Economic crossroads

21st April 2017

By: Terence Creamer

Creamer Media Editor


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Unless and until the pall of political uncertainty is lifted, it seems almost futile to debate the changes required to elevate levels of growth and realign the country’s economic structures such that the benefits of higher growth flow progressively to those hitherto “left behind”. Indeed, political change has now arguably become a necessary condition for achieving anything even resembling “inclusive growth”.

Equally undeniable is the reality that, for several reasons, South Africa is at an economic policy and performance crossroads and the path chosen will determine both the country’s ability and capacity to grow and the level of future benefit sharing.

For one, the much-feared downgrades have now occurred. The effects may not be immediately visible. But costs associated with funding the fiscal deficit will rise, weakening the propensity of the Budget to act as a redistributive lever, as interest payments crowd out other spending. The downgrades will also further entrench the low-growth drift that has characterised the economy since the global economic crisis – a problem that is deepened by the prevailing political and policy uncertainty. How South Africa responds to the issues raised by the ratings agencies will arguably determine the duration of the economy’s stay in the doldrums.

Secondly, there is the worrying matter of corruption and whether the patronage networks will be consolidated, now that President Jacob Zuma has a more compliant Finance Minister in the form of Malusi Gigaba. Here the management of the R500-billion procurement budgets will be as important to watch as any large deals, such as the much-discussed nuclear programme. If the networks are entrenched, the institutional capacity of South Africa to drive an inclusive-growth agenda could be catastrophically eroded.

Likewise, the future of South Africa’s highly regarded and transparent National Treasury is at a crossroads. Should Gigaba fail to hold the line on fiscal prudence and procurement probity, or should the contingent liabilities associated with guarantees extended to State-owned companies become real liabilities, the scope for government to act as a conduit for redistribution will be further diminished, possibly irreversibly.

Fourth, Zuma’s ignoring of the precarious state of the economy when implementing his reckless reshuffle has placed the State’s relationship with business and labour on a knife edge – the trust deficit is now larger than ever.

However, the trust breakdown should not stop South Africans of goodwill from even debating a new inclusive-growth framework; even if this conversation has little chance of influencing government policy and behaviour in the near term. The starting point, though, has to be an honest assessment of the current economic framework, warts and all, as well as an acceptance that tradeoffs will have to be made.

Building consensus on such a framework is likely to be as difficult. But South Africa, as a result of its peculiar history and socioeconomic contradictions, has no other viable way of proceeding. Without open debate and diligent negotiation, striking an acceptable balance between lifting growth and enabling everyone to benefit from that growth will be impossible.

Edited by Terence Creamer
Creamer Media Editor


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