Ricardo Smith, Head of Investment Strategy: Absa Global Investment Solutions. Photo supplied.
Ricardo Smith, Head of Investment Strategy: Absa Global Investment Solutions. Photo supplied.

The perfect storm for social unrest

By Time of article published Aug 2, 2021

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Ricardo Smith

OVER the past couple of weeks, we have experienced extensive civil unrest across the country, but largely concentrated in KwaZulu-Natal and Gauteng.

Many local and international, institutions have quantified the impact of the loss, ranging from R30 billion to R50bn, and not to mention the lives lost.

Although unjustifiable, it is an easy and convenient narrative to conclude that the civil unrest, riots, protest and looting is an isolated incident that has been done by those who would simply prefer chaos over law and order.

It is also an easy and convenient narrative to assume that all were driven by a single motivation, whereas the reality is complex, uncomfortable and multilayered.

Various rationales and motivations have ranged from political affiliation and factionalism, to greed and opportunism, right down to pure desperation, classism and even racism.

This has been from both those who looted and burnt down buildings, and those who infringed on constitutional rights in their vigilantism as self-appointed restorers of law and order, meanwhile often adding to the lawlessness in their extremism and racial prejudice.

It is therefore imperative to understand the factors that led to these unrest, not only from a social and political perspective, but also from an economic one.

The South African economy is filled with deep-rooted structural issues that continuously provide the perfect environment for civil unrest. The first and most striking is the high levels of inequality. This is evidence from various institutions, including the World Bank’s Gini Coefficient, as well as South Africa making the cover of Time Magazine in 2019 as “the world’s most unequal country”.

The second issue has been anaemic levels of economic growth, which have been below full economic potential even before the coronavirus pandemic. Gross Domestic Product (GDP), in real terms, has been outpaced by population growth and coupled with the high levels of inequality, this has not only meant that we have been getting poorer as a country, with the poor likely getting poorer disproportionately faster. The economic structural issues can be understood by looking at the main levers of GDP: labour, capital and technology.

If money circulation is the lifeblood of the economy, then the financial services sector is its blood vessels, allowing money to flow from one place to the next. Over the past 10 years leading up to the Covid-19 pandemic, this was the fastest-growing sector in the economy. However, what the sector is not, is labour absorbing. Although financial services providers have been facilitating economic activity, the labour-absorbing sectors such as mining, manufacturing and agriculture have lagged behind. This has meant that levels of unemployment have been rising steadily over the period in question.

Other issues pertaining to labour have been centred on education and this has led to high levels of structural unemployment due to a gap between the skills offered and those demanded. Access to quality education, from primary to secondary and all the way up to tertiary, has proved a challenge that the government has failed to solve. From limited spaces at institutions of education, to affordable costs for all, and alternative options, as well as access to textbooks and basic information around education, have proved to be a challenge year after year.

On the capital front, issues around policy uncertainty, questions around institutional strength and allegations of corruption and mismanagement of funds by government officials, including state capture, have made the attraction of capital a difficult task.

Meanwhile, the government’s Budget remains constrained by a structural deficit, a wage bill that accounts for more than 35% of government expenditure, struggling state-owned enterprises and a cost of servicing debt that is outpacing economic growth in real terms.

On the technological front, reliable electricity supply and the release of spectrum that would allow more cost-effective access to data has been lacking. These are a few of many issues; including access to clean water and sanitation as well as health-care infrastructure, that remain largely underdeveloped in rural areas.

The economic backdrop, coupled with austerity measures to curb the spread of the virus, which have included lockdown and trade restrictions, perhaps overly insensitive to the needs of the poor, has exploded this dream deferred. It therefore comes as no surprise when civil unrest becomes the normal order of the day. Indeed, many other parts of the globe, including neighbouring countries with similar and often worse economic conditions, have experienced higher than normal levels of civil unrest during this period.

From high crime rates to xenophobic attacks, right down to riots, protests as well as looting; these may very well continue in one way shape or form, until the underlying structural economic issues are addressed.

RICARDO Smith, head of investment strategy: Absa Global Investment Solutions.

* The views expressed here are not necessarily those of IOL or of title sites.

BUSINESS REPORT ONLINE

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