There are a few noticeable developments in global affairs these days. The interconnectedness of the world economy, which has seen some countries use economic tools to reaffirm their status and geopolitical authority, the deepening economic globalisation and, curiously, the rise of protectionism by dominant states.
In August the South African economy survived the biggest threat it has faced since the advent of democracy – the Turkish lira’s contagious free fall that spread to emerging markets. This was a reminder that a connected global economy brings with it externalities that, although happening elsewhere, can have significant and far-reaching effects here at home.
The South African Reserve Bank (Sarb) last month made two interesting public statements. The first is on the future rise in interest, given the global trend, over the next two years. And of course, on the back of continued US Fed rate hikes, a strong US economy that is continuing to outdo its peers while adding jobs.
It led me to wonder whether Reserve Bank governor Lesetja Kganyago and company will follow suit and raise rates in the coming months – a potentially contentious move considering the high level of debt the ordinary citizen is in (some businesses too). What kind of impact would a short-term interest rate hike have on potential borrowers, household debt, the housing market and the cost of servicing existing government debt? I’ll leave the technicalities to those who are more knowledgeable on the matter.
The second, as stated by Sarb, is that “South Africa has had almost no investment growth since 2013”. It is alarming how a country, so full of potential, has had zero investment growth for five years – a period many have come to regard as ‘The Lost Years’ of the Zuma presidency. This will take time to undo, and has reduced the economy to a spattering jalopy in a world where some countries’ economies have managed to be supercharged despite global slowdown and even recession. South Africa’s recovery is critical and must be spurred on by both by government and the private sector.
The fundamental reason for the misfortunes of those lost years is superbly encapsulated in the words of French economist Frédéric Bastiat (1801-1850):
“when the immediate consequence is favourable, the later consequences are disastrous”.
South Africa’s economic performance in those five years attests to our leaders’ lack of economic awareness. This resulted in the country falling off the pace. While globalisation binds economies more, it does not wait for countries to get their affairs right, it carries on, moving forward and leaving those struggling behind. It is therefore critical for those directing National Treasury and SA’s monetary policies to remind their political principals of this seemingly obvious fact that is so often ignored. Here at home, the visible hand of politics often overpowers the economic reality, to our detriment.
Now that sense has begun to prevail, it is time look at South Africa with fresh eyes. Such eyes should be focused on three things – (a) we must seek to ensure that South Africa is well-placed and catches up to changes in the world economy, (b) political rhetoric must give way to rationality, and (c) uncertainty must make way for stability.
Finance minister Tito Mboweni must, against the tide of his ANC national executive committee, be bold, hold his ground and repeatedly tell his colleagues the truth they don’t want to hear. Yes, he is correct: the state has no business running SAA and can’t afford to continue to. He is correct that countries are pursuing smarter paths towards their economic advancement and are more focused on their economic rather than political interests.
These factors can influence the extent of capital available for investment in the country, the likes of which we had a preview of at president Cyril Ramphosa’s 2018 Investment Summit. A preoccupation with mining and manufacturing while ignoring other areas like agriculture, and investments in the development of people deprives the country of the ability to diversify its economy and skills. Asian countries are an example of how investing in people can pay off. The latest World Bank Human Capital Index puts four Asian countries in the top five when it comes to human development, whereas South Africa is among the worst performers.
These are some of the main causes of South Africa’s weakness, aided by clumsy political interference in the economy (when public policy panders to political wishes and economic reality). This has resulted in stagnation and delayed recovery. As if politics has ever knocked modern capitalism off its tracks.
I wish governor Kganyago and minister Mboweni steady hands and steadfastness as they try to steady the ship and pay the not-so-hidden costs of years of economic negligence and idiocy. The only way to lift people out of poverty and unemployment is through a growing and working economy – something our political leaders seems to ignore.
The economy needs a champion. It is encouraging to see an administration that has recognised that.