Three years ago, as SA suffered under the lash of Covid-19, it seemed we were heading into an economic death spiral. Government progress on economic reform was glacial, and many feared the debt ratio would ultimately top 100% of GDP as growth evaporated.
Economists were right in fearing the reform plan would prove ineffectual, but they were wrong about the fiscus. Whereas in October 2020 the National Treasury was expecting the debt ratio to hit 95% of GDP by 2025, it will now likely be only about 75% in that year, thanks mainly to the windfall of the commodity boom.
But that, unfortunately, is where the good news ends. South Africans may no longer be afraid of dying of Covid but many now fear a total grid collapse or that the EFF could access power in a post-2024 election coalition with the ANC.
Fiscally, we remain vulnerable as our growth rate remains far too slow relative to the high cost of borrowing. This means the Treasury must tighten policy at a time when the economy is facing a recession caused by a different pandemic — that of load-shedding. SA appears to be galloping towards disaster as Eskom is in a far worse state than anyone realised. It may even be unfixable.
The impact is clear from the fact that SA’s quarterly GDP contracted by 1.3% in the final quarter of 2022 — three times worse than the consensus forecast. Should load-shedding continue to average around stage 5-6, whole-year real GDP growth could be negative in 2023.
Transnet appears to be going the same way as Eskom. A combination of load-shedding and Transnet’s failure to get goods to port shows up in SA’s export numbers, which were down 7.5% in 2022 compared to the previous year. So, despite the commodity boom the mining sector is now 8% smaller than it was pre-Covid.
As alarming, given the government’s plan to revive growth using a state-led infrastructure push, is that the construction sector is 23% smaller than it was in 2019. This is in large part due to state underspending on infrastructure. It doesn’t inspire confidence that SA’s infrastructure tsar during this period — Kgosientsho Ramokgopa — now electricity minister, is going to succeed any better in the energy space.
To top it all, criminality has intensified, the country has been greylisted for inadequate money-laundering and antiterrorist financing controls, and S&P Global Ratings has downgraded SA’s credit rating outlook from “positive” to “stable”.
Business, it seems, has finally had enough, with several leading CEOs voicing seething dissatisfaction over the past week. Though it may be too late to pull SA out of its death spiral, this is a positive development. And there are other glimmers of hope.
The first is the launch last week of the R100m Resource Mobilisation Fund, to which organised business is a significant contributor. It will procure the technical skills to support the delivery of the president’s energy plan. If Ramokgopa can remain tightly focused, work with business and align the rest of the government behind the plan, his appointment could make a real difference.
Also positive is Transnet’s decision to allow a private, 20-year concession on the Johannesburg-Durban freight line; another, though admittedly a long shot, is the National Treasury’s requirement that Eskom work towards concessioning some of its coal-fired power stations as a condition of its R254bn bailout.
Public private partnerships (PPPs) should get a major boost now that the new Public Procurement Bill is ready for parliament. It will separate the regulatory treatment of PPPs of more than R1bn from those under R1bn, facilitating procurement by slashing red tape.
The Western Cape seems to be bucking the nation’s general decline as wealth and talent pour in from all corners of SA in a flood of semigration that is helping to forestall a permanent rush for the exit. Of course, if the EFF’s Julius Malema gets a seat at the high table in 2024, all bets are off.
• Bisseker is a Financial Mail assistant editor.
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