Why our bad growth number is good news

There’s nothing like bad news to get action. It’s how we roll as South Africans.

Remember recent comments from President Cyril Ramaphosa, alerted like the rest of us to the impending governance crisis SA faced on 9 December 2015 when Nhlanhla Nene was fired as finance minister, that he only really started taking the state capture story seriously when the data dump of some 200,000 emails exposed the extent of the problem in lurid detail?

Tuesday’s economic data dump is the financial equivalent of the Gupta mails.

It’s a warning that all is not well in the economy. And it’s up to us how we deal with it. The good news is that this is as bad as it gets for now. And the better news is that growth is a choice. Better policy making can drive growth. The bad news is that the choices needed to drive growth are hard to implement and not always politically expedient.

Here is the brutal reality. South Africa suffered its worst quarterly contraction in nine years in the first quarter of 2018. Frankly, anyone expecting anything much different was away with the fairies. If you had deluded yourself that a fractious political agreement in the latter part of December at Nasrec would translate speedily into economic growth and prosperity, then you have no-one else to blame but yourself. There is a lag effect in economics. Particularly when it comes to making a recovery. Declines can be precipitous, just ask the Turks and Argentinians, but sustainable recovery takes far longer.

The headline-grabbing number of a contraction of 2.2% in the economy is what is going to be the subject of braai fire discussions this weekend. But there is something altogether more serious we need to figure out. Economists are divided. Have we flatlined for the past decade or have we in fact gone backwards? Other than a brief World Cup spike in growth upon which South Africa failed to capitalise, our real growth number over the past decade has been below population growth. South Africa’s population grows at an average 1.5% a year and average growth since the global financial crisis has failed to match even that paltry amount.

Feel poorer than you did a decade ago? Well, that is hardly surprising. As an average South African, you are. Ratings agencies use GDP per capita as a key measure of whether a country is improving life for all of its citizens. Beyond the political sloganeering of “a better life for all” – the reality is that most of us are worse off in real terms than we were in 2008.

So as ugly as the 2.2% GDP contraction looks, the picture is actually worse than the quarterly breakdown suggests.

We run the risk that Ramaphoria runs out of steam as this week’s massive petrol price increase on top of the April VAT hike and the inevitability of more to come bite into the little disposable income you might have thought you would have this year.

Patience, sadly, is required. While the president and his new administration have made some quite extraordinary strides in driving political change – there is little they can do about the economy in the short term.

While the short term numbers are scary and read like this: “..the agriculture sector shrank 24.2 percent in the quarter due to poor horticulture output, followed by mining which fell 9.9 percent and manufacturing which fell 6.4 percent,” there are encouraging signs that once the political manoeuvring is done and the vast capital outflows from state-owned enterprises are stopped, that we can get back to growth, and jobs and hiring.

Economics is not a popularity contest. But politics is. In that lies the problem. As we head for an election year, beware of politicians bearing promises they not only have no intention of delivering on, but probably can’t be executed quickly. Recoveries take a long time, which is why you need to avoid trouble in the first place.

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