The shrinking of the South African economy – by 0.6% in the three months to end of September 2019 – was to be expected.
Business Unity South Africa (BUSA) – among many others – has been consistently warning that unless government adopts and implements pragmatic economic policies, South Africa will suffer stagnant growth, stunted development and growing, unsustainable debt. Now the consequences of government’s inaction on the economy are once again upon us.
Stats SA said one of the biggest negative contributors to the GDP figures in the third quarter was the mining industry, which fell by 6.1%. Despite some progress, not enough has been done to reduce policy uncertainty and encourage investment in the mining industry, a potential source of jobs and revenue for the country. The country’s manufacturing industry – another key source of jobs – decreased by 3.9%.
Another recession is looming for the country. Very little has happened between the end of September and now to change the trajectory of the economy. The South African Reserve Bank (SARB) projects that the country will only achieve 0.5% economic growth this year – far below what it needs to reduce its unsustainable levels of unemployment, poverty, and inequality.
The shrinking economy, weak business environment and persistent high levels of unemployment means tax revenue will be further constrained, putting more pressure on the country’s fiscus. There is no real need to wait until the announcement of the national budget in February 2020, to see that the shrinking economy means South Africa can no longer afford to service its debts and meet the needs of its people. A further credit rating downgrade, by investor services agency Moody’s, seems inevitable under the present circumstances, which will further damage South Africa’s standing as an investment destination.
Government – and all South Africans – can no longer put off making tough choices. Costly and bankrupt state-owned enterprises, like South African Airways, need to find equity partners who can contribute capital and skills, or be appropriately restructured in order to ensure its sustainability and save some jobs. The country cannot afford prestige pet projects that cannot pay their way anymore.
Efforts to resolve Eskom’s financial and operational crises must be fast-tracked with the help of all stakeholders – in the state, private sector and unions. Each will have to put their immediate narrow interests aside, to deal with this immediate danger to the economy and the country as a whole. The survival of the economy must trump ideological grandstanding.
Business has repeatedly put up its hand to be a partner in inclusive economic growth. However, many in government continue to only pay lip service to promises of ‘working together’. Instead, business concerns about the economy are met with suspicion and unsustainable demands to pick up the slack where government is failing to deliver because of corruption, maladministration and an uncaring public service, among others.
Government must deliver on its promise to create a sound and stable business environment. By
showing political will and strong governance it can unequivocally demonstrate that the country is fiscally responsible and will do what is necessary to secure investment and inclusive economic growth. South Africa needs the rapid implementation of the pragmatic policies set out in the National Treasury’s economic growth strategy to build business and consumer confidence needed to avert another recession.