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The economy: is South Africa headed for its 'Tunisia Day'?


In the twenty years since South Africa's democracy in 1994 the GDPs of emerging markets and developing countries like Brazil, India and Turkey increased on average by 115% while South Africa managed only 33%.

Until 2008 the world’s economic growth expanded for a record period, but South Africa lagged behind, unable to capitalise on demand for the country’s resources and exports. The average growth for the past 20 years has been 3.1%, far below the 5% to 6% required to create employment. Growth for 2014 has been revised downward to 1.4%, in the range where it has been for the past 5 years, last seen in the late nineties.

Corruption is conservatively costing the country R30 billion a year – it’s probably twice that – and wasteful expenditure R22 billion. Add the stupendous cost of consultants because government workers are unable to do the jobs they are paid to do, annual billion rand bail-outs of national airline SAA (the ANC cadre-deployed board, since resigned/fired, has no airline experience), Eskom and SABC, and unnecessary, irregular, fruitless and wasteful spending is – anybody’s guess – close to R100 billion a year. This is about 10% of the revenue government collects each year – R900 billion or so.

Government spending as a percentage of GDP has rocketed to 46% because of the bloated public service – the most expensive in the world – which is growing year on year, and who are demanding a 15% wage increase, more than double inflation.

Government salaries as a percentage of GDP are 14% (R14 of every R100 the economy generates), and 30% of the total non-farm payroll. Government workers earn between 21% and 30% more than their private-sector peers. Social welfare grants of R390 billion and government salaries combined consume 56% of state revenue, leaving 44% for all the rest.

For this South Africa gets a very poor return – an incompetent, poorly skilled, corrupt, unproductive, voracious and failing public service. If we add the cost of doing business in South Africa – red tape, black economic empowerment levies (free lunches for the politically connected), affirmative action, labour levies and taxes – which add nothing to competitiveness, productivity and new opportunities, it’s no secret why the economy cannot grow more. If we take the multiplier effect and opportunity cost, the knock-on effect on GDP growth – counting other problems in the economy like strikes and Eskom blackouts – is significant, perhaps a loss of 10%.

Because of these entrenched problems, South Africa is unable to achieve meaningful growth to create employment, never mind keeping the economy out of recession or negative growth. The expanded – or real – rate of unemployment is 36% (official unemployment is 25%, which excludes discouraged job seekers).

The Department of Labour’s Annual Labour Market Bulletin (October 2014) reports the country’s labour absorption rate is a stagnant 43%, well below the international average of 60%. The absorption rate is the economy’s ability to absorb job seekers or create employment. South Africa has 20.1 million economically active people, and growing. In the last financial year Labour recorded 607 229 new job seekers, of which only 2.5% were placed. Job creation is falling far, far short of demand.

Economists and analysts continually warn the country is on a “knife edge”. Ratings agencies confirm this assessment by rating South Africa’s investment rating to Baa2, two notches above junk status, due to poor growth prospects and rising public debt – debt-to-GDP and the budget deficit.

The poor and working class are angry, frustrated and have lost patience because their lives haven’t changed. The middle class are resentful because their taxes are being wasted and the state is malfunctioning, and young blacks, who because of an “absolutely disastrous educational system, have no realistic prospect of ever getting a good job or a decent life”.

Last year analyst Max du Preez wrote “South Africa is beginning to feel the cumulative effect of all our failures and follies”.

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