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The Big Debate


B


The Conundrum Of Growth


Writer Fiona Zerbst


What will it take to boost South Africa’s economic growth and create meaningful employment? Gradient explores the challenges through the eyes of four leading South African economists


The story of South Africa’s economic growth has been disheartening. One could argue that the country has struggled to bounce back since the global financial crisis in 2007 and 2008 but, in truth, many of our problems are internal.


The past decade – referred to by some as our “lost decade” – has been characterised by negative or weak growth. This is partly due to international conditions, but also because our key economic policies – the Growth, Employment and Redistribution (GEAR) strategy, the Accelerated and Shared Growth Initiative for South Africa (ASGISA) and the National Development Plan (NDP) – have failed to deliver as promised. The primary beneficiaries of these policies appear to be the wealthy, who have become wealthier, a fact which has led to increased scepticism around neo-liberal economic policies as a whole. Politics has played a major role, too, with everything from policy uncertainty to state capture undermining our performance as a confident, young democracy.


These problems have cost us dearly, not only in terms of a loss of goodwill and investor confidence, but also in terms of all-important development. Last year’s recession was a particularly low point for the country’s morale – gross domestic product (GDP) declined by 0.7% during the first quarter of 2017 after having contracted by 0.3% in the fourth quarter of 2016. It rebounded by 2.5%


during the second quarter, thanks to agriculture, which contributed 0.7% of a percentage point to GDP growth as it bounced back from the worst drought in 30 years (mining contributed 0.3% of a percentage point).


Since then, however, there have been reasons for cautious optimism. President Cyril Ramaphosa has ushered in a new dawn and his market-friendly policies appear designed to woo investors. In late March 2018, the country managed to avoid a further credit rating downgrade from global ratings agency Moody’s on the strength of the reappointment of Nhlanhla Nene as Finance Minister and a solid national budget which took some difficult decisions, such as increasing VAT. Another rating agency, Standard & Poor’s, has forecast GDP growth of 2% in 2018, up from 1% last year (the National Treasury forecast is a more moderate 1.5%). Growth of 2.1% is expected for 2019, improving on a previous forecast of 1.7%.


All this suggests that we are moving in the right direction to create the right climate for growth. But unless we can correct structural inequality and promote inclusive growth, our efforts are likely to fall flat. Although there is a positive correlation between GDP growth and employment growth, the phenomenon of jobless growth is worth noting – when employment growth fails to keep pace with GDP growth. As Lorenzo Fioramonti has


pointed out in his book, Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (Zed Books): “GDP is a measure of market production, though it has often been treated as if it were a measure of economic wellbeing”; and as Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi pointed out in their 2009 Report by the Commission on the Measurement of Economic Performance and Progress: “Conflating the two can lead to misleading indications about how well-off people are and entail the wrong policy decisions.”


Another misconception is that growth in the financial markets reflects growth in the real economy, although there is a link between the two. Studies such as the World Bank’s 2011 Financing Africa Through the Crisis and Beyond report have shown that countries with well-functioning financial systems see poverty levels drop more rapidly than those without strong financial systems. It is the real economy that determines how many people are employed, how many goods and services are bought and how much investment flows into the country.


Financial markets facilitate the flow of capital, which is all well and good, but the real activity is often driven by secondary financial markets. So although it was good news that the financial markets responded favourably to the appointment of Ramaphosa, it was largely an expression of sentiment – a forward-


Gradient Issue 2 19


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