The pain of recessions, a dose of reality and a message of hope
19 June 2019
The global ratings agency Moody’s recently roundly declared in its Global Macro Outlook that South Africa’s chances of falling into a technical recession are high.
This comes on the back of the worrisome news that South Africa’s gross domestic product (GDP) had shrunk by 3,2% during the first quarter of 2019 – the biggest contraction in a decade. The economy grew by a mere 0,8% in 2018 after a technical recession struck in the first half of the year.
According to Moody’s, the country’s “persistent economic weakness” is due to tepid domestic private sector demand. This relates to household spending and investment, and the noxious effect of widespread power outages on manufacturing and mining.
“South Africa faces complex economic problems. The task of reviving the economy will be challenging and reforms will take time to take effect,” the report stated.
During the same week a spat erupted within an already-fissiparous ANC over the nationalisation of the South African Reserve Bank (SARB). Ace Magashule, Secretary General of the party, reportedly inserted the lines about nationalising the SARB into the lekgotla statement.
The rand went into a tailspin and retreated beyond R15 to the greenback. Markets and investors were spooked. The Ramaphosa faction (ostensibly at least) fumed and demanded a litany of measures to curb the influence of Magashule. Predictably, Magashule flip-flopped on the issue. He first denied having inserted the lines into the statement and said he read it as he received it. He then tweeted about nationalising the SARB and the tweet later vanished. Magashule alleged that his account had (just this once) been hacked. You can’t make this stuff up. The Sunday Times reported that he later justified his actions (of inserting the lines into the statement) by saying he was simply giving effect to decisions already taken at the ANC’s National Conference in December 2017 – where Ramaphosa ascended to the ANC presidency.
Needless to say, a recession is not good news. It’s bad news for investors, consumers and business confidence, which is bad news for the economy and job creation. It is also bad news for the rate at which salaries and wages rise – and this hampers demand.
Although it doesn’t directly cause inflation (seeing that there is less demand for goods and services), this negative sentiment hurts the value of the rand and this, due to the exchange rate, will cause the price of fuel to rise. In time, rising fuel prices will exert upward pressure on food prices and cause inflation to rise and diminish disposable income even further.
A rising inflation rate will cause the SARB to keep interest rates unchanged or even hike them during a period when rate cuts are expected and even desirable, This will impede much-needed relief for consumers and contribute to the SARB’s unpopularity among large segments of the public, the ANC and its alliance partners. In these circumstances, a socialist government such as ours turns to raising taxes even further and inflicts more pain on the beleaguered middle class. Banks will be wary to lend to consumers.
And as Tony Leon pointed out in an incisive piece on BusinessLive, this is only the beginning – and there is more besides: “There are rich pickings to be had in the war of all against all in the ANC from both its Nasrec conference resolutions and embedded in its 2019 election manifesto. Utterly unaffordable, totally uncosted, economically ruinous each of them: prescribed assets, a national health insurance, a state bank and many more delights dreamed up for a socialist utopia which will break the back of our on-its-knees economy.”
Add to this the very real prospect of a constitutional amendment to allow expropriation without compensation (of which land will only be the springboard to other asset classes) – as well as multiple safety crises and the economic sabotage of torching trucks on the N3 and other economic arteries – and a smorgasbord of cataclysmic events will more than obviate any cosmetic steps aimed at growing the economy.
Ramaphosa may have promised us a new dawn, but his party is intent on making it a false one. And the President of the ANC and South Africa does not seem up to the task of containing the looters and crooks in his party – provided that the will to poleaxe them even exists. One could convincingly argue that Ramaphosa is still playing the long game, but he has now governed South Africa since February of last year and has precious little benefit and feats to show for it, except for unrealised investment pledges.
Ramaphosa is yet to prove that he can counterpoise the corrupt and nefarious elements within his own party and even cleanse it. Maybe he can, maybe he can’t. I remain sceptical and I am not willing to wait things out. The ANC election manifesto boasts his name and promises, and he has publicly endorsed the very deleterious policies that militate against economic growth. Moreover, he refuses to act (even rhetorically) against violence and crime, and temporises with his party colleagues, which wreaks economic damage.
My only conclusion is that Ramaphosa, a self-admitted “capitalist with a socialist instinct” (whatever that may mean), is simply not the saviour many think he is. The ANC is a runaway train on a crooked, socialist track and Ramaphosa is the hapless, ambivalent driver who seems in control, but in fact has no control over the levers or brakes to stop it or change track. We – as individuals, communities, civil society and the citizenry – must in the first instance escape this fantasy that one man or a party will save us and realise that a socialist ANC and government responds only to pressure and boldness, not naïve adoration or blind hope. Then we must step up to hold them to account and, in numerous ways, craft our own future despite the incompetence and endless failings of this government.
This is already happening, although it isn’t reported on as often as recessions and downturns.
By Dr Eugene Brink, Strategic Advisor for Community Affairs at AfriForum, 19 June 2019