This Latin phrase asks the question – ‘where are we marching’ or where are we going, and wouldn’t we all like to know.
FOR our January edition the Editor posed this question to Senior Policy Analyst Chris Hattingh at the Centre For Risk Analysis, for his insights.
“Many commentators and economists agree that the South African economy is in recession and suffering in part from the global shocks of inflation felt everywhere. These are as a consequence of the aftermath of the COVID pandemic, coupled with the Russian invasion of Ukraine which has caused skyrocketing increases in oil and gas prices due to the embargo placed on Russian petroleum products, agricultural fertilizers, and the blockade of Ukrainian agricultural produce amongst other commodities. We also sit with the negative consequences of years of wrong policy choices which have placed a hard cap on the county’s growth potential.
“A country in recession is where negative growth in the economy’s GDP for two successive quarters – ‘a significant, pervasive and persistent decline in economic activity’, prevails. South Africa has been teetering on this condition for several years with very low growth rates, rescued only by increased mining output – most recently coal exports – and favourable agricultural output. There are many factors for this unfavourable condition including our collapsing transport infrastructure but a major one is the country’s failing power supply, which has touched everyone and every business for the past 14 years.
“Increasing the cost of borrowing – raising interest rates by the Reserve Bank as a mitigating measure to fight inflation – has already happened and I believe will happen again in January and very likely through 2023 (in smaller increments), causing further belt tightening amongst businesses and consumers. This trend is set to continue throughout 2023 and could easily be with us until 2025 according to some predictions.
“On the political front especially, South Africa could prove to be a land of coalition governments. The 2024 general election will prove pivotal in this regard.
Own goals
“It is not just the international situation that has caused this pessimistic outlook – the country has scored a number of ‘own goals’ through policies that discourage overseas investment and local growth. A reformation of the country’s labour laws and the abandonment of BEEE would be a good place to start. These have exacerbated our massive unemployment problem which stands at around 50% (on the expanded definition), with an unsustainable 74% of youth unemployed.
These numbers are untenable and the country risks the real likelihood of renewed unrest as happened when former President Zuma was imprisoned for contempt of court in 2021.
“Levels of corruption and the ineffective police services have led to the country being threatened with being grey listed by the international community which would affect our ability to raise much needed funding on capital markets. However changes to the FICA Act to outlaw money laundering came into force in November last year (2022) and this move coupled with successes made by the NPA in prosecuting some serial offenders gives hope that such a moniker will not be attached to South Africa.
The energy crisis
“The appointment of a new board at Eskom gives some hope of a turnaround in this troubled SOE. But as with all SOEs, its turnaround (if such should come about) will be hamstrung by the ruling party’s guiding ideology and demands. Drastic action in the restructuring of Eskom will undoubtedly bring casualties which will upset the unions, but if the fundamentals cannot be addressed then the future of this parastatal is bleak. Saddled with servicing a debt of more R400bn, municipalities not paying for power, an aging fleet of unreliable coal fired power stations, continual breakdowns and loadshedding plus the need for new generating capacity, all while minimising damaging environmental emissions – phew! A major undertaking awaits.
“Faced with continued uncertainty, municipalities and business owners have already started becoming self-reliant in providing essential electricity for their enterprises. This trend will continue and will see more purveyors of renewable energy emerge and establish a vibrant sector. This in itself puts another nail in Eskom’s coffin as the utility won’t be receiving revenue from self-supporting businesses and less from major metros such as Cape Town.
“There is a glimmer of hope however in the discoveries of huge quantities of onshore natural gas in Mpumalanga and the Free State, and offshore off the West Coast and Mossel Bay. A commitment by Government to gas to power generation would spur the commercialisation of these resources, and provide a reliable and stable electricity supply within two or three years, which coupled with wind and solar renewables could finally address the energy crisis.
Export diversification
“From a global perspective South Africa has long relied on China and Europe as major destinations for its exports of mining minerals and agricultural products. But these markets are changing and could pose a threat to our future exports. The days of China’s amazing growth have dwindled due to its draconian COVID restrictions which are now causing unheard of civil unrest, as well as contractions of its economy. Europe is dealing with its own share of problems caused by Putin’s war in Ukraine and dissention amongst members of the EU.
“So South Africa needs to diversify its markets and find new outlets for its fine wines, delicious citrus and its exports of iron ore and manganese amongst other strategic minerals.
“All in all a dynamic environment for the foreseeable future but with adversity comes opportunity and taking on these challenges is part of South Africa’s DNA, especially if businesses, communities, and civil society organisations can work together”.
