WEF predicts a bleak picture for SA’s economy

The World Economic Forum (WEF) recently released its Global Risks Report 2022 and for the South African economy it painted a gloomy picture.

The prolonged economic stagnation, employment crisis, state collapse, failing public infrastructure and proliferation
of illicit economic activity, the report suggests, poses a real threat to the future wellbeing of South Africa. The risks are real. For example, over the last decade, GDP failed to exceed 2% year-on-year growth and unemployment, at 46,6%, is at an all-time high.

Youth unemployment stands at a staggering 66,5%. This against the backdrop of a weak fiscus. The tax base is shrinking. A mere 5.8% of the population pays about 92% of all personal tax, and 85% of all VAT. This threatens government’s social spending sustainability. Gross debt stands at 72% of GDP, projected to rise to 83% by 2026.

Moreover, about 60% of the budget is spent on public servant salaries and debt servicing alone. Thus, there is little fiscal space for desperately needed economic infrastructure development and the improvement of social conditions. The WEF also identified social cohesion erosion as a top short-term threat for SA.

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The Inclusive Society Institute’s (ISI) own research reveals that only 15% of South Africans believe the country is moving in the right direction; about 12% of skilled and high-income earners are considering emigration; and nearly two-thirds distrust immigrants. A third of all South Africans believe personal security is declining. And there is worrying inter-racial distrust and political intolerance – all of which pose risks to social stability.

The picture is one of despondency. But the ISI is not convinced that it’s game over for South Africa. There is sufficient resilience and goodwill available that can be tapped into to turn the economy around. Increased vaccination rates have, for example, helped weather the omicron wave, which has inspired hope for the further
relaxation of remaining restrictions as people learn to co-exist with the virus. This will give impetus to the economy.

So, too, are current commodity prices buoyant, and drought conditions have receded, leading to the mining and agricultural performance exceeding expectations. And wider global recovery augurs well for SA to continue to benefit from improved trade. As a result, tax revenues have exceeded projections, which has contributed to reducing liquidity challenges, although it remains a longer-term constraint.

With this in mind, the ISI calls for a national economic compact, a commitment, aimed at bringing about conditions conducive for growth. A compact between business, labour, government and civil society, where the rules of the game for the foreseeable future are agreed.

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This may, in the national interest, require a temporary stepping back from existing rights and demands, such as labour’s insistence on above-inflation salary increases; a temporary solidarity tax to fund economic infrastructure despite businesses’ aversion to higher taxes; a breather on the introduction of further government interventions that reduce the ease of doing business; a commitment to short-medium term policy certainty, capable of pacifying
investors around the security of their investments; and the on-boarding of civil society to support the compact.

Such concerted action may require some actors to pause short-term or subordinate objectives for the greater good.
Post-WWII and after re-unification, this approach was followed in Germany with great success. What is clear is that the SA economy is in crisis.

Business as usual, the institute cautions, will inevitably realise the risks identified by the WEF. The need to get direction is urgent.

Swanepoel is the CEO of the Inclusive Society Institute, an autonomous and independent institution founded to support and deepen multi-party democracy.