President Cyril Ramaphosa is one of the nicest, most amazing people you will meet. But let’s be honest: his track record in managing the economy is dismal.
Soon he will have to put an end to the Reserve Bank and Treasury’s mismanagement of the economy and bin their discredited neoliberal economic policies, which call for irrelevant structural reforms and austerity during SA’s deepest depression in a century.
Since Ramaphosa became president in February 2018 SA has had six out of nine quarters of declining GDP. Before the lockdown there had been three consecutive quarters of declining GDP.
Ramaphosa convened two investment summits in 2018 and 2019, where companies made pledges worth more than R600bn. Last month, Kgosientso Ramokgopa, the head of infrastructure in the presidency, hosted a virtual summit at which he announced 55 projects which could attract investments totalling R700bn over the next decade.
But since the beginning of 2018 there have been seven out of nine quarters of declining gross fixed capital formation, a measure of investment. The number of unemployed South Africans, using the more realistic expanded definition which includes discouraged work seekers, has increased by 1.6-million to 10.8-million people.
The unemployment rate for black Africans is 44%. For black African women it is 48%. In the Eastern Cape, 49% of black African people are unemployed, according to Stats SA’s latest labour force survey. These statistics capture the depth of the economic crisis before the devastation of the lockdown.
With inflation at 3% there is no reason the Reserve Bank cannot cut rates much further and finance an economic recovery using a wide spectrum of unconventional monetary policies that have been used in developed and developing countries. But during every interview governor Lesetja Kganyago talks about inflation and nothing else.
Meanwhile, the Treasury is taking SA on an economic suicide mission. It has cancelled Ramaphosa’s R500bn stimulus and announced austerity measures of more than R600bn since the beginning of 2020. During the emergency budget it said the increase in non-interest spending due to the stimulus package will be only R36bn or 0.7% of GDP.
In his address to the nation on April 21, Ramaphosa said the government would spend R100bn on job creation and the development of small and medium enterprises. But the Treasury slashed the spending on this item to just R6.1bn.
The austerity measures of R600bn included budget cuts of R261bn announced during the February budget. These comprised public sector wage cuts of R161bn and further reductions in government spending of R100bn over three years
During the emergency budget the Treasury said there would be budget cuts of R101bn for the 2020 to 2021 financial year. There would be further austerity measures — tax increases and budget cuts — of R250bn for the following two years.
The deepest budget cuts, which will take place between 2021 and 2023, will prolong the depression, resulting in an unprecedented three years of declining GDP and soaring levels of unemployment, which will increase to more than 50%.
A national budget does not operate like a household budget. Such slash-and-burn fiscal policies will result in a deeper GDP contraction, collapsing state revenues and a soaring debt to GDP ratio. The only way to reduce a country’s debt burden is to grow the economy. The fiscally responsible thing to do during a depression is to increase state spending.
But the Treasury’s daft plan to balance the books is based on the achievement of implausible increases in state revenues — of 15.3% and 8.7% during the two years until the 2023 financial year respectively.
Its economic forecasts have been wrong every year for the past decade. It overestimates the positive effect of structural reforms on GDP growth. It also refuses to take into account the damage its own policies have on GDP growth.
• Gqubule is founding director of the Centre for Economic Development and Transformation
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