“It’s just shock after shock.” These words, by British businessperson Nick Jones, pretty much capture not just the state of the UK economy, but that of much of the world, with this year’s IMF World Economic Outlook forecasting that “the worst is yet to come”.
When finance minister Enoch Godongwana rises to present the medium-term budget policy statement the SA public must assess how well SA is responding to the dire conditions the world finds itself in.
These circumstances led the World Economic Outlook to say that “the 2022 shocks will reopen economic wounds that were only partially healed following the pandemic”. These wounds include rising inequality and household and sovereign debt.
In its recent global analysis, On the Cusp of a New Era, McKinsey Global Institute equates the situation now to the post-World War 2 upheavals of the 1971—1973 oil crisis and the Soviet Union breaking up from 1989 to 1992.
Some of the features of the new era are:
- China’s GDP overtaking that of the EU in February 2022, while India passed the UK to become the world’s fifth-largest economy by GDP.
- Increasing multipolarity strengthening of the trend towards regional blocs and/or ideologically aligned groups, which may even see technology platforms being used by various alliances, a stark embodiment of the “decoupling” phenomenon.
- Regional approaches in a variety of areas, from semiconductors to electric vehicles, agriculture and rare-earth minerals. As the Financial Times’s Rana Foroohar says: “Countries that can leverage network power to ensure they have enough food, fuel and consumer demand will be best off.”
- Ideological polarisation at national levels, with the Right stronger after victories in the recent Italian election and Xi Jinping’s consolidation of power over the Chinese Communist Party making him the epitome of the “strongman”.
The SA economy remains particularly vulnerable, having limited fiscal space to buffer its economy against these “earthquakes”, and not having made a big enough dent on the pre-Covid 19 levels of unemployment and inequality. Apart from ensuring a durable social net and creating public-funded jobs, the government needs to ensure the entrepreneurial instincts of SA is unleashed by rapidly removing the obstacles SMMEs have to endure.
This will give impetus to the commitment made in the business and labour supported Economic Reconstruction & Recovery Plan tabled by President Cyril Ramaphosa in October 2020. The plan committed the country to reduce our reliance on imports by 20% over the next five years, with 42 items as diverse as edible oils, furniture, fruit concentrates, steel products and green economy inputs to be sourced locally.
Localisation does not only mean “Buy SA”, it also entails addressing trade links with the immediate southern African and the broader sub-Saharan African regions. As indicated above, such regional alliances need to be complemented by ideological ones. Will SA’s interests continue being served by its membership of the Brics bloc, which is now considering membership of the kingdom of Saudi Arabia?
Or can SA’s fine history of mediation and conflict resolution help it walk through the minefields of international relations as seen by differences on Russia’s invasion of Ukraine, thus maintaining multidimensional relations without upsetting any major power?
Localisation also means finding creative ways to cluster production and consumption, which Chinese policymakers call “dual circulation”. Responding to climate change is and will be the greatest driver of this rising trend towards localisation and regionalisation, encouraging local food supply chains, textile production and also the manufacturing of construction-sector inputs.
Political philosopher and Harvard professor Michael J Sandel captured plainly the importance of such an approach in Democracy’s Discontent, writing that sovereignty can be ensured by restoring a decentralised economy that breeds independent citizens and local communities to be “masters of their destiny, rather than victims of economic forces beyond their control”.
• Abba Omar is director of operations at the Mapungubwe Institute.
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