Menu Close

Economic stagnation hastens poverty, inequality

Share This Article:

Picture: Armand Hough / African News Agency (ANA) / Taken on October 12, 2023 President Cyril Ramaphosa faces another grilling in the National Council of Provinces on, among others, whether he ‘deliberately misled’ the nation on the docking of the Russian Lady R vessel investigation, which found no wrongdoing.

By Bonke Dumisa

This was a very bad year for the South African economy, practically from all angles, and worst from a load shedding perspective as Eskom gave us 180 days of load shedding in the first half of the year, which means we only had one day of no load shedding in the first half of this year.

The second half of 2023 has been equally bad in terms of Eskom’s load shedding; with some people speculating that some of the recent Stage 6 load shedding we have had could in fact have been as high as Stage 8.

Is it not ironic that this year is the first year that South Africa has had a full-time Cabinet Minister in the Presidency responsible for Electricity, Dr Kgosientsho Ramokgopa? Speculation is that load shedding has already cost the South African economy more than R1.6 trillion in lost economic activity.

It is therefore not surprising that the three-quarterly GDP economic growth rates for 2023 are indicative of the bad economic environment we find ourselves in.

The GDP economic growth rates for the first three quarters of 2023 were 0.4 percent for the first quarter, 0.6 percent for the second, and a negative GDP growth rate of -0.2 percent in the third.

In most instances, almost all-important sectors performed badly throughout the year. These include the mining sector, the manufacturing sector, the agricultural sector, and even the retail trade sector.

The unemployment figures have been slightly encouraging though, mostly in relative rather than in absolute terms. We therefore saw the unemployment rates falling from 34.5 percent in the first quarter of 2022 to 32.7 percent by the fourth quarter of 2022; increasing slightly to 32.9 percent in the first quarter of 2023; but decreasing to 32.6 percent in the second quarter of 2023; and to 31.9 percent in the third quarter of 2023.

To those struggling to reconcile the lower unemployment rates with lower economic growth rates as I earlier said this is mainly in relative terms as South Africa tries to go back to pre-Covid levels. The country has had its fair share of economic sabotage and malicious criticisms from those countries who refuse to accept that South Africa has a right to hold its own positions on matters of global tension.

There are some countries, including the US, who have been unhappy that South Africa has refused to toe the line and join the chorus of those who support Ukraine and criticise Russia for its invasion of Ukraine since February 2022. South Africa has to-date publicly stated that it will not take sides.

The issue became sensitive from the beginning of the year when a lot of pressure was placed on South Africa not to allow Russian President Vladimir Putin to attend the BRICS summit, which was going to take place in South Africa, in August.

The anti-Russia countries wanted Putin to be arrested should he set foot here.

When South Africa refused to be bullied, the US and its allies resorted to the weaponisation of the dollar and the weaponisation of trade.

It was against this background that the US ambassador to South Africa, Reuben Brigety, dropped an unexpected political bombshell, in May, when he alleged that “South Africa was selling weapons to Russia”, and that arms were seen loaded onto the Lady R, a Russian ship at the Simon’s Town naval base.

A commission of Inquiry was set up by the South African government to probe the veracity of those allegations and they were found to be baseless.

This weaponisation of the US dollar saw it moving from R18.34 on May 9 to R19.19 by May 12. The US dollar remained above the R19 psychological barrier levels for the next four weeks to June 8, after the Russian president had formally announced that he was not going to physically attend the BRICS gathering in South Africa.

The same weaponisation of trade has been witnessed recently when South Africa refused to join the chorus of those who refused to condemn Israel for the atrocities against the Palestinians in Gaza.

All of a sudden there was “fake” negative news about certain countries, including France, who presumably said they would pull out of South Africa. France has since distanced itself from such reckless pronouncements.

The South African government has maintained a tight fiscal and monetary policy this year in trying to ensure that the country is not pushed to worse inflation levels, as we have seen globally. It is against this background that we started this year with the repo rate at 7 percent, which the South African Reserve Bank raised to 7.25 percent on January 26 and further raised to 7.75 percent on March 30; and again, raised it to 8.25 percent by May 26.

The Reserve Bank is crediting itself for lowering inflation rates which reduced from 7.2 percent in December 2022 to 6.9 percent in January 2023; back up to 7.0 percent in February; back up to 7.1 percent in March; down to 6.8 percent in April; 6.3 percent in May; 5.4 percent in June; 4.7 percent in July; back up to 4.8 percent in August; back up to 5.4 percent in September; and back up to 5.9 percent in October.

It is worth mentioning that the Reserve Bank has kept the repo rate at 8.25 percent since May.

Many expected this year’s Medium-Term Budget Policy Statement to show how committed the government is to its cost-containment strategies. These are strategies its critics call “austerity measures”.

This being the year before national and provincial elections, it was not unexpected that the principled cost-cutting stance of the government was going to be compromised somehow, hence there were no surprises when the government gave salary increases of above 7.5 percent to its many public servants, which is highly inflationary.

They also had to provide government guarantees and bailouts to some State-Owned Entities, which proves that the South African government is still easily blackmailed by its voting constituencies.

Prof Bonke Dumisa is an independent economic analyst