SOUTH Africa’s economic prospects have deteriorated markedly since the crisis of 2007/8 and look unlikely to return to the pre-crisis levels let alone beyond without a bold and uncharacteristic approach to economic policy and macroeconomic management.
Besides the well-documented triple challenges of unemployment, poverty and inequality, South Africa faces a rising private and public debt problem in a secularly low growth environment. All these interwoven challenges are macroeconomic, requiring an innovative macroeconomic response.
Innovative macroeconomic responses are, however, only possible if they are applied in a new macroeconomic setting, not the current one that has failed to pull South Africa off its poverty, inequality, de-industrialisation and unemployment levels for decades.
ASGISA (Accelerated and Shared Growth Initiative for SA) failed due to the inherent deliberate compartmentalisation between the two created by the institutional and policy framework. And despite the economy growing around 5 percent, the richer got richer while the marginalised majority got poorer. It is an unsustainable situation whose economic regime many continue to think it will change on its own.
Any response to South Africa’s current macroeconomic crisis that does not address the following question will be futile. Are these challenges a consequence of the 2007/8 crisis or did the crisis lay bare an already fragile macroeconomic framework that was likely to unravel at some later time or was quietly unravelling?
In other words, is the current SA macroeconomic crisis rooted in some fragile framework or development model that itself had long before the crisis began to build up financialisation, de-industrialisation, increasing poverty, unemployment and other ills currently threatening to derail a fledgling democracy?
A lucid understanding of the current framework, its fragilities and limits, essential if responses are to not only address the ANC NASREC resolutions but also to underwrite the nation’s ecologically sustainable economic expansion to the level of economic growth and prosperity experienced in East Asia.
Since GEAR and its failed promise, South Africa has attempted to reign in the challenges of unemployment, poverty, de-industrialisation and inequality and alter the economic trajectory without success. Failure of GEAR may signify deep problems with the framework.
The latest attempt to resuscitate the moribund economy is in the form of the Department of Finance (Treasury’s) economic strategy paper issued on August 27, 2019.
However this has absolutely nothing in it on which to place any hope on. Even by its own account, it is incapable of addressing South Africa’s economic woes.
It seeks to reorganise tables within a failed framework. It is a direct extraction from the reports of the three main foreign financial institutions, the OECD/IMF and World Bank, whose macroeconomic framework Treasury and the Reserve Bank use. Treasury’s document is thus not responding to SA’s challenges, rather, to the aspirations of these institutions. The success of these institutions in moving developing countries to developed country level has yet to be proven.
Finance Minister Tito Mboweni and Treasury should instead adopt an alternative framework that will not only seek to respond to the ANC NASREC resolutions but to the wider national ideals of creating prosperity, equality, economic transformation, structural transformation but also transferring ownership of the economy to be under the control of South Africans.
The thinking and the framework that have given rise to South Africa’s current economic problems are not accidental. They are by design. Note that East Asia had rejected the type of design that South Africa uses, hence its growth, prosperity and technological advancement.
Treasury’s failure to acknowledge that SA’s slowing potential growth is not a supply side matter but a consequence of both the 2007/8 crisis (demand crisis) and the many fiscal consolidations imposed by Treasury itself is shocking and points to a lack of self-assessment within the institution.
One of the reasons SA has failed to industrialise, is caught up in spiralling debt, and interest repayments to foreign and local institutions stems from SA’s misunderstanding of this notion and the manner in which it interacts with the monetary and banking systems. This notion also leads to other misleading statements like the “government does not have money” and the failed fiscal consolidation myth practiced by Treasury.
The banning of FDI by developing Japan, Korea and Taiwan until late into the 1980s (Chang H, 2018) was informed by the rejection of the notion of savings financing investment. These nations did not need foreign savings, as SA thinks and does for growth and development. They ensured that their local economies were sufficiently localised (in citizen hands) before opening up to foreign firms.
South Africa’s primitive understanding of money and banking is at the centre of the current unnecessary debt, de-industrialisation, poverty and inequality, privatisation and the use of the dangerous PPPs.
A central theme that requires correction is that the State must control finances and the Reserve Bank should control credit and not target inflation only but as a priority target Unemployment which is spiralling out of control.
Redge Nkosi is executive director of Firstsource Money, a non-partisan not-for-profit organisation dedicated to public service.