Thebe Mabanga
Well this time, he cannot claim to be shocked.
The last time the South African economy slipped into a recession, at the beginning of 2018, President Cyril Ramaphosa had just ousted his predecessor Jacob Zuma in a Valentine’s Day coup and still basking in the goodwill glow of his Nasrec victory a few months earlier.
This time, as Stats SA announced that the economy contracted by 1,4% in the fourth quarter of last year and grew by only 0,2% for 2019, Ramaphosa has been in office for two years and he must have seen this train coming.
The last time the economy dipped into a recession, it was rescued by a return of good rains and a bounce back in agriculture in the first quarter of 2018.
There will be no such lifeline this time.
Load shedding, which came a week earlier than Ramaphosa had promised and the outbreak of the Coronavirus will hit first quarter growth very hard.
There is no room to hide.
The strangest of South Africa’s economic commentary is that government announces in the budget review that it expects the economy to grow by 1,6% in 2022, meaning we might not see 3% growth, till the middle of this decade or 5% till its end and nobody expresses shock and outrage.
When Ramaphosa took office, South Africa was supposed to embark on a private sector, export-driven growth path.
But South Africa’s private sector has no desire to take the lead and there will be a drop in export led growth for the short term thanks to the Covid 19.
If, like President Donald Trump of the United States, Ramaphosa was facing an election in November where the performance of the economy plays a huge role in how he is judged, he world be faced with a real prospect of defeat.
Except Ramaphosa is facing a referendum on his leadership, an internal one in June at the ANC’s National General Council, where the poor economic performance can erode the wider public support that serves as his leverage and be used as an excuse to call for his removal.
The most, well, shocking aspect of the economy’s performance is the transport and communications sector, which declined by 7.2% and agriculture which shrank by 7.6%.
This in turn dragged down trade by 3.8% alongside manufacturing, which fell by 1,8%. The long suffering construction sector fell by 5.9% and the electricity, water and gas sector declined by 4% due to load shedding.
Only finance (2,7%), mining (1,8%) and personal services (0,7%) grew in the last quarter of 2019.
Taken together, what the shrinking sectors show is that not enough food is being produced, not enough goods are being manufactured and moved by road or rail between factories and warehouses and there is little building activity going on.
The real economy is suffering. Even the telecoms sector does not need an international conference on the Fourth Industrial Revolution, it needs digital migration to be completed and the telecom spectrum to be freed and auctioned to raise the necessary funds to boost growth, including launching the mooted Sovereign Wealth Fund.
A major problem that Ramaphosa faces is that he consults a lot and does not seem to have views or ideas of his own.
One moment, he says Eskom will not be privatised, and the next he is open to selling some power stations.
Solutions crafted by consultation simply take too long to implement. When the Financial Crisis struck in 2008, a Task Team comprising Government, Business, Labour and Civil Society was assembled. In December 2008, journalists were summoned to Tuynhuis in Cape Town following a consultative meeting only to be told that not only is there no plan, but even the principles to guide any solution out of that crisis.
An inadequate plan was eventually unveiled by newly appointed Economic Development minister Ebrahim Patel, who at that point had no government experience.
This may partly explain why many developing countries have since seen growth recover to above 4% in the period while South Africa lags behind.
What Ramaphosa needs to realise is that he has reached his GEAR moment, the moment like when former president Thabo Mbeki and finance minister Trevor Manuel announced, without consultation, the Growth Employment and Redistribution (GEAR) policy, with its four non-negotiable pillars.
GEAR never really delivered the growth, employment it promised and had limited redistribution through Black Economic Empowerment but it did stabilise public finances in the five years to 2001 that it was policy.
It also laid the foundation for sustained growing by 5% a year for the five years to 2007 and creating 1.5 million jobs between 2001 and 2007, according to the 2008 Budget Review.
Ramaphosa needs to take or at least announce unilateral action that ignores the tripartite alliance and his army of economic advisors.
Since he does not appear to listen to his army of his economic advisors, both local and international, he would do well to listen to New York Times columnist Paul Krugman, who points out that the world is awash with excess savings which are searching for high yield assets.
One good place to start would be to announce that South Africa is changing its debt trajectory and allowing its budget deficit to widen above the forecast 6.8% in 2020/2021 to between 8% and 10% and the debt to GDP ratio to shoot above the projected 71.6% by 2022/2023 to say 75% or even 80%.
This will allow the government to borrow more in order to fund aggressive infrastructure spending and spill over to the consumption side of the economy.
When the debt to GDP ratio was allowed to move from below 60% before the recession to current levels, no one complained since this protected the pensions and investment of the upper middle classes and super wealthy.
Now that we must take a risk that helps the lower middle class, the poor and unemployed, howls of derision go up and economic textbooks about unsustainable debt levels are thrown about.
There is nothing wrong with higher debt, just show that you are aware its rising and how you plan to use to use the growth you will bring about to pay it off.
We must be careful how and in whose interest the economy is managed and for Ramaphosa, it would be better to be ousted for acting unilaterally on his beliefs, like Mbeki paid the ultimate price on Gear, than to be ousted much sooner, as in June, for taking no action at all.
