Business Maverick

Business Maverick

SA Decline Worst of Nations Not at War, Model Shows

The Transnet go-slow, the latest wave of industrial action to hit South Africa is already taking a bite. (Photo: Waldo Swiegers / Bloomberg)
By Bloomberg
18 Apr 2019 0

South Africa’s performance on a range of social, economic and governance measures deteriorated more in the past 12 years than any other nation not at war, according to Eunomix Business & Economics Ltd.

SA’s decline is likely to continue as the country wrestles with the consequences of nine years of worsening corruption and policy paralysis under former President Jacob Zuma, the Johannesburg-based political-risk advisory company said. The fragility of the economy may also limit the tenure of his successor Cyril Ramaphosa, who faces his first national election on May 8, it said.

“There is the strongest likelihood of him being a one-term president,” Claude Baissac, the head of a Eunomix, said in an interview. “He is starting with a very weak economy, the weakest of any president since Mandela. He is also starting with a fairly weak hand from a political standpoint.”

An index of security, governance, prosperity and welfare indicators shows South Africa slumped to 88th out of 178 nations in 2018 from 31st in 2006, according to an analysis of the country’s prospects by Eunomix. The company advises some of the biggest mining companies operating in the country.

Venezuela, Colombia
South Africa’s decline in ranking is only been superseded by conflict-riven countries such as Mali, Ukraine and Venezuela and its peers now include Colombia, Jamaica, Latvia and the Philippines, compared with Portugal and Slovenia in 2008.

Other advisory groups, such as FTI Consulting, are more positive on South Africa’s prospects.

“South Africa has made significant progress on improving the well-being of its population, with poverty declining by over 10 percent in the last 10 years alone,” FTI said in a report. “However, 14 million people are still living below the level at which they can afford basic food supplies.”

For more on South Africa’s triumphs and challenges click here

Eunomix disagrees, saying the likelihood of arresting the decline is limited by the unsustainable structure of South Africa’s economy, in which economic power is largely held by an elite that wields little political influence, a product of its apartheid history and its status as one of the world’s most unequal societies. The ability of politicians to make the unpopular decisions needed to boost growth is hampered by this imbalance.

“Economic policy serves narrow interests, thus generating insufficient and unfairly allocated growth,” Eunomix said. “Populism, rather than developmentalism is an easy temptation, with the economy a tug-of-war between mutually distrustful groups.”

Political Weakness
While Ramaphosa spent his first 14 months in power pledging a crackdown on corruption, an end to policy uncertainty and a drive to reform loss-making state-owned companies, his political weakness will hinder or thwart progress, the company said. Ramaphosa won the leadership of the ruling African National Congress in December 2017 in a contest with Zuma’s ex-wife, a political ally of his, by a narrow margin, and the party remains riven by factionalism.

Orthodox economics adopted during the rule of former President Thabo Mbeki, who was in power from 1999 until 2008, have been abandoned in favor of more populist policies. They include a drive to adopt land expropriation without compensation, free tertiary education and more stringent black economic empowerment requirements for mining companies.

“South Africa’s state performance peaked in 2007, that year its economy and governance were at their best. Since then the state has experienced continuous decline in all core indicators of performance,” Eunomix said. “The developmental state project has failed. South Africa is now a fragile state, expected to continue to weaken.”


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