The government’s lack of a strategy to revive the economy was on full display last week as it hosted its annual charade of an investment conference, while the Reserve Bank increased rates for the third time since November 2021. The Bank’s move, and the austerity policies announced by the Treasury in the 2022 budget, will reduce GDP growth, the most important indicator that influences a company’s decision to invest.
I am an unreconstructed Keynesian. Private investment follows GDP growth. It does not kick-start it. All the talk about increasing business confidence, deregulating the economy and reducing red tape is just hot air. It will make no difference if there are no customers at the door. The guaranteed outcome of such macroeconomic policies will be rising unemployment, poverty and inequality until the national election in 2024 and beyond.
I do not understand why the ANC, which has a self-interest in staying in power, would implement policies that will make it impossible for South Africans to vote for the party, when the solution to the economic crisis is hiding in plain sight. The government must stimulate the economy. And the load-shedding must end immediately, even if it means reopening the dirty coal mines at Duvha, Hendrina, Grootvlei and Komati, which can produce 2,635MW between them. This was difficult to write because I follow a vegan diet and believe in sustainable development. But we cannot have another year of load-shedding. All options must be on the table.
The investment conference is a pointless exercise in deliberate deception where many companies repackage old commitments as new pledges. Since Cyril Ramaphosa became president in 2018, there have been 10 out of 16 quarters of declining gross fixed capital formation, a measure of investment in the economy. The investment to GDP ratio has declined from 16.3% in 2017 to 13.2% in 2021, the lowest number since we started collecting national statistics in 1946. It is lower than it was in the wake of Sharpeville in 1960, the June 1976 riots, the apartheid debt crisis in 1985, and sanctions.
The shortfall to achieve the National Development Plan’s target of a 30% investment to GDP ratio is R1-trillion. And the biggest culprit has been a public sector investment strike. Since Ramaphosa became president, investment by the general government has declined by 19.2% between 2017 and 2020. Investment by state-owned companies has collapsed by 42.5%. The government must stop talking about an infrastructure-led recovery until it tells us what it will do to reverse the public sector investment strike.
SA is now a R6.1-trillion economy. Since the private sector cannot invest because there is no GDP growth, according to Keynesian economics 101 the money must come from the government. Each percentage point of additional stimulus is about R60bn. If we blend consumption and investment spending equally there could be a Keynesian multiplier of 1.5 times. This means the government must spend an additional R180bn to get to 6% growth, if one assumes the economy will grow by 1.5% in 2022 in the absence of a fiscal stimulus.
An absurd argument is that such spending could be inflationary. The last time I looked, large manufacturing companies had spare capacity of 20%, largely because there was no demand for the goods they produce. In other words, there is too little money in the economy chasing too many goods and services. If we extend the huge spare capacity to the whole economy, it will take a lot more spending to arrive at a situation where there is too much money chasing too few goods and services.
Last week’s interest rate increase was the equivalent of a parent punishing the wrong child. Inflation has got nothing to do with excess spending (or demand) in the economy. The Reserve Bank is just shooting blanks at world oil prices and Eskom price increases. This monetary policy madness must stop.
• Gqubule is founding director at the Centre for Economic Development & Transformation.
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