across gender.

Additionally, access to education, job opportunities and participation in the economy means closing the menwomen employment gap in employment is not realistic. We all should be worried that 27 years into democracy the structure of the economy is not able to reduce black African women unemployment. Think of it this way — it is likely that in the not-so-distant future South Africa (if it’s not already the case), there will be in one family a generation of its women who have never been employed or had the means to generate income in the formal economy.

The same goes for the youth without work, who will gradually become adults without work.

We know that reducing women unemployment has positive effects on society. Furthermore, a reduction black women unemployment contributes to a reduction in child poverty.

As the one in the precariat, a woman’s capacity to generate income — be it through the formal workplace or an enterprise in the informal economy — women use the generated revenue not just for self but others too. Beyond employment, the fact that every year we are talking about women as the face of unemployment and poverty reflects the need to rebuild an economy that promotes genuine economic activity for all.

However, job creation is impossible without economic growth.

Negative growth

Newly released data from Stats SA shows that performance in the period under consideration points to negative growth in both the previous and revised GDP rates.

The spotlight on GDP is not for the next two or four years, but for the next 10 years and beyond. At -6,4percent revised and - 7 percent previously, the impact of Covid-19 in 2020 is significant. It means South Africa, already falling behind some of its peers due to the low growth of the ‘lost decade’ or the period from the 2010s, is unlikely to improve its economic performance or create conditions needed for economic growth.

As I have argued at length previously, the strong hand of politics over economic reality means there will be no significant policy action, including the fiscal reform and bold leadership needed to drive recovery or take advantage of opportunities that can sprout from the global environment.

Daily Covid cases and new

variants

The latest figures of confirmed new infections show fewer cases, however we know from daily updates that there is an upward trend in the overall number of positive cases.

Moreover, variants are emerging as the virus evolves and the transmissibility, vaccine efficacy and severity of the C12 variant that has been detected in South Africa and seven other countries is still not known. — Moneyweb.co.za