The influence of politics on the economy, and how the political battleground takes focus away from the country’s economic performance in an election year, are issues that I looked at in my previous column.
Economists regularly say that certainty is essential if markets are to perform optimally. This is an argument we as South Africans are all too familiar with – and, at times, burdened by. How often have we heard that ‘Policy uncertainty is hampering the economy’? Leading economies and their governments are frequently used as examples of efficiency.
Yet 2018 was undoubtedly a year in which global politics spread uncertainty throughout the world economy. Two disputes were more ominous than the rest – the trade war between the US and China, and the Brexit crisis. The rest of the world watched, and became economic casualties of these battles that are yet to have clear victors.
Until these trade issues are settled, the standoffs will continue to hamper business expansion and weigh down the world economy.
Another concern is the tension in EU/US relations, which has been threatening to intensify since Donald Trump took office as US president – more so because within the greater transatlantic sphere, his administration has opposing views on economic, climate and foreign policy related issues.
There are lessons here.
First, South Africa is not unique when it comes to politicians who don’t grasp the severity of the impact that policy uncertainty has on economies. Last year showed that there are leaders who are determined to use policy battles to placate their need to demonstrate that they have power.
Second, the post-financial-crisis eurozone found itself in a perilous situation in 2018. As economic advancement continues to retreat, wage stagnation deepens and economic mobility becomes more and more constrained. This has forced member countries to look inward and has sparked a rise in polarisation and populism.
This comes amid unhappiness towards economies that are perceived by ordinary citizens to be working to benefit those positioned at the top of society.
While South Africa may have not have retreated inward like some countries in Europe, you have a mixture of politics that is premised on gaining growth through disruptions based on populist notions and fear-mongering rhetoric. It is apparent that politicians will put parochial interests above taking the responsibility to advance interests of the country.
Third, economic globalisation continues and countries are pursuing different approaches to secure their economic prosperity. The geopolitical influence on the international system has demonstrated how countries intend to maximise the potential benefits from global economic integration. In all likelihood, the crevice between the supposed winners and losers of globalisation will become broader – growing inequality endures.
The shocks of the 2018 international political landscape and the unintended effects on the world economy have exposed South Africa’s Achilles’ heel.
The post-Mbeki administrations’ weakest links? Failing to read the mood of international politics and especially the international economy. An example is the simmering tension and the exchanges leading to the US-China trade war that have always been there.
An exchange in words and differing views on trade went from a spat to a full blown trade war on steel tariffs, and South Africa found itself in this war and became collateral victim. Suddenly, the Agoa duty- free benefits on steel and aluminium were at risk of being sucked into the storm of the now 25% on steel and 10% on aluminium tariff hike. This leaves South Africa in complex situation since both countries are among its biggest trading partners. Could this have been prevented? No – but those leading the affected industry and government could have at least mitigated the fallout.
As 2019 progresses, those at the helm of government must anticipate the worst-case scenario if they are to drive economic development. If they fail to do so, it means they fail to understand that a national economy is embedded in a global one and is therefore exposed to the risks of this integration.
The coming months are going to be critical for the country’s future as the interplay between politics and the world economy takes the stage in a more politicised environment than ever before.
Indicators from the International Monetary Fund and the Organisation for Economic Cooperation and Development point to three emerging trends:
- A slowing of global economic growth in 2019 based on rising global inflation and China’s slowdown.
- The delayed effects of the US-China trade war.
- Political instability due to growing populism and even nationalism in a year that sees several emerging market countries going to the polls, including India, South Africa, Nigeria, the Philippines and Thailand. In Europe, Greece and Ukraine will also have elections.
In this international scene full of shocks and uncertainties, an important aspect of South Africa’s policy must be the reconciling of its domestic economic development strategies with its global trade interests – especially in light of the US-China trade war and Brexit. It must also be nimble enough to respond to unexpected turns or changes such as trade protectionism.
As 2019 unfolds, the question is whether South Africa can adapt swiftly and smartly enough to keep up with an increasingly fast-changing global environment.