Ten days ago, officials for two ministers asked me to assist in preparing submissions on the government’s so-called economic recovery plan for a cabinet retreat that was held last week. Making such requests on the weekend before such an important meeting shows how seriously government takes the issue of developing a plan to reignite an economy that has created only 145,000 jobs since December 2008.
Over the same period, the labour force increased by 6.6-million people. As a result, the number of unemployed people increased by 6.5-million to 12.4-million. The expanded unemployment rate increased to 45.5%, according to the latest Stats SA labour force survey for the first quarter of 2022.
In an excellent paper, “Why is the SA economy stuck in chronic crises?”, Applied Development Research Solutions director Asghar Adelzadeh says the ANC government is standing at historically important crossroads. It must decide whether to continue with the failed economic policies implemented since the 1996 Growth, Employment & Redistribution (Gear) strategy, which “it knows will not deliver the needed levels of economic growth and employment”, or learn from other countries that have used different policies to achieve far better developmental outcomes over the same period.
“Neither fiscal nor monetary authorities have presented any evidence that the current combination of fiscal austerity, a more restrictive monetary policy, and a suite of supply-side measures, would improve economic and developmental outcomes. The government seems to pursue the current economic policy knowing that it would not improve macroeconomic outcomes, as growth is projected to linger at 1.5% during the 2022-2026 period and the unemployment rate is expected to rise,” he says.
Government is a cheerleader that does not believe its own hype. It knows its so-called recovery plan will not deliver GDP growth and employment. But it continues with the failed policies anyway. The Reserve Bank has forecast GDP growth of 1.7% for 2022. Nedbank has reduced its 2022 GDP forecast to 1.6%. All economists — from the public and the private sectors — have plugged the numbers of the so-called recovery plan into their models and found that they do not add up to much.
Adelzadeh’s paper shows that the performance of the economy roughly correlates with government’s fiscal and monetary policy stance. During the Gear period from 1996 to 2003, government final consumption expenditure (FCE) and public investment increased 2.6% and 5% respectively. Credit extension to the private sector increased 4.6% a year. Annual GDP growth was 2.9%. During the period of the Accelerated Growth Initiative of SA (AsgiSA) from 2004 to 2007, FCE and public investment increased 4.8% and 14.8% a year respectively. Credit extension and money supply soared 12.6% and 14.5% respectively. Annual GDP growth was 5.2%.
During the National Development Plan (NDP) period from 2010 to 2019, FCE and public investment collapsed to 1.9% and -1.1% a year respectively. Credit extension and the money supply plunged to 1.3% and 1.8% a year respectively. Annual GDP growth was 1.7%. Since 2019, Adelzadeh says government has embarked on a more austere version of its post-1996 macroeconomic policies with the growth of government spending projected to fall to below the average for 2010 to 2019. The inevitable result will be low GDP growth of 1.8% a year until 2030, and soaring unemployment.
In other words, annual GDP growth soars and the economy creates jobs if the government invests in its people and infrastructure. The opposite happens when government stops investing in the economy. Adelzadeh models what would happen if government were to reconsider its conservative economic policies. He proposes an alternative “six pillar policy scenario” that would require the Treasury and Reserve Bank to stimulate the economy through higher spending and credit extension. GDP growth would increase to 6.2% a year and the economy would create 8.7-million jobs by 2030.
• Gqubule is founding director at the Centre for Economic Development & Transformation.
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