Nearly everyone who has any sort of say in the matter has watered down the economic growth prospects of South Africa for next year. On Monday, it was the turn of Business Unity South Africa (Busa). The deputy CEO Raymond Parsons presented the Busa Economic and Business Outlook report to the media, and wasn’t a bucket of smiles doing it either.
“The global economy has entered a dangerous new phase,” the report warns. “Global economic activity has weakened further and become more uneven, confidence has dropped and downside risks are increasing. While further bail out arrangements have been proposed for Greece and Italy, the two year eurozone sovereign debt crisis remains largely unresolved and fears of a ‘double dip’ recession have risen.”
The eurozone is expected to have some form of a recession soon. Just how bad it will be is anyone’s guess at the moment, but the mere likelihood of a bad time ahead is enough for Busa to dampen down their growth projections for South Africa in the coming year.
Busa forecasts a 3% growth rate in 2012, and a 3.8% growth rate in 2013. This is largely in line with the government’s own projections. While gross fixed-capital formation is expected to rise modestly over the next two years, both exports and imports are expected to shrink slightly.
The other factor for South Africa’s lagging economic growth is the government’s underperformance in areas like infrastructure spending. Raymond Parsons said that because we expected Europe not to contribute much to South Africa’s growth in 2012, we should be doing our utmost to shore up the economy where we can.
Instead, we have an underperforming economy. Manufacturing capacity utilisation is currently at 80%, office vacancies sit at 10% – and there’s the perennial problem of youth unemployment.
Volatility in the exchange rate is expected to continue. Also, Busa thinks that the trade balance will become more difficult to predict. If the eurozone debt crisis becomes as bad as they think it might be, our exports will be immediately compromised. Imports won’t at first (South Africans aren’t going to suddenly stop consuming because of unserviceable debt levels abroad).
Against this backdrop, Busa wants the government to make the welfare state more affordable by making welfare payments grow in line with tax revenues. Right now, grants are unsustainably expensive. Also, “there should be no tax ‘shocks’ in the Budget which would damage business confidence and harm growth potential”.
Busa also cautiously applauds efforts by the department of economic development, rural development, the planning ministry and the department of trade and industry to address unemployment, though they neglect to mention that the lack of a central, focused plan amid this hodgepodge of policies, white papers and departmental directives could be what is stopping the government from effectively tackling joblessness.
A suggestion by Busa that the government allow more public-private partnerships (PPS) will set Cosatu’s teeth on edge. Busa says that the problem of infrastructure underspending is that there is too much cash chasing too little capacity, and thus business should be allowed to step in more to fill in the gaps.
Cosatu hates the idea of PPS mainly because it means that the state hires less people to do service delivery work. And it also introduces numerous opportunities for corruption (via the tender system).
So all-in-all, Busa thinks that South Africa is headed for a lukewarm year of growth in 2012. Which could mean less jobs, less tax revenues, more people on grants and a crisis with the welfare state. It also will mean that government will have to slow the already ponderous pace of service delivery. And, well, we all know how quickly things can go pear-shaped when that starts to happen.
But they could be wrong.
Because the risk of public and private sector forecasts being wrong is much higher now given the jittery state of the world economy, “the margin for error in economic forecasting has increased,” the report says. “The margin for error in policy has narrowed and a mistake in domestic policy could be costly.”
Someone tell that to whoever is supposed to be herding the economic cluster at Cabinet level in a single direction. DM
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