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Growth sapping

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Growth sapping

21st July 2017

By: Terence Creamer
Creamer Media Editor

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Only an extreme optimist would have expected policy certainty to emerge from the African National Congress’s (ANC’s) recent policy gathering. The event was primarily about managing the politics of policy, with both factions seeing it as an opportunity to show off their relative strength. The outcome, therefore, is that the policy can has been kicked down the road and South Africa will continue to muddle along for at least another five months, possibly longer, in an atmosphere of opacity.

What is now indisputable, though, is that policy uncertainty is weighing heavily on the country’s economic performance and its growth prospects. Indeed, the International Monetary Fund (IMF) warned recently that the prospect of protracted economic policy uncertainty is a key domestic risk to South Africa’s growth outlook.

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The fund still expects South Africa to grow by 1% in 2017, despite the fact that the country descended into its first recession since 2009 in the first few months of 2017. It expects the economy to expand by 1.2% in 2018. However, in a statement following the conclusion of the 2017 Article IV consultation with South Africa, the IMF said low investment and consumer confidence in South Africa were strongly associated with rising uncertainty regarding the direction of economic policies, as well as perceptions of weakening governance, including control of corruption.

The fund’s statement was published the day after the conclusion of a tense ANC policy conference, where delegates clashed over the inclusion of “white” in categorising “monopoly capital”, haggled over the possibility of changing the Constitution to accelerate land reform without compensation and indicated a preference for the nationalisation of the South African Reserve Bank, but without changing its mandate or independence. The conference also debated various other proposals for deracialising and deconcentrating ownership in the economy.

The IMF argues that South Africa’s electoral calendar has heightened perceived uncertainty and has warned that the remainder of the year could bring increased competition among candidates for the election of ANC president in December.

Fiscal risks from lower economic growth and South Africa’s State-owned enterprises have also been described as “sizable”, while room for a policy response to further adverse shocks is seen as limited. “If growth turned out one percentage point lower than in the baseline, on average, during 2018 to 2022, the debt ratio would reach a level 14 percentage points of gross domestic product higher than in the baseline by the end of the projection period. Accommodating a shock of such magnitude would likely lead to significantly higher financing costs, perhaps accompanied by a local currency debt downgrade to below-investment grade.”

The bottom line is that South Africa is not growing nearly fast enough to deal with its serious social and economic problems. The country’s policies are not fully aligned to a high-growth agenda and the politics surrounding policy are increasingly directed towards winning internal hegemony, rather than addressing constraints to growth and development. The longer this malaise persists, the longer South Africa will remain decoupled from the recovery under way elsewhere in the global economy.

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