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Why South Africa’s economy will finally start growing again

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Natale Labia writes on the economy and finance. Partner and chief economist of a global investment firm, he writes in his personal capacity. MBA from Università Bocconi. Supports Juventus.

The Industrial Policy and Strategy Review compellingly provides context for the SA economy, but many of the recommendations and policy fixes made are less convincing.

Perhaps the last thing South Africa needs is another long-winded policy paper explaining what should be done to stimulate its long-since miserable economic reality. The country already has one written back in 2012 — the National Development Plan — which was meant to chart its growth up to 2030. Progress towards the goals laid out in that document has been paltry.

Surely what is needed is actually enacting policies to kickstart the economy, rather than government ministries expending yet more time and effort trying to diagnose the illness of the patient and discuss possible remedies.

Yet that is exactly what Ebrahim Patel’s Department of Trade, Industry and Competition (DTIC) has just done, unveiling its 120-page report last week, entitled the “Industrial Policy and Strategy Review”.

But before it is consigned to the pile of tomes on the same, depressing topic, the document is worth reading for a number of reasons.

First is the acknowledgement up front that “the role of industrial policy is to unleash private investment and energise the state to boost economic growth and inclusion”. This is a welcome departure from what is often held out to be Patel’s instincts of attempting to micromanage the economy through the powerful state organisms that fall under his mandate. No one wants to be reminded of his pandemic-era decisions such as banning the sale of open-toed shoes or rotisserie chickens.

Second, without shifting the blame, the paper elucidates just what a torrid last five years South Africa has endured. It mentions State Capture, and while Patel makes the caveat that the DTIC political leadership shielded its own resources from various unnamed predatory forces, he makes it clear that “State Capture strained state finances and capacity, undermined efforts to localise the production of inputs for the infrastructure programme, and sparked a crisis in public infrastructure, especially electricity and rail services.”

Read more in Daily Maverick: SA narrowly dodges recession in Q4 as economy grows a sluggish 0.6% in 2023

Yet State Capture was just the beginning of a series of cataclysmic forces that have wreaked havoc with South Africa’s economy over the last half-decade. According to DTIC estimates, six successive shocks over the past three years have cost South Africa’s economy as much as R850-billion ($46-billion).

The shocks were listed as the global pandemic, the worst civil unrest since apartheid in July 2021, the war in Ukraine, severe flooding in KwaZulu-Natal in 2022, interminable rolling blackouts and persistent logistics constraints. According to the report, coming immediately after State Capture, these crises delayed and then shifted the focus of industrial policy. Without them, and assuming the country had simply matched growth trends seen in the decade prior to the pandemic, South Africa’s gross domestic product would have been between 3% and 5% larger in constant rand terms than it currently is. Instead, the economic growth rate has averaged a wretched 0.42% since Ramaphosa took over in 2019.

But while the report compellingly provides context for the SA economy, many of the recommendations and policy fixes made are less convincing. Despite his assertion of the importance of private sector investment, Patel clearly has not altered his view that economic growth is, in some large respect, the culmination of a series of sector-specific “masterplans” which look to fix problems inherent in parts of the economy, for example in poultry or automotive. These micro-fixes, while useful, arguably distract from getting more of the macro factors right.

Read more in Daily Maverick: There’s cause to be optimistic about South Africa’s economic prospects

Furthermore, who actually is in charge of economic policymaking? Is it the National Treasury, who seem to want to drive the process under the National Development Plat, or the DTIC? Ideological dissonance between the neoliberal instincts of the Treasury and the more dirigiste ideas of the DTIC have long been held to be a source of unnecessary tension and paralysis in economic policy making.

Finally, however, by painting an accurate picture of the torrid time that the SA economy has endured, the key takeaway from the report is a positive one. While corruption persists, State Capture is over. The effects of the war in Ukraine are fading, and hopefully, there will be no repeat of the pandemic, severe flooding or mass-scale civil unrest. Business for South Africa reported last week that rolling blackouts will be over, but for Stage 1, by the end of this year and will be a thing of the past by the end of 2025. Aside from crumbling infrastructure, this could mean that the handbrakes that have held up economic growth in the last three years have largely been lifted.

Furthermore, the report highlights the potentially transformative role that could be played by the African Continental Free Trade Agreement. While it is still uncertain that it will be implemented as envisaged, removing the trade blockages that inhibit companies from accessing the much larger continental market would be transformative for many South African businesses.

One can therefore hope that whatever the government looks like from June onwards, economic policy makers will have the instinct that less is more. Rather focus on the fundamentals like providing power and critical infrastructure and let the ever agile and resilient South African private sector invest, hire and drive growth. Amidst the doom and gloom of SA economic forecasts, there is a case to be made that following the last five years of what economic historian Adam Tooze would term a “polycrisis”, things simply cannot get much worse.

Should this be the case then regardless of what the DTIC does or does not do, this could be the year which goes down as the moment the SA economy turns the corner and starts, albeit slowly and off a low base, growing again. DM

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  • Ron McGregor says:

    “State Capture is over.” Ja, well, no, fine, maybe.
    “State Capture” is a phrase used to describe a specific episode in our history, in which certain players (mainly the Guptas) influenced certain politicians and political appointees (read Zuma et al), into making decisions that led to the theft of large amounts of money.
    Admittedly, the Guptas have gone, along with Zuma – for now, anyway. But that does not mean that other players will not be colluding with other politicians and political appointees in order to divert large sums of public money to their own pockets.
    In the tragic tale of South Africa’s decline, the episode starting with the Guptas and ending with the Zondo Commission is just a single chapter. The title of that chapter is “State Capture.” And it will be followed by another chapter. This new chapter hasn’t yet been given a title, but it will involve the continued misappropriation of the people’s money. The looting CANNOT stop. It is ingrained in the morality of both the ruling party and the people who vote it into power.

    • David C says:

      I concur. As long as the ANC is in government then the State is still captured. The only variation is the identity of the external parties who are enabling and participating in the institutionalised looting and pillaging.

    • Steve Davidson says:

      And of course there’s still the cadaver, sorry cadre, deployment that still consumes a large part of the budget and is made much worse by the total and utter incompetence of a large portion of said cadavers.

  • Nic Tsangarakis says:

    The analysis seems to be sound, i.e. after 5 or 6 major crises the economy has hit rock bottom and is likely to start growing again. 3 to 5 percent would be welcome relief. At a 3% growth rate, an economy will double in approximately 23.33 years. The fertility rate for South Africa in 2024 is approximately 2.29 births per woman and it is expected to dip below 2 births by 2040. 2.1 births is when a population plateaus. Some cautious cause for optimism.

    • Steve Davidson says:

      Aikona, baba, no ways UNLESS the ANC gets kicked out and the competent DA, perhaps in a MPC coalition, takes over. It is the ONLY solution for SA. Pie-in-the-sky cloud cuckoo land otherwise.

      • ancient child says:

        The DA also has flaws, in fact major ones as well. For example this country was under state capture over 50 years. So ANC is still a baby compared to the masters of state capture.

        • td _a says:

          DA has never been in charge. they were born out of the Progressive Party – which was the opposition to apartheid.
          the National Party (who did Apartheid) joined the ANC.
          read your history brother

        • G C says:

          Apartheid South Africa would have never survive ANC corruption and sanctions.

      • Sias Strydom says:

        Unfortunately I think you are the one who’s drinking the (DA) cool aid a bit too liberally – pun intended… While we all want the Shangrila you dream of, it’s highly unlikely, nay, nigh impossible for another 4-12 years

    • Greeff Kotzé says:

      I think what the article said was 3 ‒ 5% growth over three years, not per year. And that was the what-if scenario if we had gone without the pandemic and the crises that followed. Unfortunately it’s not a prediction for the immediate future, certainly not on a per annum basis.

  • Niek Joubert says:

    I have always maintained that although Patel and Gordhan may have been honest during the state capture era, their ideological (socialist) driven policies and actions caused just as much harm.

    • Marc Slabber says:

      Agreed.

      Much media focus is on corruption, less on incompetence, and even less on the mish mash of opposing ideologies that paralyse the economy in such fundamental ways.
      Take for example the limit on self generation of electricity that was lifted with fierce opposition from Gwede and Co. Had that been done sooner we would have averted significant amounts of load shedding.
      Now with Transnet, we have to wait until our ports barely function before they think about privatisation.

      On the contrary, NHI is the latest state-led foray into socialist, anti-business, monopolistic ideology, even without the faintest idea of how it will work in practice.

      When will these wise Cadres join the dots and see the bigger picture that their contradicting ideologies are as much to blame as anything else?

      Unfortunately, I don’t think the average voter knows or understands any of this, but hey, one man, one vote..

  • td _a says:

    your next article should be about ‘so now we have this paper, but will the investment come? how competitive is our business environment compared to rising manufacturing powers like India, Vietnam, Mexico, Indonesia?’
    THAT is the big question

  • drew barrimore says:

    State Capture over? The war in Ukraine fading? Is this writer from a distant decade in the future?

  • Con Tester says:

    Seems like the Disciples of Pangloss have taken over the loony bin and are vomiting sunshine all over the place. If the last 30 years have taught us anything, it’s that whatever the ANC cannot steal, it will break—and then steal the parts. This habit, together with a slew of starry-eyed-but-unworkable policies, will ensure that SA’s economy will remain tanked. And pinning one’s hopes on the upcoming election’s results is extremely naïve: The ANC will retain a significant amount of political control, and with the able help of the EFF and possibly MKP, will petulantly oppose any and all well-intentioned endeavours to fix the country’s economy.

  • Geoff Coles says:

    State capture remains, whether the corrupt cadres, Gupta types tenderpreneurs etc….or the ANC in Government and Civil Service

  • Henry Coppens says:

    It a complete no brainer to expect those who broke and stole to suddenly come right and allow the economy to take off. Besides the ANC’s communist inspired NDR specifically says the state must own everything, and that, too, is a no brainer in continuing to collapse the economy. It really is quite simple. The economy will not, and cannot take off with the ANC – especially, idoeology apart, when it is in their DNA to steal and lie. That’s it – finish and klaar.

  • A.K.A. Fred says:

    According to the author “the handbrakes that have held up economic growth in the last three years have largely been lifted” – referring to the global pandemic, KZN Civil unrest, fading (?) war in Ukraine, KZN flooding, loadshedding & logistics constraints. That is, the economy should grow irrespective of the content of Patel’s 120 page industrial policy. What a waste of time and effort and taxpayer’s money to produce another useless policy paper. The cANCer of this country is unable to formulate any credible plans for prosperity of its citizens. They only excel at looting.

  • Deon de Wet-Roos says:

    I’m highly sceptical about your reference to improved electricity supply. The model presented by McKay is still in its infancy and relies on a lot of caveats. Provide concrete proof of improvements in electricity supply and infrastructure development or shut up. Business has done a lot but they cannot work miracles especially when they admit the ANC government is still aligned against business in general.

  • Stephen Paul says:

    ” ….. things simply cannot get much worse” Is this your reason and conclusion to justify the article headline. Heaven help us.

  • ST ST says:

    Is this the case of when you’re down, the only way is up? Unless if course you go under…

  • Annika Larsson says:

    A glaring example of the Gambler’s Fallacy in action. That’s when you think that after a series of losing hands, it’s more likely that the next hand will be a winning one.

  • A Rosebank Ratepayer says:

    It’s concerning how the (particularly the white’s) commentariat’s expectations seem to be underpinned by a yearning for some kind of bureaucratic nirvana where all administrative procedures work perfectly and the legacy of South Africa’s past, particularly economic racial discrimination, is completely erased from consciousness, policy and practise.

    Appealing to mainly whites but completely unrealistic.

    Internationally, the pendulum of 70 years of relative peace, dominance of the US and the US$ and global economic cooperation is now swinging away to polarisation and economic realignment. It’s going to get tougher, no matter where you are, with the exception of possibly Oz and Canada.

    There needs to be a step change in people’s sense of possibilities, i.e. moving from Clem Sunter’s hedgehog to fox.

    This also applies to political parties, e.g. the DA. Some parts of it are foxy, arguable the more successful parts. Other parts are decidedly hedgehoggy – particularly its leader whose main tactical approach seems to be merely slagging off perceived competition.

  • A Rosebank Ratepayer says:

    It’s concerning how the (particularly the white’s) commentariat’s expectations seem to be underpinned by a yearning for some kind of bureaucratic nirvana where all administrative procedures work perfectly and the legacy of South Africa’s past, particularly economic racial discrimination, is completely erased from consciousness, policy and practise.

    Appealing to mainly whites but completely unrealistic.

    Internationally, the pendulum of 70 years of relative peace, dominance of the US and the US$ and global economic cooperation is now swinging away to polarisation and economic realignment. It’s going to get tougher, no matter where you are, with the exception of possibly Oz and Canada.

    There needs to be a step change in people’s sense of possibilities, i.e. moving from Clem Sunter’s hedgehog to fox.

    This also applies to political parties, e.g. the DA. Some parts of it are foxy, arguable the more successful parts. Other parts are decidedly hedgehoggy – particularly its leader whose main tactical approach seems to be merely slagging off perceived competition.

  • Brandon VE says:

    BEE is state capture.

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