Max du Preez

Prepare for the coming economic storm

2015-08-25 08:13

Max du Preez

The South African middle classes will have to take note of the imminent economic crisis that could cause much hardship, even destabilisation.

Ordinary citizens aren’t normally much interested in economic analysis and projections, but in this case it is in their own interest to at least understand the basic trends and developments so that they can prepare for the coming storm.

China’s economic growth has been weakening significantly in recent months. This has a direct impact on South Africa, especially because this is driving commodity prices lower – China is the world’s biggest consumer of raw materials. The country is also South Africa’s biggest single trading partner.

The indirect impact of China’s economic woes is that it has a negative influence on the global economy. Already there are predictions of a chain reaction and even a new global recession if China can’t quickly revive its economy.

China is the second biggest economy in the world.

Emerging markets such as South Africa usually get hurt most by global economic glitches. Our currency is already weakening to record lows.

Job losses

Lower commodity prices and competition between trade unions that are destablising the labour market can in the months ahead result in about a hundred thousand job losses in the mining, steel and manufacturing sectors.

In the South African reality this could mean that around a million people will be affected, because the typical worker in these industries have up to ten dependents.

The hardship of these people will affect everyone in South Africa, including business.

Analyst and commentator Moeletsi Mbeki famously warned four years ago that South Africa will face its “Tunisia Day” (the beginning of the Arab Spring) when China concluded its minerals-intensive industrialisation phase that had forced up the price of South Africa’s minerals.

We can’t blame China for all our problems, though. South Africa’s economic growth had already faded to less than one percent in 2015 as a result of the severe energy crisis, labour problems, investor reluctance, corruption, maladministration and wrong policies.

If these trends continue, the growth in the economy could decrease to close to zero by the end of next year.

Simmering anger

This economic decline couldn’t have come at a worse time for South Africa. There is a simmering anger among the unemployed, the workers and even the black middle class that poverty and inequality have persisted and that the pace of economic transformation has been painfully slow.
This manifests in increasing aggression, confrontation and even distabilisation.

The state simply can’t afford the plasters any longer that had so far been put on these sores.
We’re not the only country facing an economic crisis, but our government seems to be less able and willing than most others to navigate through the storm.

The discussion documents released by the ANC last week indeed warn against weak economic growth and raised expectations. But they are low on real solutions, mostly arguing for faster “radical economic transformation” and a stronger role for the state in the economy.

At least it appears that some state departments realise the importance of talking with the business and mining sector about ways to ameliorate the impacts of mass lay-offs by providing soft landings, training and alternative job opportunities.

It is high time the private sector tried much harder to get through to government and to play a more pro-active role in dealing with our serious challenges.

Time for cool heads

How should you and I, the ordinary middle class citizens, prepare for the tough times ahead?

It’s definitely not a time to live extravagantly or to get deeper into debt. It is time for consolidation and to get one’s house in order, financially and otherwise.

At the same time, paralysing negativity and wild prophecies of doom won’t help even a little bit. It is time for cool heads and a good understanding of the prevailing dynamics and undercurrents in South Africa’s politics and economy.

Unhappiness in one’s personal life undermines one’s ability to survive trying times. If the boat you’re sailing in is without leaks and has a reliable engine, your chances of getting to the other side of the storm in one piece is much greater.

I think people should start paying extra attention to their personal relationships, family life and friendships; they should ponder the ways they relate with their communities and the rest of society; and they should care about their own physical and spiritual health.

But we shouldn’t retreat so far into our cosy corners that we desist from having our voices heard and push back against those who are toying with our future, whether they are politicians, mine owners or business leaders.

- Follow Max on Twitter.

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