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SA heading for lower-middle-income status, model shows

A model developed by Eunomix Business & Economics Ltd. shows.
Image: Bloomberg

South Africa’s political and economic decline is accelerating and the country risks becoming a lower-middle-income nation by 2028, a model developed by Eunomix Business & Economics Ltd. shows.

The forecast, brought forward by two years from a 2020 assessment, highlights the failure of the ruling African National Congress’s policies to accelerate economic growth, the Johannesburg-based risk-advisory firm said in a report.

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By 2020, the nation’s per-capita income had plunged to three quarters of the world average and was below that of middle-income peers, Eunomix said. In 2000, income was on par with the global average and twice that of middle-income nations.

The decline was measured across a range of political, social and economic indicators. Eunomix tied the fall to the inability of the ANC to alter the structure of the economy put in place under apartheid, when the intention was to exclude the country’s Black majority. While the White-minority government used suppression to enforce its model, the ANC has instead created what Eunomix described as the world’s largest welfare state by some measures.

Source: Data compiled by Eunomix.

“Democratisation ended formal political exclusion, but through its failure to reverse economic exclusion, the ANC replicated a central attribute of apartheid,” Eunomix said. “Rejection of labor-intensive-export-orientation as a cornerstone of development has been the foundational mistake of democratic South Africa. In doing so, the ANC has crystallized the poisonous divorce apartheid established between economy and politics.”

“This growth collapse is now reaching a point where we are now facing the high probability of an economic collapse,” Claude Baissac, Eunomix’s founder, said in an interview. “We are looking at the beginning of a Greece-like, an Argentina-like, shrinking of the economy.”

A contracting tax base, pedestrian economic growth and misguided policies — such as a drive to have goods made locally by providing protection to local producers — are behind the slump, Eunomix said. That, coupled with rising discontent and increasing violence, is pushing the nation toward “failed state” status, it said.

The World Bank defines lower-middle-income status as countries with a gross national income per capita of between $1 046 and $4 095. South Africa’s GNI per capita was $5 410 in 2020, according to the World Bank.

Source: World Bank

The annual economic growth rate averaged just 0.8% between 2015 and 2019, meaning South Africans effectively became poorer, the company said. That compares with an average of 2.5% between 2010 and 2014.

Without a change in policies, that trajectory is likely to continue or worsen, Eunomix said, with an expected recovery from the impact of the Covid-19 pandemic short-lived.

According to Eunomix gross fixed capital formation fell to a record low of 12.4% of GDP in 2020 and savings, at 15% in 2019, were below the sub-Saharan Africa average of 19%. The number of people who pay income tax, in a nation of 60 million, fell to 4.3 million in 2019 from 6.3 million in 2012, the company said. One in three South Africans receive a welfare check.

Still, a change in policy could see an upturn in the country’s fortunes, Baissac said.

“South Africa is in the tremendously lucky position that it has many low-hanging growth fruits. Sectors like energy, including natural gas, transport infrastructure and agribusiness have vast potential,” he said. “Simple steps to clarify policy and implement basic measures would immediately lead to investment, and thus jobs and growth.”

© 2021 Bloomberg

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The ANC catastrophe escalated when Zuma gained power with the Polokwane Congress. According to the more sophisticated and more intelligent members of the ANC, the so-called stalwarts, the hooligans launched a coup d’etat with the Poliwnane congress.

That was the beginning of the end for the rule of law and property rights in South Africa. They took the decision to speed up cadre deployment at municipalities and SOEs, and everything went downhill from there. The communist Central Planning dogma destroyed every functional management structure at these institutions and opened the door to an uncontrolled looting spree across the various assets of the nation. The process of the consumption of productive capital picked up speed. They cooked the goose that lays the golden eggs.

The implosion of living standards, rising unemployment, rising inequality, and a shrinking GDP per capita are the logical consequences of the implementation of socialist dogma. The implementation of these destructive populist policies only strengthens the case for more populism and accelerates the rate of decay. This negative feedback loop gained a life of its own and is picking momentum with demands for more BEE and the redistribution and consumption of productive capital. The nation is consuming its future. They are turning productive assets into sewage that fills the potholes. This reality is a fitting representation of their mindsets.

Luthuli House is an organization that exports employment opportunities, social cohesion, GDP growth, and a sustainable tax base to our wealthy international competitors, while they import their unemployment problems, social unrest, a shrinking tax base, and economic decay from them. The ANC turned South Africa into an international dumpsite for unemployment and misery.

If your government’s plans are shortsighted and uncompetitive in this highly competitive international marketplace, then your country forms part of someone else’s plan and you become a slave to those who are more innovative and competitive. We spend more than 20% of tax revenue on debt servicing costs. We are working day and night to finance the lifestyle of wealthy German pensioners.

The ANC is an agent of economic and social sabotage and Luthuli House is the home of treason.

End of comments.

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