Mushtak Parker
London - The history of economic policy in South Africa over the past two centuries shifted from white colonial robber baron laissez faire imperialism to neo-liberal economic orthodoxy with minimal state intervention – both of which marginalised and brutally dehumanised the majority black population.
This was true during British colonial rule and the nefarious apartheid capture of the South African state based on a curious mix of race-based supremacist policies and a neo-Keynesian dispensation whose very ethos was to promote and preserve white privilege and control over political and economic governance.
Almost 30 years into the post-apartheid democratic dispensation, President Cyril Ramaphosa is now championing a new “bottom-up” economic vision for the country. The ethos seems to be unsustainable welfare spending to stimulate consumption in the hope that it “supports economic growth from the bottom up, enables business activity, and strengthens social solidarity and stability”.
The notion that a country can spend itself out of socio-economic adversity through welfare handout maximisation leading to a consumption-driven recovery is the stuff made of “Mickey Mouse” economics, and is devoid of reality.
American presidents have been tempted to follow this model during times of crisis, suggesting people spend the money on vacation in Disney land. Instead of stimulating economic growth it merely bloated the profits of Disney.
Social security recipients may of course decide to save in times of crisis as is normally the case rather than splash out as Ramaphosa envisages.
But what lies behind the ANC government’s oversimplistic (some would say delusional) view of South Africa’s “world-renowned social protection system”? It can’t be the stigma of the failure of the stewardship of the economy by Ramaphosa and his predecessor Jacob Zuma.
Only a fortnight ago in his Human Rights Day speech, Ramaphosa acknowledged “the failure to provide adequate services consistently” in education, housing, water, sanitation and electricity services, access to health care, and so on.
It can’t be the mantra of fiscal discipline, the prudent steering of the economy and growth and investment opportunities purveyed by Finance Minister Enoch Godongwana at IMF meetings, the World Economic Forum and in the Treasury’s post-2023 Budget global investor calls.
In his response to S&P Global Ratings revising South Africa’s credit rating outlook to stable from positive in March, he acknowledged that “higher growth and a durable recovery in economic activity require a stable macroeconomic framework, complemented by rapid implementation of economic reforms and improved state capability”.
As such, it can’t be the apparent policy contradictions of the president and his finance minister.
If we consider the UK and Scandinavian models of welfare states, these are based on functional social security rights and payments on a universal coverage basis, and are paid for by high and redistributive tax regimes and national insurance.
And they are underpinned by the belief that these serve as a safety net for those less fortunate and those temporarily afflicted in society.
Even these models can be tempered by ideological differences. Look at the economic austerity policies adopted by 13 years of UK Conservative Party rule, where social security benefits have been decimated and increasingly means-tested, social and education grants abruptly stopped, and the National Health Service brought to its knees because of chronic under investment and creeping privatisation through the outsourcing of some services to private contractors.
Ramaphosa’s “bottom-up” economic policy, in contrast, rejoices in the fact that the number of South Africans receiving the Social Relief of Distress Grant (SRD), first introduced in 2020 in response to the coronavirus pandemic, has increased from 2.5 million in 2019 to more than 18 million people today. In addition, more than 2 million indigent households also receive free basic water, electricity and solid waste removal services.
Translated into real economy figures, Godongwana in his 2023 Budget allocated R378.5 billion in social development spending through a range of SRDs, which is higher than the country’s R340.5bn debt service costs.
This must not distract from social spending in line with inflation for the old, the disabled, vulnerable, disadvantaged, and social security and child credits, which is the bedrock of economic transformation.
It is the additional and new areas of grants being handed out to other groups ostensibly over the past two years that is fuelling the disequilibrium in state finances.
In South Africa indeed the right to social security is explicit in the Bill of Rights, aimed at providing a social wage to the indigent and to address inequality in income and access to all segments of the economy. This is a commendable vision for any self-respecting democracy.
But it has to be balanced between the burden of affordability of the state coffers and therefore the future sustainability of the policy itself, and the danger of inculcating a culture of state dependency that some may perceive as an entitlement irrespective of rights.
Instead of lifting people out of poverty and stimulating growth and job creation, it could open a Pandora’s Box of increased claimants and dependents, especially if the Treasury fails to deliver on growth, revenue and wealth creation, and the incidence of benefits fraud increases because of organised crime and corruption.
Godongwana in his 2023 Budget projected the country’s spending burden to increase from R2.1 trillion in 2022/23 to R2.4 trillion in 2025/26 against a revised revenue figure of R1.8 trillion to R2.2 trillion in the same period, which leaves an estimated rising budget deficit over the next three years.
Gross debt stock is also projected to increase from R4.73 trillion in 2022/23 to R5.84 trillion in 2025/26.
The higher the debt, the higher the debt-service costs.
An IMF team led by Papa N’Diaye precisely warned about this in their concluding statement following a two-week visit to South Africa in March as part of the Fund’s Article IV consultation with Godongwana and his officials.
“South Africa’s public debt,” observed the IMF, “is among the highest in emerging markets and is set to continue rising on current policies.
“This leaves limited fiscal space to respond to adverse shocks, including from contingent liabilities from SOEs, social spending needs, and climate events. It also exposes the government to increasing borrowing costs, diverting limited resources away from more productive capital and social spending.”
The optics of the country’s socio-economic metrics simply do not match the grandiose aspirations of Ramaphosa’s “bottom up” economic model.
South Africa’s economic and social challenges, says the IMF, are mounting, risking stagnation amid an unprecedented energy crisis, increasingly binding infrastructure and logistics bottlenecks, a less favourable external environment, and climate shocks.
Real GDP growth is projected to decelerate sharply to 0.1% in 2023 mainly due to a significant increase in the intensity of power cuts, as well as weaker commodity prices and the external environment.
This on the back of already high poverty and inequality, exacerbated by record high unemployment, a deteriorating fiscal balance through FY25/26, reflecting the Eskom debt relief operation (which entails a capital transfer), continued transfers to other loss-making SOEs, spending on the SRD grants, and increased interest payments.
The historical legacy of apartheid aside, what threatens social cohesion is unfettered public debt, which is estimated to reach 70% percent of GDP at end of FY22/23, a rigid labour market, and governance and corruption vulnerabilities.
All these significantly limit the fiscal space available to respond to economic and climate shocks and meet social and developmental needs.
The best way to protect largely well-targeted social spending and productive public investment is to improve spending efficiency across the board, pressing ahead with structural reforms and through fiscal discipline, which according to the Fund over the long term “will maximise the returns on capital and social spending”.
Ramaphosa’s “bottom-up” economics maintains that SRDs act as a stimulus for the economy through increased spending, thus improving growth and employment outcomes and strengthening social solidarity and stability. It is also based on the belief that social security is essential to other rights, including the right to dignity.
Some would argue that it is the failure of the past two governments in delivering economic and social transformation defined by entrenched self-enrichment, state capture, corruption and incompetence that has deprived millions of hapless South Africans of their dignity.
Instead of incentivising a work ethic based on real jobs and dignity, the ANC government is inculcating a social wage culture of dependency, perhaps with one eye on next year’s general election!
* Parker is an economist and writer based on London
Cape Times