Budget shows South Africa heading for serious economic and political trouble - Report
Gaborone, Botswana (PANA) South Africa is sailing into very serious political and economic trouble, the South African Institution of Race Relations (IRR) warned here Saturday.
The IRR prediction was based on the numbers presented in South African Minister of Finance Tito Mboweni’s budget.
According to the minister, economic growth is expected at 1.5 percent this year, forecast to rise to 2.1 percent in 2021.
This, according to the IRR, has serious repercussions for Botswana, which imports 60 percent of its goods from neighboring South Africa, lending credence to the saying by many economists that ‘if South Africa coughs, Botswana catches flu’.
It is alleged that due to problems foreseen by some in South Africa, Botswana is bound to experience problems too.
The budget deficit is forecast at a revised estimate of 4.2 percent in 2018/19, moving to 4.5 percent in 2019/20 and 4.3 percent in 2020/21. Government debt is estimated to approach 60 percent
According to the IRR, these figures mean that South Africa’s economy is expected to grow at less than half the average rate of emerging markets.
As in the last decade of apartheid, the deficit is set to remain a multiple of the rate of economic growth and there is no political will to rein in debt levels that have more than doubled over the past decade.
IRR Chief Executive Officer (CEO) Dr Frans Cronje said the risk to South Africa emerged from three sources.
“The first is in the numbers themselves. Even if the forecast growth rates are achieved, there will be virtually no upward movement in levels of economic participation and job creation. And we must remember that Treasury medium-term forecasts have tended to be 50% off over the past decade. There is a very well established relationship between investor confidence, investment, GDP growth, job creation, revenue collection, welfare reach, popular confidence in the future, and support for the ruling party, and levels of violent anti-government protest action. A necessary consequence of the latest growth projections is that levels of social and political stability will deteriorate markedly over the medium term,” says Dr. Cronje.
The second source is that global circumstances are also turning against South Africa.
“Growth in Europe, America, and China has peaked and slowdowns are forecast into 2021 with significant downside risks in the event that global trade talks fail and stimulus mechanisms and accommodative monetary and fiscal policy fade. South Africa will be trying to stage a recovery through an era of downward drift in global economic circumstances.”
“This brings us to the third area of risk, which is government policy. It would not be out of place to say that, given treasury projections and global circumstances, the government’s policy framework borders on the insane. Far from securing investor confidence, the administration of Ramaphosa is squandering such confidence. The much heralded Mining Charter has in truth shut the door on much by way of new green-fields mining investment. New minimum wage laws have effectively closed off avenues to formal employment for a majority of young people. Threats to property rights have reached a sufficiently advanced stage to, in and of them, prevent an economic recovery.
“The proposed National Health Insurance scheme risks wrecking South Africa’s private healthcare system, and, with it the ability of the country to retain a strong middle class. Ever stricter enforcement of racial-nationalist empowerment policies act as a tax on investment and reduce productivity and international competitiveness,” says the CEO of IRR.
Cronje said these policies spoke to an ideological worldview that was hostile to markets, private enterprise, and risk-taking investment and instead prioritizes state control and direction of the economy over structural reform and modernization while being blind to the economic, social, and political consequences. A good example of this general problem, he noted, was the extraordinary reaction both of the government and the African National Congress (ANC) to concerns raised about the investment climate towards the middle of last year.
Cronje warned that should the current trajectory continue, a number of things would happen. The first is that a rating agency downgrade is inevitable. This triggers a sharp devaluation in the currency and rising debt service costs. The government is later forced to seize pension funds, print money or surrender policy sovereignty in exchange for a bailout.
South African growth rates underperform, relative to forecasts with a very real risk of slipping into a long-term recession as living standards deteriorate rapidly and political instability rises.
He noted that very few analysts are prepared to publicly concede the risks or admit to the structural reforms that will be needed to turn the tide.
The IRR CEO says those reforms now by necessity included deregulating the labor market, abandoning minimum wages, slashing civil service expenditure, putting an end to preferential procurement policies, selling parastatals, repealing race-based empowerment and equity laws and replacing these with policies focused on actual socio-economic disadvantage, allowing parents to take management control of schools, introducing a hybrid constituency-based electoral system, affording greater policy-making powers to provinces, and reversing every threat to property rights.
Short of implementing this list, Cronje predicted, South Africa risked very serious political and economic reversals over the decade ahead.
Those reversals, he noted, would reduce living standards, erode much of the socio-economic progress made since 1994, and call into further doubt the sustainability of the constitutional order, civil rights, and the rule of law.
Budget shows South Africa heading for serious economic and political trouble - Report
-0- PANA MS/RA 23Feb2019
