POLITICS

Beyond Zumanomics: 3 Fundamental Problems With SA's Economy That Need To Be Addressed

Zumanomics is only the latest chapter in a much longer, devastating story of the South African economy.

07/06/2017 15:34 SAST | Updated 07/06/2017 17:25 SAST

ANALYSIS

As news broke of SA's descent into a technical recession, economists from Paris to Parys and everywhere in between expressed surprise at the GDP statistics released by StatsSA.

Treasury in May said it expected the economy to expand by 1.3% this year, while the IMF predicted 0.8% for the year, according to a Reuters report.

The slip into technical recession -- just the latest blow to a country already feeling like junk -- was probably much less surprising to those who saw a coming crisis from afar.

'Zuma's economy-wrecking legacy'
Former editor of Business Day, Songezo Zibi, wrote in 2015 of declining business confidence amid a political circus under President Jacob Zuma's leadership that would produce an "economy-wrecking legacy". At the time of publishing, Nhlanhla Nene had been fired as finance minister a few days before and all eyes were on Treasury as Zuma's infamous 'weekend special', Des van Rooyen, was hastily replaced by Pravin Gordhan after markets tumbled.

Journalists at Business Day at the time were called alarmists, Zibi wrote on Twitter on Wednesday. "We are now in recession. We are now here," he said.

Five million jobs promised by the ANC in 2009 hadn't materialised at the time Business Day published, nor by 2017 as official unemployment reached 27.7% (the highest since September 2003) just days ago. The highest employment growth, Zibi wrote, had come in the form of government employees, creating a public service consuming nearly 60% of government's budget in 2015.

President Jacob Zuma's ever-expanding cabinet, with some 37 ministers and 34 deputies as of June 2017, employed "more bureaucrats who have been unable to produce the economic growth his allies on the left promised when they rejected a discussion document on fixing the economy," he wrote.

In an attempt to drive growth on the back of a global financial crisis, government borrowing and spending exploded. GDP by 2011 had recovered to 2004 levels before beginning a long decline that would persist into the present.

Zuma himself called the economy "sick" in August 2015. Meanwhile, attention began to turn to a long list of political scandals involving the first citizen and the political institutions he appears to commandeer, while in the background the economy continued to disintegrate, piece-by-piece.

How deep do South Africa's economic problems go?
Government's economic performance under President Jacob Zuma, or 'Zumanomics' more affectionately, is still only the latest chapter in a much longer, devastating story of the South African economy.

A recent landmark report on state capture written by a coalition of academics, titled "Betrayal Of The Promise", shows how much deeper and further than Zuma into the past the crisis goes.

The authors submit there has "never really been a broadly shared and fully supported economic policy framework" in South Africa. This holds for a range of policy plans, each attempting to solve the same or similar set of problems, over the past two decades:

  • Reconstruction and Development Plan (RDP) (1994)
  • Growth Employment and Redistribution Programme (GEAR) (1996)
  • Accelerated and Shared Growth Initiative for South Africa (AsgiSA) (2005)
  • New Growth Path/ National Development Plan (2009)

The most recent hint at policy change -- an emerging commitment to radical economic transformation -- is yet another example of policymakers yearning for deep change, seemingly without political consensus nor a clear plan. How much RET differs from past policy, and whether it can be a visionary path out of deep crisis or if it remains an "ideological smokescreen" for state capture, is yet to be discovered.

Where there is agreement -- even within a shattered tripartheid alliance -- is that things are not working, and it's not just a matter of economic booms and busts.

A transformative plan for the economy (in favour of citizens over political networks) around which consensus can be achieved may yet emerge from the current political crisis, researchers said in the Betrayal Of The Promise report.

A credible plan beyond Messianic sloganeering, they argue, will demand addressing deep structural problems in the economy that also pre-date even the transition to democracy in the 1990s. These include:

1. Low levels of investment in the country for decades
South Africa has battled for decades against low levels of (unproductive) investment. While the country's returns on investment have been similar to China's -- widely recognised as an emerging market success story -- the levels of investment in South Africa's economy are much lower.

In simple terms, this means the country attracts only a fraction of the investment it needs to create jobs which, in turn, would boost the economy further as citizens have more money to spend.

2. Too few companies making too much money
One of the fundamental reasons for these low levels of investment, the report said, is market concentration which gives large corporate conglomerates immense market power. This means big companies are able to make substantial profits and maintain an uncompetitive environment in which the big guys win and smaller entrants into the economy lose -- hard and fast.

Low levels of confidence among business since 1994, "largely dominated by white decision-makers", are also responsible for a severe lack of investment, the report said.

3. The structure of the economy before and after 1994 is strikingly similar
Moeletsi Mbeki, author of "Architects of Poverty" and brother of former President Thabo Mbeki, in 2013 said South Africa'has experienced a consumption revolution (people spending money they don't have) rather than an industrial revolution which it needs to develop.

A deep obstacle to eliminating structural unemployment and poverty, he said, has been over "100 years of nationalist elites -- whether Afrikaaner nationalists and British financiers or post-1994 black political elites -- maintaining South Africa's role as an exporter of raw minerals and metals".

The creation of Black Economic Empowerment for example, he added, has been an unsuccessful attempt by post-1994 black political elites to equitably transform the economy followed by relatively piecemeal shifts in policy. At the heart of the failed 'transformation equation', Mbeki wrote, is a failure to breakdown the concentration of the economic power of conglomerates. These are both private and public sector companies located around minerals, energy and finance, forming what is called the 'Minerals Energy Complex' in some academic circles.

While this analysis demands careful scrutiny and debate, it achieves a level of nuance absent from how South Africans at all levels are talking about the economy. It brings to the fore how contemporary state capture, based on mounting evidence overwhelmingly implicating the Gupta family and President Zuma himself, is destroying our institutions and poisoning our politics.

Their analysis also avoids the hysteria around 'white monopoly capital' as a real or imagined collaboration of Ruperts and Oppenheimers plotting the country's demise from secret underground chambers. Instead, it makes connections between decisions made in the receding past -- both well-meaning and severely underhanded -- and the present failure to achieve meaningful, honest consensus around where things have gone wrong.

As the ANC marches towards its policy conference in June and elective conference in December, it would do well to 'drain the swamp' of those who prefer to dance with economic death in pursuit of money, power or an unflattering mix of the two.

Creating a workable plan in pursuit of a 'new economic consensus' will require careful analysis of the magnitude of the country's economic problems, both historical and current. It will also mean throwing weight behind candidates with bold ideas and selfless ambitions who can reclaim the ANC's moral and intellectual weight. Should they fail to do so, the ANC may find its historical mission too becomes junk.

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