A report by the country’s risk consultancy group forecasts severe economic and political decline unless the government adopts growth-friendly economic policies. Photo: Nadine Hutton/Bloomberg
A report by the country’s risk consultancy group forecasts severe economic and political decline unless the government adopts growth-friendly economic policies. Photo: Nadine Hutton/Bloomberg

SA will become failed state if decline isn't arrested immediately

By Siphelele Dludla Time of article published Sep 14, 2020

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JOHANNESBURG – Eunomix has warned that South Africa could become a “failed state” politically and economically in the next 10 years if the country’s decline is not arrested immediately.

A report by the country’s risk consultancy group forecasts severe economic and political decline unless the government adopts growth-friendly economic policies.

Eunomix chief executive Claude Baissac said the group used a range of measures to determine South Africa’s development ranking, including governance, prosperity, security, welfare and fragility.

Eunomix’s first forecast for South Africa was issued in 2016. It concluded that the country would have declined to 42nd place in governance, 65th in prosperity and 40th in welfare in 2021.

However, Baissac said they were now 75 percent confident that South Africa would rank near the bottom of a table of more than 180 countries in terms of governance and prosperity.

“From a peer group perspective, there currently are no countries where South Africa is forecast to be in 2030, underlining the a-typicality of its trajectory,” Baissac said. “Bar a meaningful change of trajectory, South Africa will be a failed state by 2030.”

Baissac said the socio-economic consequences of the Covid-19 pandemic had been brutal for South Africa.

Data from Statistics SA last week showed that the country entered a deep recession as gross domestic product contracted by an annualised 51 percent in the second quarter due to the lockdown.

Baissac said a sharp lockdown would have produced a short-lived recession, but the country was well past that point. “At best, recovery will be slow. At worst, the country has entered a long-lasting and possibly self-perpetuating recession,” he said.

“Our pre-pandemic model forecast that South Africa will fall into lower-middle income and very high fragility in the early 2030s. The pandemic has sped the clock up.”

Baissac said South Africa’s astonishing economic decline was the inescapable outcome of an economic structure not matched to the country’s developmental requirements.

He said natural resources, on which the economy has been heavily reliant, were insufficient to fuel growth, while capital-intensity was not aligned with comparative advantage.

Eunomix proposed that South Africa adopts a dual-track strategy led by the special economic zone (SEZ) programme, given the urgency of employment-generating growth.

Baissac said adopting an SEZ-centric dual-track strategy made economic sense, as it could rapidly attract investment, generate employment and lower the pressure on the economy.

He said consideration should be given to tourism, renewable energy and data centres.

“It would target labour-absorbing industries like agro-processing, light-manufacturing, and customer-centric services on a large scale,” he said. “In parallel, it would maintain the welfare state, current levels of public sector employment, and develop only the most promising infrastructure projects and sectoral initiatives in co-operation with the private sector.”

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