Is South Africa without a plan to fix the economy?
During his first State of the Nation Address on 16 February 2018, President Cyril Ramaphosa spoke of renewal, of revitalization and of progress, and announced a “new path” of economic growth, of employment and of transformation in South Africa. However, we must now face the fact that, within just six months, the “new path” of economic growth, of employment and of transformation is dead in South Africa.
We are now in deep economic trouble, with the economy in recession and with 9.6 million people who do not have jobs, or who have given up looking for jobs, and who live without dignity, without independence and without freedom in South Africa.
We heard this week that the economy contracted by 0.7% in the second quarter, following a contraction of 2.6% in the first quarter of this year, which means that the economy has now slipped into recession in South Africa. We heard that fixed investment decreased by 0.5% and that household consumption expenditure decreased by 1.3% in the second quarter of 2018.
Well, that should come as no surprise: after all the talk about “infrastructure-led growth”, spending on infrastructure, which contributes to economic growth and job creation, has actually been cut by a staggering R46.6 billion in 2017/18, R48.3 billion in 2018/19 and R43.8 billion in 2019/20; and ordinary people are now experiencing an “income squeeze”, largely as a result of an increase in value added tax, which translates, for example, into an average annual cost to the poorest households of R105 per year in South Africa.
What all this means, in the end, is that ordinary people who are battling to make ends meet, and who are battling to put bread on the table, are now worse off in South Africa.
What we expected was a recession-fighting plan, but what we got from President Cyril Ramaphosa was: silence; from the Minister of Finance, Nhlanhla Nene, was: surprise; from the Minister of Economic Development, Ebrahim Patel, was: to blame the drought; and from the ANC’s economic policy “Tsar”, Enoch Godongwana, was: to blame former President Jacob Zuma.
In fact, the finance minister was caught off-guard in – you guessed it – China, mumbling that the recession was “entirely surprising because we did not think we will have second contraction [and] we were hoping for a moderate recovery”. The fact is that despite all the talk about a “new path”, about economic growth, about employment and about transformation, President Cyril Ramaphosa is a man without a plan when it comes to fixing the economy in South Africa.
His approach to fixing the economy is a toxic mix of: a much-spoken-about, but little seen, “stimulus package”, designed to ignite economic growth and create jobs; a series of much-spoken-about, but little seen, summits and conferences, including a “Jobs Summit” and an “Investment Conference”; and a series of reckless economic policy proposals, including the formation of state banks, land expropriation without compensation and the nationalization of the reserve bank in South Africa.
Which, in the end, are actually not designed to fix the economy, but are designed: to maintain unity within an increasingly divided ANC/SACP/Cosatu alliance; and to co-opt radical opposition parties, who support reckless economic policy proposals, including the formation of state banks, land expropriation without compensation and the nationalization of the reserve bank, ahead of Election 2019.
We are in deep economic trouble because President Cyril Ramaphosa is more committed to fixing the politics, and consolidating his own political power, ahead of the general election, than he is to fixing the economics in South Africa. We have to face the fact that the biggest “roadblock” to fixing the economy is President Cyril Ramaphosa, who is too scared to decide, because he is too scared to divide the increasingly fractured ANC/SACP/Cosatu alliance in South Africa.
We should never forget that he was effectively “hired” by the most dangerous man in politics, Deputy President David Mabuza, and can be “fired” by Deputy President David Mabuza, who actually holds power within the governing party. Whatever the case, in the end, it is the politics that is killing the economics in South Africa. We must give hope to the 9.6 million people who do not have jobs, or who have given up looking for jobs, in South Africa.
However, to give hope to the 9.6 million people who do not have jobs, or who have given up looking for jobs, we need a fundamental change in economic policy in South Africa.
We need to implement a package of structural reforms designed to boost private sector investment and increase economic growth to an average of at least 3%; introduce a package of cost-cutting measures, aimed at reducing current spending, which are designed to stabilize national debt below 50% of GDP; fight for the independence of the reserve bank, rather than fight for the nationalization of the reserve bank; boost competition by privatizing, or part privatizing, zombie state-owned enterprises, starting with South African Airways; and mitigate long-term fiscal risks by, for example, scrapping national health insurance in South Africa.
We need, most urgently of all, to scrap reckless economic policy proposals, including the formation of state banks, land expropriation without compensation and the nationalization of the reserve bank in South Africa.
David Maynier MP, is the DA’s Shadow Minister of Finance, and a member of the Standing Committee on Finance, in Parliament.