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President Cyril Ramaphosa met with Christine Lagarde, International Monetary Fund’s Managing Director who is in the country as part of IMF head Africa trip. (Pic: GCIS)
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In the absence of a credible opposition party with sufficient electoral power to challenge the ANC, perhaps the IMF is best placed to help the ANC to discover 21st century economic consciousness, writes Ayabulela Dlakavu.
In recent weeks, economists and political
analysts alike have deliberated on the state of the South African economy. Such
deliberations come against the backdrop of dwindling state revenue, the collapse
of state-owned enterprises, weak investor confidence in the South African
economy, a weakening rand, rising food prices and unprecedented unemployment.
These alarming economic trends have raised
concern that South Africa may be heading towards the direction of a bailout
from the International Monetary Fund (IMF), an institution maligned for its
reputation of compromising a borrowing state's policy and governance
Much has been written about the conditions of IMF
loans, not least because they tend to compel the borrowing state to adopt
structural adjustment policies that are neoliberal in nature. Examples of
policies typically imposed by the IMF include balancing the national budget,
removing state subsidies, privatising state enterprises, liberalising trade and
currency policy, and removing barriers to foreign investment and capital flows.
Such structural adjustment policies are intended to stabilise the borrowing
state's finances and to place it on a path of economic growth.
Unfortunately, the IMF's austerity policies
tend to bite hardest on the poorest sections of society, because they include
policies such as the removal or reduction of social programs that often cushion
the poor. Other IMF structural policies include a reduction in state
expenditure on healthcare, as well as a removal of subsidies on energy,
education and childcare. While such austerity measures help to balance the
state's finances, they unfortunately result in a higher standard of living in
an already depressed economy.
As a social welfare state, South Africa's
working class would bear the brunt of the hardships that would result from
reduced state spending if the state turns to the IMF for a bailout. An IMF
bailout in South Africa would likely result in the unfortunate cutting of
healthcare expenditure, including the ARV program that has helped to manage the
HIV/Aids epidemic in the country. Second, a reduction in state subsidies on
basic goods would result in an increase in food and energy prices, causing many
South African households to slip into an already flooded poverty bracket.
Despite these grim possibilities, an IMF
intervention could be the silver lining that redirects South Africa to its
developmental path. IMF policy prescriptions will firstly solve the primary
issue of policy uncertainty that deters domestic and foreign businesses from
investing in the South African economy.
The governing ANC's inability to formulate and
implement coherent development policies since 1994 has been tragic, and has
hampered South Africa's socio-economic development potential. A combination of
government policy certainty and South Africa's relatively developed economic
infrastructure and financial sector could have propelled the country to high
levels of economic growth on par with the emerging economies of East Asia.
However, that opportunity has been lost as a result of ANC indecisiveness that
partly stems from its alliance with ideologically different political and
labour formations (SACP and Cosatu). The IMF could liberate ANC from policy
uncertainty, thereby opening the door to foreign and domestic investors that
have long been attracted to Africa's most diversified economy.
The gradual return of investor confidence could
then have the ripple effect of resuscitating economic sectors that have
collapsed as a result of poor economic policies. The mining, manufacturing and
construction sectors are two such sectors that could be revived by the adoption
of prudent and rational economic policies. These sectors are labour intensive, interdependent,
and have significant employment generating capacity that can help reduce the
unacceptable 30% unemployment rate.
Lastly, the IMF can compel the ANC government
to confront the difficult policy choice between rational and populist policy
choices. One of the reasons why South Africa's economy has stagnated is the ANC's
flirtation with populist policies, particularly nationalisation policies and
unclear policies on land.
South Africa is not self-reliant when it comes
to investment into the economy, and this vacuum is naturally filled by foreign
investment. Foreign investors by default require legal protection of their
investment from government. When a governing party, or factions of a governing
party, threaten nationalisation of businesses, this inevitably sends investors
into panic – and they end up disinvesting from the economy.
As a party that has governing experience of 25
years, the ANC ought to know that disinvestment is a 21st century
challenge to its historic mission of achieving the elusive National Democratic
Revolution. Marred by ideological and careerist factionalism, the ANC appears
incapable of making sound economic policies. In the absence of a credible
opposition party with sufficient electoral power to challenge the ANC, perhaps
the IMF is best placed to help the ANC to discover 21st century
Should the South African economy continue its
regression, there might be nothing left to nationalise nor expropriate.
Difficult and rational policy choices need to be taken to stabilise the South
African economy. The IMF could be the harsh, yet necessary, answer.
Dlakavu is an independent political analyst and Political Studies PhD Candidate
at the University of Johannesburg. He possesses a Bachelor of Arts in Political
Studies (cum laude), a BA Honours in
International Relations (cum laude)
and a Master of Arts in Political Studies.
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