Can South Africa Get Out of its Economic Woes?

By Dr Mzukisi Qobo

The month of May was all graced with excitement and glimmer of a new dawn on the political front. The general elections came and went, with the governing party receiving a reduced majority. After the formalities of processing the parliamentary list, a slightly reduced cabinet was put together, but with no clear signs of the thrust of economic policy thinking and key actions to be taken in the coming months. Given the dire state of the economy, we cannot tarry long. 
The end of the effervescent May brought with it a curtain of gloom on the economic front. Just as the new cabinet was settling, the International Monetary Fund concluded its visit to South Africa as part of its annual Article IV process, which is essentially an examination of the health of the economy that the IMF is required to undertake every year on its member countries. 
The IMF report observed that there is cautious optimism on the prospects of the South African economy. It stressed the need for structural and institutional reforms including bold action on Eskom and called for decisiveness on the part of the political leadership. What was clear in the wake of this assessment was that new dawn on the economy will require extraordinary steps from government and that it would need to speak and act with a shared sense of purpose. A day after the IMF visit, cracks were revealed in the economy. Statistics South Africa released its GDP data showing that year-on-year growth is flat at 0%, and quarter-on-quarter growth has contracted by 3.2%, offering signs of a looming recession. There are several reasons why the economy is edging to a recession territory by the end of 2019.

The first has to do with institutional legacy factors linked to mismanagement of the economy and key state-owned enterprises under President Jacob Zuma era. Some of these state-owned enterprises, including Eskom and SAA, pose a fiscal risk to the country, especially if they are to continually rely on bailouts in a climate in which growth has been anaemic. As the IMF noted in its report, there is still cautious optimism about Cyril Ramaphosa’s presidency. This is particularly so since his cabinet is not entirely of his own making, but a product of compromise amongst various factions as well as to accommodate provincial representation. As a result, it may very well be hard for him to take bold and decisive actions to reform the economy without being tamed by party figures in Luthuli House.
Business confidence is down across various sectors of the economy, including manufacturing, mining, construction, and agriculture. Uncertainty over the future of Eskom and electricity supply does not bode well for investor confidence. 
 According to a leading Agriculture economist, Wandile Sihlobo, sectors such as agriculture have contracted on the back of production slide in horticulture in the Western Cape and the 2017 drought hangover rather than as a factor of policy uncertainty resulting from calls for the expropriation of land without compensation. Policy uncertainty may just worsen the situation if we tarry longer on policy interventions in this sector. 
Mining has suffered a loss of confidence as a result of strikes in that sector. It has in the past also suffered gravely as a result of tensions between industry and government, and intermittent industrial action. Without a doubt, the supplier network around that sector, and with many small and medium enterprises, will suffer a knock-on effect with dire implications for jobs across the supply chain. 
The threat of recession follows on the tracks of a recently released General Household Survey by Statistics South Africa at the end of May. It noted that South African households are growing fast, something that is not in track with employment growth of supply of infrastructure and public services. In the first quarter, unemployment levels reached a new high at 27.6%. Youth unemployment is over 50%. The alarming state of unemployment is nothing new. The figures just keep going up. We could easily become impervious to the cold statistics that should communicate a story of warm bodies that wake up every day without a hope of finding an opportunity to earn an income in order to take care of their families and kin. 
There is a generation that could live its full cycle, from cradle to grave, without ever earning an income through economic activity. The number of South Africans that earn an income grant is 17 million, in a country where the income tax base is less than 2 million people. There is something fundamentally wrong and frightening about the social reality and human condition in South Africa today.
We have, for a while, been talking glibly about a social revolution lurking in the horizon. When this happens, it will not announce itself. Signs of it may very well be hidden in the high crime rates that the country suffers. 
The challenge of slow growth and unemployment should be tackled with urgency if we are to build a functional society in the future. This is more so given the growing technological forces associated with automation and those related to the 4th Industrial Revolution that are displacing both blue-collar and white-collar workers. There is a bloodbath that is taking place in the financial services sector, where all menial and repetitive tasks whether they are blue-collar or white-collar are being displaced by cost-saving and more efficient technologies. 
In advanced industrial economies, technology-induced structural change tends to see an acceleration in the speed of growth of new enterprises. Those who are laid off in the economy would then go and start small businesses where they could create new jobs that did not exist before. In many countries in the OECD, small businesses create value in the economy, contributing about two-thirds of the GDP, and accounting for over 70% of employment. 
The rate of entrepreneurship growth in South Africa is very slow. Our entrepreneurship ecosystem is not doing that great. The Global Entrepreneurship Index 2018 that measured 116 countries places South Africa in the middling at 57, where 1 is the best performer a 116 the worst. Our neighbour, Botswana is ahead of us at 52. It is not that there is no hunger for entrepreneurship but that the support structures or ecosystem are weak.
The government needs to grapple more decisively with the deep-seated challenges in the economy. If they fail in this task, we will not be a resilient society. The goal should be to accelerate institutional and structural reforms, including taking quick actions on the ailing state-owned enterprises. We also need to build for the long-term by shoring up critical building blocks of society, of which human capital is the cornerstone and support the entrepreneurship ecosystem as this could be the spark generates dynamism in the economy.

Mzukisi Qobo is Associate Professor: International Business and Strategy at the Wits Business School.


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