The world is changing fast and to keep up you need local knowledge with global context.
A fresh current of negativity is swirling around many South Africans who ponder whether the SA economy can grow sufficiently – and fast enough – in their lifetimes. This follows a year in which the ANC’s strict – and at times bizarre – Covid-19 containment measures have hammered businesses and culled much-needed jobs. With mass vaccinations a distant dream, and yet another demonstration of government ineptitude, and President Cyril Ramaphosa beating the land expropriation without compensation drum, it’s little wonder braai talk is infused with emigration plans among SA’s better educated – across all racial groups – who have a chance of securing a life elsewhere. In this thought leadership piece, Chris Hattingh of the Free Market Foundation sums up the four major obstacles to a meaningful improvement in living standards and prosperity. – Jackie Cameron
Radical change needed to improve SA economy’s growth prospects
By Chris Hattingh*
No matter the successes of other countries, it appears that the South African government remains determined to ignore the ingredients necessary for prosperity and increased living standards: the rule of law, recognition and protection of property rights, freedom of expression and a free press, and limited-to-no government interference in people’s lives and business activity. Given the devastation wrought through the government’s Covid-19 lockdown (and the ever-downward slide of South Africa across all ease-of-doing-business and economic freedom indices before the pandemic), there is no better time than now to try policies underpinned by individual agency.
The International Monetary Fund forecasts that the global economic growth rate will be 6% this year. South Africa’s economy will experience growth of 3.1% in 2021, and 2% in 2022. This falls short of sub-Saharan Africa’s 3.4% for 2021 and 4.0% for 2022. Per StatsSA and the Reserve Bank, all emerging market and developing economies will attain 6.7% growth in 2021 and 5.0% in 2022.
That our growth projections are so low should come as no surprise. Alongside the snail’s pace Covid-19 vaccine rollout programme, structural barriers underpinned by statist ideology will limit growth for many years to come. The tired ideas of the past, of increasing state interference and controls, are the last thing this country needs heading out of Covid-19. There will be no economic recovery – never mind meaningful growth – if a path of economic freedom isn’t pursued with fervour.
Government is contemplating such destructive policies such as expropriation without compensation, National Health Insurance, the Employment Equity Amendment Bill, and the continued government-enforced monopoly in electricity provision and distribution (Eskom). All these diminish economic freedom and business and individual agency in their own ways, and are all underpinned by the statist National Democratic Revolution – thus there is no reason to believe that the country will attain the level of growth needed to see a material improvement in most people’s lives.
The economy contracted 7% in 2020 – the second-largest annual contraction since records began in 1912. You do not recover from devastation of that depth by tinkering at the margins, by releasing a little bit of spectrum here and bringing in a power ship there. You require a paradigm shift on the part of the government, the kind we saw in 1994, the kind of change that would move South Africa upward from 99th (part of the ‘mostly unfree’ group) on the Heritage Foundation’s 2021 Index of Economic Freedom. To make any meaningful progress in arresting the growing unemployment rate (most recently above 42%, on the expanded definition), and unlocking actually transformative progress, the country needs on average 4-6% growth for the next five years.
Through all manner of increased government control measures that extract what wealth the private sector manages to produce despite all manner of restrictions, government remains committed to the fallacy that it can redistribute people into prosperity. Even if the government was not as fiscally constrained as it is – the result of its own wasteful expenditure on state-owned enterprises and corruption – all the stimulus and redistributionism in the world cannot magically result in the level of dynamism and growth that South Africans need.
A stifling, regressive economic regulatory environment means that less capital can be formed; local and foreign investment dries up as a result. Without capital, all the government promises of umpteen jobs and grand infrastructure plans will be stillborn. South Africa needs to be an uber-attractive location for long-term investment – right now, is the government sending out positive signals or those that discourage investment and saving?
As indicated in the February 2020 Budget Review, R162bn had been spent on “financially distressed state-owned enterprises” over the previous 12 years. Does anyone genuinely believe that it was money well-spent? To think now that pouring more scarce resources into SOEs and other state-controlled projects – and that these will deliver the elusive growth that South Africa needs – is simply delusional. The state should focus on improving service delivery for citizens rather than redistribution. It can then cease trying to squeeze everything out of a shrinking tax base. Income and corporate taxes should be slashed to indicate that this is a country that wants businesses to grow and create jobs.
Government control and redistribution can only take you so far – eventually, the wealth that has been created runs out – and it does South African’s future prospects no good for the state to presume that wealth is fixed. The focus should be: What ideological and practical ingredients are necessary to create an environment in which more wealth can be created, as opposed to obsessing over playing lose-lose games of dividing up an ever-smaller wealth cake?
Strong property rights, the robust understanding and following of the rule of law, limited government, and increased trade – South Africa needs these elements if people are ever to experience real, transformative growth. But all these elements require that government let go of the fallacy that it can ever deliver meaningful ‘state-led’ growth.
- Chris Hattingh is Deputy Director at the Free Market Foundation. The views expressed in the article are the author’s and not necessarily shared by the members of the Foundation.
- PANDA’s Nick Hudson: More evidence we’ve smashed SA economy for NO good reason
- John Steenhuisen: World’s strictest lockdown killed SA economy – not Covid-19
- Dear President Ramaphosa: Here’s a radical plan to whip SA economy into shape. MUST READ!
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.