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South Africa can no longer afford to focus on consumption

2019-05-23 16:13
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Financial data analysis graph over world map.

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South Africa can simply no longer afford the ANC government's focus on consumption. ANC politicians have consumed everything, including the future of the children of South Africa, writes Jannie Rossouw.

In assuming the Presidency of South Africa for his first full term after the elections of May 8, 2019, Mr Cyril Ramaphosa faces nearly insurmountable challenges. Lesser people would have declined the position, given these challenges. 

It does not take a genius to compile a long list of everything that is wrong in South Africa and needs to be fixed in the next five years of Mr Ramaphosa's presidency. It remains to be seen whether the damage of the Zuma administration can indeed be undone within five years, given the grip of corrupt cadres on the political and economic systems of South Africa.

Dealing decisively with steps to eradicate corruption must therefore be high on Mr Ramaphosa's list of priorities. The focus must be on the eradication of corruption in the ruling ANC government and more generally at all levels of civil society in South Africa. This entails not only legal action against corrupt politicians and civil servants, but also against corrupt business leaders such as Mr Gavin Watson of Bosasa and Mr Markus Jooste of Steinhoff. The mere fact that these two people have not yet been charged with anything, shows everything that is wrong with the National Prosecuting Authority.

However, the most pressing challenge facing Mr Ramaphosa after his inauguration is the appointment of a new Cabinet. While most South Africans agree that the country requires a smaller Cabinet, it is also necessary to appease all factions in the ANC and the tripartite alliance in Cabinet appointments. To achieve these two objectives simultaneously will require considerable skill and finesse.

At the same time, Mr Ramaphosa must consult on three strategic appointments or reappointments at the SA Reserve Bank. The vacancy left by the resignation of Deputy Governor Francois Groepe must be filled, while the terms of office of Governor Lesetja Kganyago and Deputy Governor Daniel Mminele expire in the near future. The reappointment of Messrs Kganyago and Mminele will appease investors and financial markets. This will maintain financial stability and reinforce certainty about South Africa's monetary policy focus.

It is important to remember that South Africa is a serious little economy in world terms and the largest economy in Africa. By size, South Africa is the 26th largest country in the world, while the country's population places it in 25th place, with 0.75 per cent of the world's population.

However, South Africa ranks only 32nd in terms of gross domestic product. The implication is clear: The Ramaphosa government must adopt economic policies that will stimulate growth in economic output to grow South Africa's economy to a level commensurate with the country's land and population sizes. Such an improvement in economic ranking will make inroads into South Africa's unemployment problem.

Economic recovery in South Africa will help to restore the country's position as the gateway for investments in Africa. It will also serve as rejustification of the country's roles in the international arena at institutions such as the Security Council of the United Nations and the G20 international forum for the governments and central bank governors from 19 countries and the European Union.

Higher economic growth in South Africa requires a complete change of the government's policy focus. Mr Moeletsi Mbeki, a political commentator, identifies consumption as the current policy focus of the ANC. This is evident from aspects such as the sharp increases in Cabinet positions, civil service remuneration and social grant payments.

South Africa can simply no longer afford the ANC government's focus on consumption. ANC politicians have consumed everything, including the future of the children of South Africa.

Growth in consumption has pushed South Africa closer to the fiscal cliff. The fiscal cliff is the point where civil service remuneration, social grant payments and interest on government debt account for all government revenue. Owing to the focus on consumption, these expenditure items increased by 15 percentage points to 70% of government revenue over the past decade.

With subdued economic growth at a level lower than the population growth rate, the only way to fund continued consumption is by means of wealth redistribution. It is therefore no surprise that the policy focus of the ANC has in recent years increasingly focused on such redistribution.

It is therefore vital for the ANC to refocus its policy objective from consumption to investment and accumulation. To restate: Under Mr Ramaphosa's leadership, the ANC should focus considerably more attention on saving and investment which will sustain accumulation, rather than consumption. However, this is only possible in an environment of rapid economic growth, which will require considerable political attention in the next five years.

- Jannie Rossouw is head of the School of Economic and Business Sciences at the University of the Witwatersrand.

Disclaimer: News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.

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