South Africans have been seeing economic policy mismanagement and dithering that sapped the confidence of business to invest and led to most economic and fiscal indices pointing in the wrong direction.
While everyone else was looking for measures to curb the decline, Zuma decided to throw fuel on the fire by firing Nhlanhla Nene. The reasons given for his dismissal and replacement by David Desmond van Rooyen were unconvincing.
As expected, the rand crashed through the psychologically important barrier of R15 to the dollar, and then on to the hitherto unthinkable R16/$. Banking stocks lost up to 10% of their combined market capitalisation upon the news.
Since Zuma ascended to the presidency in 2009, unemployment has risen from 23% to 25%. Youth unemployment — the anchor of his electoral promises seven years ago — has increased from 33.7% to 35.5%.
The 5 million jobs he and the ANC promised in 2009 have failed to materialise. The target was always a pipe dream to start with, considering such an achievement was expected just when the global economy was desperate to fend off a recession.
During his term, the biggest growth in employment has been in government employees. The public service now accounts for nearly 60% of the government’s budget expenditure.
His enlarged Cabinet has employed more bureaucrats who have been unable to produce the economic growth his allies on the left promised when they rejected former deputy finance minister Jabu Moleketi’s discussion document on the economy in 2007. The contingency reserve, money the Treasury appropriates for rainy days, has been depleted to pay higher-than-expected public servant salary increases.
The weak economic growth is not for lack of trying. Zuma’s government has borrowed and spent more money than at any point in the past decade. While over R750-billion has been for infrastructure, industrial policy interventions have tended to be defensive to reduce retrenchments rather than create new jobs.
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Debt service costs are now the fastest-growing national expenditure item at 10.1%. When contingent liabilities, (debt owed by state-owned entities guaranteed by the Treasury) are taken into account, the debt-to-gross domestic product (GDP) ratio, at more than 60%, is at levels last seen in the 1990s, when SA was saddled with apartheid-era debt. The economy is growing at a snail’s pace, a galaxy away from Zuma’s target of 5.4% contained in the National Development Plan (NDP).
SA will be lucky if the economy grows at anything higher than 1.3% in the coming years. The growth rate has been revised downwards for all but one of the seven years that Zuma has been in charge.
Constraining the economy are a multitude of factors, some beyond the short-term control of Zuma’s government.
The European Union, SA’s second-biggest trading partner, is going through a period of close to zero growth. The combination of this with China’s contraction has dented SA’s exports, while imports have accelerated.
The current account and trade deficits have the effect of corroding the value of the rand, which in turn puts pressure on dometic producers at a time when energy and labour costs are rising fast.
“The economy is sick,” Zuma was forced to admit in August. The inevitable admission came a week after second-quarter GDP data showed a 1.3% contraction. The threat of a recession loomed large.
A visibly exasperated Zuma went further than this admission, imploring business and unions to work together to save jobs and grow the economy. This was a far cry from the bravado of “state-led growth” in the chorus that his supporters sang at every opportunity.
Back in 2009, Zuma seemed to have played his political hand perfectly. Everyone, it seemed, was overjoyed at his executive appointments.
Fast-forward seven years and almost nobody is happy — including Zuma and his ministers. They have been engaged in several verbal skirmishes with their stakeholders, and the promise of an economic utopia that rains jobs has long diminished into a bitter drought as far as opportunity is concerned.
Business confidence has slid, while workers and communities are still up in arms. Cosatu remains steadfast in its rejection of the NDP’s economic policy propositions, such as gradual wage growth rather than a national minimum wage.
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The essence of the grievance against “Mbekonomics” was that the pillars of its programme were anti-poor.
Mbeki’s ANC had a thesis that sought to grow the middle class and placed a premium on economic sovereignty as a key pillar of the country’s political sovereignty. Its fatal flaw was that real investment in the economy was always outpaced by portfolio investments which are prone to developments in other markets. The coveted job creation simply never met expectations, not in the least. “We knew we had to reduce our national debt and debt-servicing costs in order to prevent a scenario where, like many African states at the time, we became mere clients of Bretton Woods institutions. We could, therefore, chart our own policy path without someone in Washington dictating to us,” an Mbeki-era cabinet minister said last month.
SA did this to great effect. The quantum of debt was reduced, GDP growth benefited from a buoyant global economic environment, ensuring that the debt-to-GDP ratio improved significantly. This shored up SA’s credit rating, guaranteeing better lending rates.
Net loan debt grew slowly from 1999 to 2008 — the Mbeki years. It climbed from R442-billion to R526-billion in the six years between 2003 and 2009, a growth of 19%. Debt service costs during the period grew from R46-billion to R54-billion — 17%. The global financial crisis in 2008 and subsequent recession meant that the government could boost expenditure on infrastructure and other industrial incentives to stimulate the economy.
Too much borrowing with slow GDP inverts the debt ratios, potentially leading to higher cost of debt.
SA’s tax revenue has always lagged behind its borrowings. In an economy with ever-declining growth, the revenues will start flattening and drop at some point.
Key expenditure items such as public service wages, administrative costs and social spending have gone up, some with good results. Infant mortality is declining. Access to antiretrovirals has improved vastly, while the social safety net has prevented starvation for millions.
After six reshuffles and a progressively worsening economy and fiscal position, Zuma may have run out of aces. Far from factions and foreign agents conspiring against him, his biggest challenge — the economy and the honey it is no longer able to produce — may be his undoing.
The Zuma administration’s inherent policy contradictions have therefore ruined the economy. Some policy options, such as in mining and tourism have been catastrophic.
It is ultimately this, Zumanomics that may unravel the economy.
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Dudu Myeni’s reappointment as SAA chair person, Hlaudi Motsoeneng appoint at SABC against court order, dispute with Treasury, the Guptas, nkandla, fees must fall issues are all happening in the space of few months under jacob zuma’s watch. All these have left SA economy in a mess.
His Cabinet employed more bureaucrats who have been unable to produce the economic growth his allies on the left promised when they rejected a discussion document on fixing the economy.