In true doomsday style, a recent interview by Andrew Donaldson with RW Johnson sparked widespread debate. The article Andrew Donaldson: Asking RW Johnson why SA only has two years left gives the country two years before it needs to turn to the International Monetary Fund for financial assistance, which could lead to structural changes. In this article, Cees Bruggemans argues that Johnson jumbled his arithmetic with his vision of soaring unemployment, budget and trade deficits. He says that this may suit Johnson’s pragmatic pessimism but technically South Africa is in a relative state of equilibrium. – Stuart Lowman
by *Cees Bruggemans
To gain an impression of our SA state of play today, there are various sources one can tap.
A traditional one is the IMF which reports on existing conditions and challenges rather than the likely future trajectory looming. So noting the slow growth of recent years, stupendous structural unemployment, lingering income inequality, structural supply shortcomings such as electricity and strained industrial relations.
But also fiscal consolidation taking place (too gradually?) as we slowly adjust our state finances to new realities. Risks are noted to all of this, but awaiting future events as to their denouement.
A similar source are the leading global rating agencies. Their rated SA optimism peaked along with the global commodity supercycle in 2010-2011, thereafter reflecting growing disquiet about SA trends, as much a (too) slow consolidation fiscally as deepening growth constraints (infrastructure, labour relations, too many poor regulatory interventions).
The ratings trend today is not an encouraging one, pointing yet lower with downside risks emphasized. Still, in order to witness the unfolding of the awful future we need to await events rather than speculate.
But we can and do speculate. Frans Cronje at the Institute for Race Relations does (“Our next ten years”), Moeletsi Mbeki does (“Advocates for change”), JP Landman does (“The Long View”), Sampie Terreblanche does (every few years, his latest being “Lost in transformation”). And so do many more, in these and other genres.
Two more recent offerings drew my attention. One by RW Johnson, the other by ex-President De Klerk. Both sounded the alarm. Again.
Johnson gives us at most two more years before we are financially forced to turn to the IMF, likely giving rise to much needed regime change that may then lead us back from the brink so very recently vacated.
Except that the IMF doesn’t do regime changes any more (not after Suharto’s demise, remember that debacle?). Electorates do, though. But would rural Kwazulu-Natal and others like her really be ready for regime change?
More importantly, Johnson jumbles the arithmetic. His truly scary vision is of unemployment continuing to soar, budget and trade deficits continuing to rise.
This may suit the Johnson pragmatic pessimism but is it conceivable that we are technically in a relatively stable equilibrium? Not corruption-wise, and not in the manner that tribal politics have taken over the country, dividing the many spoils according to new rules (if on old principles…).
But technically?
The country is still advancing, if minimally. The collective income and wealth cake isn’t shrinking, it is still expanding, if only just in real terms, even if its allocation has changed more than just drastically, for distribution is where the main political focus resides. Financial wealth redistribution is much more advanced than perhaps generally allowed.
More critically, formal job levels overall aren’t falling, they are still stable to positive. The fact that 1.1 million youngsters turn 18 every year and are added to the labour force (or at least Âľ of them initially) doesn’t mean the level of the unemployed and discouraged jumps by a similar number.
The reason? There is mortality, too, out there. The labour force is a big pool (over 22 million) and it annually loses a lot of people, too, for a variety of reasons. It ensures a structural “equilibrium” (only excruciatingly slow change) even with so many mostly luckless youngsters added upfront to the labour pool every year.
But then the unemployed/discouraged jumped by 0.5 million in 1Q15 to 7.9 million!!! Sure they did, new survey, better coverage, old problem restated but not redefined.
Similarly, the budget & trade deficits won’t rise & rise, not because the state won’t any longer be a spendthrift (there is no limit to that) as that the state has taxing & borrowing powers which are far from spent, even in our present predicament. Macro-
Our external current account deficit exposure remains real at 5% plus of GDP. But it, too, is relatively stable rather than exploding (though that could change quickly under different scenarios).
Yes, our credit rating is eroding. We will pay more for our debt over time.
But none of this in their own right will get us into the IMF’s arms quickly. A far more drastic diversion would be needed to achieve that. On those grounds, our collective survival is much longer than just two years.
De Klerk is on to something more central, though also like Johnson identifying the tribal realities. The original 1994 Rainbow Deal is being undermined by ideologues who by subterfuge & backdoors have captured key government ministries – trade & industry, economic planning, education, labour, mining, agriculture, the Presidency – preferring a more socialist, state-directed approach which keeps appointing far too many unqualified cadres to key public positions.
The constitutional compromises that were central to the Rainbow Deal are no longer wanted for the radical implementation of the National Democratic Revolution, severely squeezing minorities and their property rights to an increasing extent.
It is this structural shift, and the dysfunctionality and lack of confidence and consequently dithering economic performance it invites, that undermines everything achieved so far, with potentially far worse to come.
It is therefore not as if everything is fine in our state even when we can still point to vestiges of “structural equilibrium”. For it may not be a stable one, given the bigger shifts in demographic demagoguery underway, and the progressive loss of private confidence and constructive participation this invites.
This isn’t lost on the outside world, watching with morbid fascination, for it is the more pessimistic outcome long predicted by many who were never taken by the Rainbow euphoria to begin with.
And here Johnson and De Klerk find each other. Just remember, though, the Keynesian advice regarding futuristic forecasting – it is better to be vaguely right than precisely wrong.
In a deeper sense, an Euro-centric analysis accepts the forced modernization of recent centuries as a given established fact on which foundation can be build a wider prosperity, extending and deepening its reach far beyond that achieved so far.
An Afro-centric analysis may focus on the disowning and marginalization of the Khoisan in the west, and the many black tribes in the east and deep interior, seeking restitution and compensation.
These are different world views that give different outcomes when pursued with some vigour. And while they argue and jockey for supremacy, we aren’t getting very far, except decaying what has been achieved.
*Cees Bruggemans, consultant economist. Bruggemans & Associates
