Johannesburg - The South African economy is not in crisis, although serious political intervention will be needed if the country is to hit a growth rate that will allow for inclusive job creation and poverty reduction.
This is according to the Institute for Security Studies, which on Wednesday unveiled its report South African Futures 2035 and comes despite challenges such as high crime, unemployment and inequality, though weak growth and poor governance. The report - an update on a 2014 version - paints three possible growth scenarios for SA.
The first is called the ‘Bafana Bafana’ scenario, which is SA’s current development pathway. Under this scenario, the economy is set to grow at an average growth rate of 3.8% over the next 20 years.
Currently, the country anticipates hitting 2% this year after having dropped from 2.2% in 2013 to an ailing 1.5% in 2014.
The second view is called Mandla Magic and anticipates a nation that has pulled together and is on the path towards average growth of 5.1% - a number that is closer to meeting government’s National Development Plan targets than the current situation.
Yet, hitting this target will require a near revolution in policy coherence and government efficiency.
Under the third scenario, SA goes backwards. Nation Divided pegs growth at just 2.6% on average over the next two decades and paint a picture of populist policies that hamper business development and do not allow for the private sector to feel safe when investing in the country.
The report has now been revised to take into account electricity shortages, 2014 election results, new population figures and incoherent government policy.
ISS executive director Jakkie Cilliers, who revised SA Futures, says the country is currently in between two updated scenarios of Bafana Bafana Redux and Mandela Magic Lite.
This, he says, means the country should see an average growth rate of 3.7% over the next few years.
Long road ahead
As a result, says Cilliers speaking via telephone from Pretoria, the country is not in a crisis, but has a long way to go to get to inclusive growth. “The margin for error is thin, but there is still reason to be optimistic.”
Cilliers’ report paints a more optimistic picture than other economic experts, who have warned the economy is in for a sustained period of weak growth. He ascribes this to taking a longer-term view of 20 years, and the assumption that the population of people of working age will grow faster than predicted.
The new ISS SA Futures paper anticipates a South African population of around 67.3 million by 2035, a large increase from the 2015 estimate of 54.7 million and higher than forecast by the National Planning Commission.
This increase is despite a fertility rate that is expected to fall below replacement levels in a decade, and is the consequence of continued inward migration, declining levels of infant mortality and increases in life expectancy.
Although high unemployment will have continued negative consequences, the increase in employment levels from 15.1 million people in 2015 to a forecast of more than 25 million by 2035 will have a positive impact on tax revenues, the size of the economy and social stability.
While the number of unemployed people will remain constant, the ISS forecast is for a steady growth in employment from the current 43% to 56% of the working-age population.
“We are experiencing turbulence, but not a storm yet. SA requires a comprehensive resetting of key social, economic and political systems, but the perennial sense of crisis in the media is not supported by deeper analysis of the structural conditions. In reality, South Africa’s growth prospects are quite healthy,” says Cilliers.
Solid fundamentals
South Africa’s fundamentals are solid, says Cilliers, and many of the problems holding the economy back are of our own making. As an example he cites recent tourism regulations that require travellers with minor children coming into SA to bring with unabridged birth certificates.
Those rules, implemented by the Department of Home Affairs, have been criticised as trimming tourism growth, and weighing on the economy.
Cilliers adds “we are our own worst enemy”.
In addition, there are concerns that there will be a leadership vacuum between when the ANC elects its next president, in 2017, and the next national elections in 2019 as there may be two centres of power, says Cilliers.
Despite the concerns, Cilliers says the ANC’s investments in aspects such as healthcare, education and water will start paying off and provide the economy with the impetus to grow, although the next 5 to 10 years may be quite uncomfortable.
“Uninspiring leadership and a recent loss of vision by the ruling party should not hide the remarkable progress achieved, including rolling out of essential services, alleviating deep-seated poverty and the provision of broad-based education, despite flaws in implementation.”
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