The significant cost of SA’s dysfunctional politics

Over the last seven years, the cumulative economic cost of South Africa’s turbulent political climate and leadership choices is an estimated R1 trillion, an economist had said.

Addressing the Association of Black Securities and Investment Professionals (Absip), Standard Bank chief economist Goolam Ballim, argued that the labour market could have expanded by almost 1 million jobs over the period had this GDP not been sacrificed.

“If a single formal sector job has about 3.8 (rounding up to 4) immediate beneficiaries within the household, we can stand here and say that the political climate, the lack of constructive policy choices, has meant that in a narrow sense five million South Africans’ lives have been stymied.”

His comments came shortly after finance minister Malusi Gigaba announced in his Medium-Term Budget Policy Statement (MTBPS), that the consolidated budget deficit would widen to 4.3% of GDP in the current fiscal year, compared to an earlier projection of 3.1%. Tax revenue was projected to fall short of the 2017 Budget estimate by R50.8 billion. The deterioration in South Africa’s fiscal position followed a period of significant political turmoil and puts the country at greater risk of further credit rating downgrades.

Ballim said if this GDP had not been forgone, the revenue number Gigaba projected for the current fiscal year could foreseeably have been R300 billion higher.

Whereas the economic growth of around 5% South Africa experienced between 2002 and 2007 saw the unemployment rate and debt-to-GDP ratio plunge, house prices roughly doubled and the local equity index experienced a near fivefold increase.

Over the past eight years, the stock market and house prices hadn’t experienced nearly the same level of growth and job creation came under pressure as economic growth dissipated.

“Nobody wins. The capacity for inclusive growth has been greatly forgone.”

Gigaba revised the economic growth projection for 2017 downwards from 1.3% to 0.7%.

Ballim said the idea that overarching growth was exclusive was untrue – especially if the redistributive tax system had created the capacity for shared economic growth.

Modelling outcomes

Standard Bank has modelled three economic scenarios based on potential outcomes at the ANC’s elective conference in December. The “high-road” scenario assumes that a reformist candidate with a pro-constitution and anti-corruption agenda is elected and the candidate is surrounded by individuals who share these ideals. The low-road scenario assumes that a system of patrimonialism is the anchor policy of a new leader, corruption continues, business confidence remains low and the private sector is largely absent as a trigger for economic growth.

A muddle-through or middle-road scenario assumes an inability for an internally consistent political roadmap that renders the business sector “almost caught in the headlights”, resulting in subdued confidence levels and growth.

Ballim said the hurdle South Africa has to surmount is GDP growth of 1.7%, which would match population growth. Below this level, it would signal shrinkage in GDP per capita. While only a high-road scenario would put the country on a path of growth above this level, South Africa’s current conditions are so precarious that even this scenario would not deliver the economic growth of 4% or 5% experienced during the early 2000s.

Although the budget deficit projected in the MTBPS is far worse than what was anticipated in February, even in a high-road scenario the budget deficit could “grossly underperform”, he said.

“In other words, the perpetual overpromising/underdelivery by the National Treasury would continue even if we had a Nirvana outcome in the ANC elective [conference].”

In a low-road scenario, the budget deficit could balloon to in excess of 5%. While National Treasury projected that the country’s net debt as a percentage of GDP would escalate from around 49% to 54%, it could surge to 60% in a low-road scenario “and quite conceivably 65% to 67% as a proportion of GDP for gross debt”, he warned.

The outcome of the ANC conference will have profound implications for the macroeconomic environment, policy choices and the future of South Africans.

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