SA’s fortunes are often ascribed to the state of the global economy, either the strength or weakness of factors such as the US dollar, global markets or the prices of commodities such as platinum and gold.
We are but an ant in this global marketplace, making up just 0.56%, and as such for the most part we are and will remain price-takers. Our political class, in explaining our economic underperformance since the peaks of 2011, tend to emphasise this reality and its impact on us.
It is true that we are an open economy, which comes with many benefits and of course risks, as there’s little control of the changing tides. When the tide goes out, SA and other emerging markets such as Brazil can be left exposed.
The 21st century has come with many such challenges, none more so than Asia’s emergence as a manufacturing base with which virtually no other continent can compete because of the availability of cheap labour. That’s something the romantics of SA’s own version of the Gilded Age of the 1960s ignore when criticising the state of the country’s economy, which has seemingly hit an inescapable iceberg of de-industrialisation.
SA’s annual growth during the 1960s and 70s averaged 4.5%, and on occasion topped 5.5%, a boon whose fruits were unfortunately designed not to be equally distributed. But yes, there is much to be said about a changing world, one that is now in a fluster about a fourth industrial age and its potential impact on employment levels.
In this context it is no surprise that SA’s growth has faltered, but not to the extent it has. Our bad politics has fed into bad management of the state in its various forms, especially state-owned enterprises such as Eskom, and this bears much of the blame for an economic growth rate that seems likely to struggle to breach the 1% mark in 2019.
— Our bad politics has fed into bad management of the state in its various forms, especially state-owned enterprises such as Eskom
This has fed into corporate misbehaviour, EOH Holdings being a case in point. There have been some terrible bets on international expansion, a la Steinhoff International, all in a mad bid to reduce exposure to SA. Shareholder funds that are much needed at home have been wasted in far-flung destinations.
There was a time when our bad politics came at minimal cost — in truth the decay in the governing ANC started being exposed as far back as 2005 with the ouster of a then deputy president because of corruption allegations. The global recession caused by Wall Street’s collapse only a couple of years later helped shift the focus away from SA and other emerging markets. It was a distraction that would last until May 2013 — a very long period, during which labour relations in SA reached their nadir after the Marikana tragedy.
We are now nearing six years since concerns over the health of the US economy shifted to emerging markets. In May 2013 the US Federal Reserve first mooted the possibility of a gradual reduction in the monthly bond purchases that had helped keep the lights on. Since that May moment, when former Fed chair Janet Yellen announced an end to cheap money, the rand has weakened more than 36%. Our debt to GDP ratio has risen and continues to be on an upward track.
Markets have zeroed in on the fundamental strengths of the individual nations that make up the basket of emerging markets. With growth returning to the US and the imminent return of tighter monetary policy, the easy value proposition posed by nations such as ourselves of higher yields is simply not enough.
Fundamentals such as a twin deficit weigh more on investment decisions than higher growth rates that were in any case based on a slowing appetite for raw materials from a Chinese economy that is being managed away from a decade-long focus on investment spend towards consumption-led growth.
Even more worrying, our politics has mattered significantly. The final and desperate years of the Jacob Zama administration could not have come at a worse time. Of the three ratings agencies, both S&P and Fitch Ratings have sent us into “junk” territory because of our deteriorating fiscal conditions, but I believe it was our bad politics that really triggered their moves.
Moody’s has not yet pulled the trigger, and that’s not because it isn’t as worried about our politics but perhaps because there’s an appreciation that change has started. Our institutions have also held up far better than those in other nations such as Turkey.
What the agencies and SA needs to see is some fruits of the supposed new dawn, especially if beginning at Eskom and spreading throughout the machinery of state. That the wielders of political power leave the institutions of state to run without interference, and the return of proper governance.
If not, we will continue to fall into a vortex of our own creation.
• Derby, a former Business Times editor, hosts Power Business on PowerFM
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