[Opinion] Commitment to misguided policies limits SA’s growth

The South African economy grew by 1.9% quarter on quarter in 1Q 2022, compared to 1.4% in 4Q 2021, and has returned to its pre-pandemic (2019) levels. GDP is estimated at R4.6 trillion in 1Q 2022, up by R88 billion from 4Q 2021. Meanwhile, gross fixed capital formation — fixed investment — grew by 3.6%. The wider context of these numbers, however, is the very low base of the last two years. The first quarter’s numbers are therefore a rebound, and not necessarily an indication of a serious turnaround in the country’s fortunes.

Bheki Mahlobo, Senior Analyst at the Centre For Risk Analysis (CRA) noted, “The growth in GDP in the first quarter of this year is not a signal of a recovery taking place. It must not be forgotten that South Africa entered a decade-long period of low growth from 2009, whereby GDP growth struggled to surpass 2%. A rebound to 2019 levels just means that South Africa has now gone from a deeper contraction due to the Covid-19 restrictions, to one of economic stagnation.”

Mahlobo added, “Further signs of a lack of a recovery are seen in employment figures — the number of people with jobs is still about 1.5 million lower than it was in 2019, which sets South Africa apart from other emerging and developed economies, where employment levels have recovered to pre-pandemic levels.”

Chris Hattingh, Senior Policy Analyst at the CRA, pointed to the cap on growth imposed by the country’s chosen ideological and policy path, saying, “South Africa’s recent attempts at structural reform tinker at the margins and do little to resolve barriers to investment and employment, especially regarding labour markets.”

Hattingh pointed to the surface-level ‘reforms’ in energy and trade, “In the area of energy, the process to obtain a permit to establish a private project generating up to 100MW of electricity is hobbled by bureaucratic obstructions. In the area of trade, private investment, and upgrades to ports and rail networks are discouraged by delays, as well as caveats in the reforms which mean that state-entity Transnet will retain custodianship of rail infrastructure. Such potholes in policies ensure that serious capital outlays are effectively discouraged.”

With policies such as expropriation without compensation (EWC) still very much on the table, cost-increasing Localisation Master Plans being implemented, and the Employment Equity Amendment Bill on the President’s desk, South Africa is at risk of sinking further into the low-growth trap.