GDP decline mirrors tough terrain of Ramaphosa's political struggle

One could very well argue that the good performance of the South African economy in the final quarter of 2017 created unjustifiable expectations of a continuation of GDP growth into 2018. 

One could also argue that the onset of Ramaphoria should have propelled at least some momentum into our flagging economy. Instead, South Africa has been left with a 2.2% contraction, confirming the perilous state of the domestic economy. 

Should we really be surprised? Actually, no. While political change and an intention - as well as some practical manoeuvring - to reduce the rot left many in a state of cautious optimism, sentiment alone cannot drive GDP performance. 

The harsh reality is that Tuesday’s GDP figures represent precisely the decline of the last decade. A woeful policy environment, coupled with a deep infrastructural deficit caused by hapless and deceitful administration of state-owned enterprises (SOEs), has left almost every aspect of the body politic reeling. 

To expect this to be overturned within the matter of a few months was naïve for any commentator or analyst. 

South Africa has only just started its mother of all turnaround strategies, which will still ultimately depend on the state making some critical - and politically risky - choices in the future. 

At the centre of the troublesome choices for President Cyril Ramaphosa and his ANC is just how much will they allow the private sector to drive economic growth, or whether the often stifling regulations from those who believe in state intervention will prevail. 

As long as ideologically-infused developmentalism trumps competitive best practice in economic policy, South Africa’s GDP may be expected to continue its under-performance of its own emerging market and African peers. 

And there’s the rub: government can embark upon a well-intentioned re-booting of its SOEs and commit to better delivery while fighting corruption, but the structural changes in labour policy, privatisation and deregulation remain politically ensnarled in an ANC still grappling with how to run a modern economy in a global environment increasingly fraught with geopolitical turmoil, global competition for investment dollars and fickle foreign investors looking for the next best return on investment. 

The really sad part about these GDP figures is that they once again provide little hope to the poor that jobs and a better life are really around the Ramaphosa corner.

The figures are bad news for the new president, who will desperately need to show a statistical improvement in the country’s fortunes rather than just rely on sentiment to propel him to the 2019 election cycle. 

Ramaphosa himself should also have expected these figures. There would be little chance of improving GDP figures based upon the tax-heavy budget presented in that fateful week following former president Jacob Zuma’s resignation.

The 2018 Budget only contributed to the contraction in providing no stimulus whatsoever. Instead, South Africans are reeling from a series of indirect (and direct) tax increases which suck oxygen out of the consumer sector and dampen demands for good and services almost everywhere else.

Zuma legacy home to roost

The Zuma legacy of gross mismanagement has now come home to roost - and it’s a long haul to recovery. 

Even aside from the budget, the better fourth-quarter GDP figures in 2017 represented the advancements in the agricultural sector as it pulled away from the earlier drought years.

This agribusiness windfall was also distorted and as the sector assumes a more traditional component of GDP performance, so other sectors need to take up the slack – which, clearly, they have not. 

Now, we know agriculture is seasonal and therefore volatile in its overall macro-economic contribution. But what is particularly disturbing is our flatlining – actually contraction – in exports.

Our flagging manufacturing sector has been left to rot for more than a decade, with business-unfriendly policies denuding it of foreign demand and a reduced incentive to invest domestically.

Witness the falling investment in machinery and equipment, which signifies how little domestic incentive there is to build the productive sectors of our economy so potentially rich in job creation opportunities. 

So once again, despite political change, the domestic economy reflects little statistical signs of relief. And this is a precise reflection of the ongoing political and ideological straitjacket President Ramaphosa finds himself in.

Breaking free from the outmoded and outdated economic constraints large sectors of his own party promote is the only thing that will set South Africa free. 

And, given the fragile nature of his early months in the top job, any expectations of meaningful change are unlikely until such a time as Ramaphosa himself secures a real mandate to govern and in so doing, has the confidence to take tough political decisions.

To this end, Ramaphosa has to navigate the poisoned Zuma-induced chalice of deep deficits, dismal financial management across both local and provincial spheres and a party still deeply divided on just about everything – including (still), it would seem, even Ramaphosa’s presidency. 

At least the GDP figures inject a healthy dose of both political and economic reality into analysis of South Africa’s short-term future. The upward struggle for the new president remains political.

Unless he can change the narrative within his own party and tweak the ideological bonds towards modern-day best practice, we will continue to flatline – as our per capita income has shown for the last decade. 

Sentiment is good to have – and it is better to have leaders that are credible and trustworthy. But it’s not enough. The political wheels grind slowly in the ANC and Ramaphosa will soon have to take some real political risk – but perhaps only after he steers the ANC to a win next year.

  • Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. Views expressed are his own. Follow him on Twitter at @DanielSilke or visit his website.

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