In the eight years before the global financial crisis, from 2000 to 2008, South Africa’s average GDP growth rate was 4%. Since 2010, the country has only managed to grow its economy at an average of 2% per year.
This has fallen even lower in the last four years. The country has not realised GDP growth of more than 1.5% since 2014, and this year will not be any better.
For many South Africans, this continued stagnation in economic growth is somewhere between frustrating and alarming. Despite changes to leadership in the ANC and the election of a new president, it seems the country’s fortunes have not changed.
As Stanlib chief economist Kevin Lings pointed out at the Allan Gray Investment Summit in Cape Town on Monday, if you look at SA’s GDP growth on a 10-year rolling average basis, the decline since 2010 is clearly apparent – and it hasn’t halted.
However, Lings argues that the general expectation of a swift reversal in SA’s fortunes just because Jacob Zuma is no longer the president have been unrealistic. The problems that the country is dealing with are too substantial to remedy in a short space of time.
The depth of the damage
“We need to have realistic expectations of the turnaround of SA,” says Lings. “I think people put way too much faith in President Cyril Ramaphosa – an expectation that we elected him and he will just fix this.”
Lings points out that if we were analysing a company rather than a country, we would be far more sanguine in our expectations.
“If there was a company that was almost bankrupt and you put a new CEO in charge, how long would you give that CEO to turn around that company? Would you give them weeks or a couple of months? No, you would say realistically that they have the next two to three years.”
This is a complex country, and we are only starting to appreciate the full depth of the damage that was done to the economy over the past decade.
Everybody is aware of the headlines around growing unemployment, corruption, and mismanagement at state-owned enterprises (SOEs). While this certainly feeds the sense of urgency in wanting to correct these problems, it also fosters a sense of helplessness that they may be unfixable. This is particularly true of the debt problem the country has created for itself.
SA’s national debt has increased by R3.8 trillion since 2010. That is a 106% increase over that period.
“What do we have to show for it?” asks Lings.
The obvious answer is: very little to nothing. A lot of that money has been wasted or looted.
Signs of a turnaround
Solving this problem is, however, a complicated and lengthy exercise.
“We are creating unrealistic expectations of how quickly this can turn around,” says Lings. “What you have to ask yourself is: is anything happening to make it better? And the answer, unequivocally, is yes.
“Where we get disappointed is that it’s just taking too long.
“It’s much easier to damage an economy than it is to fix it.”
While it may not yet be reflected in the country’s growth statistics, there are meaningful efforts being made to change SA’s fortunes. Stability has been returned to National Treasury and the South African Revenue Service. New boards have been installed at many SOEs. The Hawks and the National Prosecuting Authority are being revitalised.
“There is a turnaround going on,” says Lings. “I have confidence that Cyril Ramaphosa and his administration will start to make changes. They already have. And that those changes will lead to an improvement.”
One should not, however, expect this to be swift.
“We have been damaging this economy for the last nine or 10 years,” Lings said. “It’s going to take a minimum of another nine or 10 years to fix it. Which means that if in the next 10 years the growth rate gets up to 3%, I would be thrilled.”
What’s significant is that the destruction has been halted.
“To me, we have seen the worst,” said Lings. “The bad news is behind us.”