Many economists, financial pundits and government officials have become too obsessed with minuscule decimal differences in the economic growth of SA’s more than R3-trillion economy. But who should care if the economy grows by the existing consensus expectation of 0.5% in 2019 or by 0.3%, which will be the result if GDP growth is less than 1% in the fourth quarter?
For a country with societal issues stemming from how the economy works, nobody should care about these tiny numerical differences. More important is understanding how the machinery of the economy works through a number of interrelated factors.
First, the political set-up — through the incentives created by government policy — determines what is produced in this economy, by whom, for whom and when. Largely, the political set-up and the resultant form and character of the government determine the structure of society and the societal effect it has through generating increased employment, income and wealth. Equally so and specific to SA, the most unequal society in the world, it’s understanding how these outcomes result in reduced poverty and inequality.
Second, the role of business is solving society’s problems profitably. Profitability should not be driven by exploitive practices that leave society worse off.
Long-term value and business-to-business relationships are created by understanding the challenges of a business and designing solutions to solve those challenges. Only once the solutions have been designed can we answer the question of how we get paid for the services rendered. Why can’t this be the same with how business approaches problems in society?
Third, society is not a bystander in how the economy works, it’s an active participant that can alter the outcomes through activism on both government policy and business practices. So far, most of civil society has stood on the sidelines and trusted the government to solve its problems, and the result has been suboptimal outcomes driven by corrupt and self-interested elements in the state machinery in cahoots with some in the private sector. The number of commissions of inquiry is testament to this, and eventually the law must bite and bring accountability.
If we move away from the decimal numbers measuring economic progress, what can we say about 2019? A lot has gone right and a lot has stagnated. A good base has been established in resolving corruption and policy uncertainty. But a lot still remains to be done to solidify this foundation.
The economy has stagnated and unemployment has increased to a record high. By extension the unemployment stats, poverty and inequality, which can’t be solved over the short term, continue to ravage the most marginalised in our society. These are the issues that should occupy every policymaker and how the policymaking helps business to solve these problems.
In the traditional investment world — leaving aside Czech Republic, Malaysia and Thailand, which all recorded negative returns year to date — the JSE has been a laggard. The other emerging markets that are usually compared to SA performed well, with returns measured by the respective MSCI indices that are as high as 39% in Russia, 22% in Hungary, 17% in China and 17% in Brazil.
The economic growth underperformance compared with other countries had a hand in this poor performance. For the few who have equity investments, the growth in wealth would have been limited this year in the absence of international diversification.
The solution to SA’s economic recovery for 2020 and the next decade is implementation of economic reforms that serve society through reducing red tape and the ease of doing business. The year 2020 should be the one where reforms accelerate and business comes to the party and puts funds in profitable ventures that solve society’s problems.
• Mhlanga is chief economist of Alexander Forbes.
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