The defining theme of 2023 is the cost-of-living crisis, underscored by rising poverty and deepening financial fragility across the board.  

Discouragingly, living standards are plummeting and an unmistakable panic about what lies ahead in the new year gnaws at many.  

The initial optimism and moderate lift in economic performance immediately after the worst of the pandemic was declared over have waned. The brief economic miracle, that much-needed glimmer of hope following the mass deaths, destruction and devastation of the coronavirus outbreak, has turned into a nightmare.

For much of 2022, the World Bank warned in successive editions of its Africa’s Pulse publication about the impending social strife that would be unleashed on the continent’s food basket as a consequence of Russia’s war in Ukraine, the region’s debt burden and the slow pace of structural reforms.  

At the time, the World Bank sounded the alarm about the price shock on food staples that lay ahead, especially for Africa’s urban poor. Already, in 2022, sparks of social strife ignited in jurisdictions including South Sudan, where a combination of hunger and unbearable food price increases deposited thousands of protesters on to the streets.  

In its 2022 editions of Africa’s Pulse, the multilateral development finance institution also highlighted how the public debt load would crowd out social and infrastructure spending, and long-delayed policy action would render the region incapable of coping with and absorbing the aftershocks of rising food bills and debt repayment costs.  

The World Bank’s projection — or prophecy, if you will — has come to pass. The present reality, which is unfolding for many in South Africa and the rest of the continent, is far worse than that forecast in 2022 by the institution.

It is important to note that, unlike credit rating agencies, the World Bank not only assesses the soundness of public finances and policies but also weighs the risks and rewards which flow to ordinary people. In other words, there is an equal, if not greater, emphasis on the social outcomes of macroeconomic policymaking.  

Drawing attention to those distinctions fosters an appreciation of which metrics the sovereign credit rating agencies and the World Bank give prominence to. Although not diametrically opposed, one approach prioritises fiscal figures while the other delves deep into the human condition coloured by those fiscal numbers.

The World Bank also tallies the human cost of missteps in public policymaking and spending. On both sides, there is a clear link between the state of the public purse and social stability.

Social outcomes

In most instances, fiscal decision-making fashions itself as a discipline informed by technical analysis, has the posture of aloofness and positions itself as apolitical. However, as unintentionally shown in Africa’s Pulse and similar publications, fiscal decision-making is in fact fraught from the perspective of social outcomes, which do have political consequences.

Suddenly, spending cuts here and reprioritisations there lose the appearance of innocuousness when the human angle is introduced. Therein resides the spark that has the potential to ignite the flames of bubbling social tension and the threat of public unrest.  

Social discontent and its opposite are the ultimate yardsticks of the soundness and efficacy of technical decision-making, which is supposedly far removed from everyday people.

The cost-of-living crisis is not the result of a social policy experiment gone awry. It is a manifestation of technical decision-making devoid of the social component, which requires a careful consideration of the human condition as a factor and a unit of analysis.  

After a recent review of South Africa’s debt metrics, S&P Global Ratings’ analysts Zahabia Gupta, Samira Mensah, Omega Collocott and Tatiana Grineva, on 23 November, hosted a follow-up call to explain the rationale for the country’s ratings.  

The context is that South Africa has subjected itself to sovereign credit rating reviews since the advent of democracy in 1994. A common underlying feature in the country since 1994 is volatility, according to Gupta. This was somewhat smoothed out in the mid-2000s. But since 2012, the country has been on a downward slide.  

Fast-forward to March 2020, and S&P expected a weaker outlook for South Africa in line with the downward trend observed since 2012. However, in 2022, something remarkable happened that caused a positive shift and renewed optimism in the country. 

The economy showed remarkable signs of resilience. In 2022, it seemed a certainty that South Africa would stage a rebound on a par with comparable peers like Brazil. But that expectation was snuffed out by political bungling.

South Africa did not capitalise on the commodity prices boom. So, S&P revised down the country’s growth forecast from 1.8% to 0.8%.  

Supply-side issues worsened — Eskom and Transnet dragged down economic performance. Revenue shortfalls widened. Operation Vulindlela did not unlock substantial infrastructure and telecom blockages. South Africa’s GDP per capita is now at 2006 levels.  

The knock-on effects are trickling in, with corporates in the hardest-hit sectors and industries announcing a succession of closures and workforce rationalisations. Statistics South Africa’s latest growth and job numbers signal more pain is on the horizon.  

Added to the angst caused by the cost-of-living crisis is a looming credit crunch among consumers. Post-pandemic savings are depleted. Salaries have not kept up with the fast-paced increases of essentials. The jobs and growth outlooks are reasons for more worry.

From an S&P point of view, the fiscal fundamentals, a core metric for the sovereign credit rating, are assessed as weak. The Africa’s Pulse perspective on the same issue would provide a detailed analysis of how public policy underperformance is the leading cause of the decline in socioeconomic outcomes for South Africans.  

The elephant in the room on either side of the analysis is the role of political stagnation in accelerating the deterioration across the board. DM