The South African economy shrank by 3, 2% in the first three months of this year (2019) that’s an announcement made by Stats SA recently and obviously that’s bad news. First quarter of 2018 the economy had shrunk also by 2, 7% and the year before that by 0, 3% during three months period, even on a comparison year on year this is the worst quarter performance in many years one has to go far beyond our history to get a first quarter decline of this magnitude.
If one carefully evaluate the numbers, we can see that it’s a wide number of sectors that contracted such as mining, manufacturing and agriculture to weather related issues but it is across the entire value chain which means it’s not just an issue of load-shedding, it’s an issue of economic mismanagement. Which indicate that fix investment is not forth coming so the private sector is not yet investing because of concerns from a policy point of view but also from a leadership point of view.
These issues are going to be a nuisance for our country for a very long time, the government need to change how the leadership of the country approaches economic management, of course we also have global issues if one look at our exports they have contracted quite significantly on a quarter on quarter basis which means it’s not just domestic but also global issues around the trade war between China and Trump, and it impacts negatively on our economy.
Growth fixed capital formation alone shows how trends have been going over the past four quarters and the problem is that there are things take’s a really long time to unwind. Once people sits on their money, budget and supply chain without spending it, it will take a long time for the confidence to build back to start spending again, which means our economy will remain stagnant for about 18 months before we seen any positive change.
As a country South Africa is falling behind the rest of the world, it’s not about whether we can manage or not, it’s about on a comparative basis where we are competing with other developing countries. Our key exports are surpassed by competitors as the world moves we going to have so much catch up to do in order to be on the same level with our competitors.
Our government is scoring so many own-goals to the point that we don’t need competitors. Policy uncertainty issue is a real problem and if not addressed, that means we can’t fix issues. We can’t have the Secretary General of the ruling party saying one thing and the Treasure says another thing while the President saying certain things when addressing political gatherings and saying the opposite when addressing the investors. All of those messages confuse investors and an ANC members now advocating for the Reserve Bank to expand its mandate.
If we look at all the emerging markets, where they have a political influence in the Central Bank, it doesn’t add value to the macro-economic stability. The Reserve Bank must be given the mandate to target inflation, price stability, instead of shifting the responsibilities of DTI’s and DFI’s to fund businesses not the Reserve Bank in the industry of balanced economic growth which means growth is incorporated in how the government make monetary policy, but having to add up an implicit employment target you’re shifting the responsibility away from the departments that needs to be actually investing in the economy, which is not the function of the reserve Bank.
If our government is talking about putting the Reserve Bank closer to the politicians, that will means that the South African government will now be willing to work against themselves. Other countries are advancing faster by taking advantage of the Trade War between US and China by making sure they produce the things that the rest of the world is consuming but we are not producing, it doesn’t matter how weak the currency is, the currency is just a price and if we are not producing, the country have nothing to sell which means no profit but losses, hence the 3, 2% decline.
In South Africa we don’t have the right people working for the good benefit of all South Africans. We have a political order that is not driven by competence by but political affiliation as we have witnessed the scale of corruption at the National level and it’s much worse at the municipal level, where the rubber hits the road as businesses need running water, stable electricity and basic infrastructure for them to invest in developing Township economy.
Current Regulatory descriptions of the role of South African Reserve Bank include Employment, Growth, Inflation and Currency. When someone talks about quantitative easing, they are talking about a big philosophical conversation whereby the Reserve Bank will pump money back into the economy to enable easier access to funds for businesses, and the people and investors just need a country and the economy that’s fully functional.
Primary sector and Secondary sector both suffered a huge knock and it’s going to be hard to turn the economy around, unless the government understands that’s it’s the private sector that create economic growth and generate employment. Quantitative easing is pumping the money back into the economy, that’s state led economic growth model and on the other hand they talking about building special economic zones which is a market driven economic growth model. For other people the above statements makes sense but our government needs to choose for whom is it governing for as it cannot play both games at once..
In order to create jobs, the economy needs to be fully operational, whereby the government can create an economy that creates value, so that value can help create employment. You can’t pass the policy and then interfere on how the markets work, that’s a recipe for pure disaster. If one carefully forecast according to past trends in the market, a recession before the end of this year 2019 is imminent. If we can closely look at PMI leading indicators have been down for some time, so the second quarter economy growth is likely to be negative as well and we will end up in the technical recession but technical recession is neither here nor there as we are currently in the recessional environment.
When we have an economy such as ours that is growing at 0, 6 % – 0, 8% per year, as a country, we are in deep trouble as people are out of jobs and unemployment and crime stats keep increasing and that’s a threat to our democracy. Our government should focus on the economy that works and that can create jobs for everyone, so we can have profitable businesses that will add value to towards South African economy and stop these quantitative easing utterances.
Katlego Khomo is a writer and marketer. He is also passionate about economics and business.