Opinionista Nomahlubi Jakuja 17 November 2019

Allow the rating downgrade and use it to the advantage of the country

South Africa’s GDP growth rate has for the past five years battled to rise above 3.5%. Any celebrations of a dodged recession are premature. Treasury has insisted on implementing austerity measures on an economy that is battling to grow. For anyone who understands basic economics, this policy stance is counter-intuitive.

In economics, we are taught that during tough times an expansionary fiscal policy stance is needed. South Africa, on the other hand, has managed year after year to embark on austerity and tight fiscal measures despite a mired economy. This stance has been adopted in part as an effort to balance many of government’s neoliberal policies including appeasing the very much visible hand of the rating agencies.

The outcome of this is a tightening economy struggling to create employment. In the third quarter of 2019, unemployment grew to 29.1%. The ongoing protests at SAA as a result of threats to retrench more than 900 staff, should come as no surprise. This is the government’s ploy of restructuring SOEs in efforts to “grow” the economy, a highly misplaced policy stance. Yes, proper management of SOEs is needed, but retrenching 900 underpaid workers will not solve the bigger management and political interference in the SOEs which are responsible for the maladministration taking place within the SOEs.

The reason our economy has been unable to grow for the past 20 years can be found within the policies the government has pursued at the expense of employment, equity and poverty elevation. Dating back from GEAR which advocated for an export-oriented economic strategy, later reverberated in the 2019 National Treasury Strategic Outline. The export-oriented strategy calls for gradual relaxation in exchange controls, greater openness and competitiveness, thus opening up the economy to global market forces. Today, the economy has limited capital inflow for long-term investments, huge foreign currency outflows of dividends from profits and payments to foreign lenders and loses billions in illicit hard currency outflows.

The export-led growth strategy inherited from GEAR has failed and has worsened unemployment in South Africa. What I find most mind-boggling is that despite the continuous failure of export-led growth, no one at Treasury or elsewhere in government questions it. Instead, it is used as a tactic that does not question dogma. This coupled with Treasury’s fear of a downgrade has decapitated bold policy stances which are needed to move the country forward in a progressive and inclusive manner.

For example, instead of worrying over a downgrade, why not allow the downgrade and use it to the advantage of the country to gain independence and policy sovereignty and initiate expansionary and redistributive policies.

There are so many policies that can be implemented to drive real economic growth, including implementing a wealth tax, a fiscal stimulus, not to mention a “real” minimum wage policy that puts money in the pockets of consumers with a high marginal propensity to spend. But such policies need a bold government which South Africa currently lacks. DM

Nomahlubi Jakuja is economic researcher and policy manager at the South African Federation of Trade Unions.

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