SA stands on the edge of a political and fiscal cliff, the Financial Mail's economics editor Claire Bisseker in her new book, On the Brink: SA’s Political and Fiscal Cliff-hanger (Tafelberg). The country has pulled back from disaster before — but it will require the right leadership, economic policies and immense national resolve to do so again
Few countries in transition have managed to get a grip on public finances as well as SA did after the advent of democracy in 1994. The speed with which SA achieved fiscal stability earned the young democracy international plaudits and, over time, was recognised by successive sovereign credit-rating upgrades.
Now, just over 20 years later, as SA comes to terms with having been downgraded to junk status, much of that fiscal progress has been wiped out. This is mainly because of years of unsustainable spending on a burgeoning but unproductive government in a low-growth environment.
SA is a long way from becoming a failed state but it is on the brink of making a historic mistake
— WHAT IT MEANS
In early 2013, we began asking if SA was on a slippery slope to becoming a sub-investment-grade country. Our conclusion was that though it would take a significant deterioration over several years for SA to lose its investment-grade credit rating, it was likely that on current policies the country’s creditworthiness would keep deteriorating.
It was clear, even then, that unless SA found a way to accelerate growth and make it more labour-intensive, the country faced a slow, grinding descent from mediocrity to marginalisation — or worse.
But over the past five years, SA’s economic deterioration has been far more rapid than we initially envisaged. This was partly because the slide was hastened by factors beyond its control, most significantly the slowdown in China.
Though the external environment has been extremely challenging, in the end it was the deep, structurally embedded weaknesses — like the deterioration of SA’s public finances and state capacity, skills shortages and mounting energy costs — that hastened the downward slide in economic activity and the country’s credit ratings.
What we didn’t count on was that in addition to government’s neglect of the economy, President Jacob Zuma and his acolytes would actively sabotage it through an alleged web of institutionalised theft. In many respects the state has gone rogue.
While Pravin Gordhan was finance minister, it was taken for granted that SA would avoid a fiscal crisis. This was a naive assumption. National treasury was taking steps to restore the country to fiscal sustainability. But the real problem was that growth had been too low for too long.
Most economists expect growth to climb gradually to reach 2% over the next three to five years. But with the population growing by just under 1.7% a year, muddling along with very low or stagnant growth means the average South African will probably experience very little income growth until 2022.
There are huge dangers in this. Rising poverty and unemployment are likely to heighten social and fiscal tensions. It is the kind of climate in which populism flourishes and confidence withers. The political noise is already deafening with much of the blame misdirected at whites, business and capitalism for government’s failure to meet people’s expectations.
Politically, SA’s future is impossible to call because many plausible outcomes can be imagined. But for the economy the future is binary. Only two outcomes are really possible — a good one or a bad one — because if the economy is not moving forward convincingly, it is in decline.
With the right leadership and economic policies SA could take off. With the wrong ones, it will continue its descent. That descent could be rapid, if the ANC tacks left towards more populist policies; or gradual, if policy confusion and inertia continue to frustrate growth.
Zuma is deeply entrenched but his faction may yet be swept out of power on the rising tide of anger. In every facet of public life, people are standing up to his regime. The courts, especially, have inflicted heavy losses on Zuma’s push for untrammelled power.
Though Zuma would leave behind a ravaged state, better people would be attracted to the multiyear task of rebuilding SA’s institutions. They would build them stronger than before, knowing now the forces they might need to again withstand one day.
SA stands on the edge of a political and fiscal cliff. The period ahead is going to be tense, with the dial on the nation’s psyche likely to swing from despair to euphoria and back again several times before it is all over.
Many of the ingredients for a catastrophic collapse are already present, but SA has pulled back from the brink before. There is every reason to believe it will find the national cohesion and resolve to do so again.
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