The post-pandemic rebound is waning — which isn’t great news as South Africa continues to wrestle with profound economic and social disparities.
It’s a reality which only underscores the urgent need for reforms to boost inclusive economic progress, so that any benefits can be distributed equitably to all corners of the population.
Last year South Africa’s economic growth slowed to 2%, from the robust 4.9% we saw in 2021 (which in itself was flattered by the preceding year of Covid).
The International Monetary Fund now expects a challenging year ahead for the country, projecting a meagre expansion of 0.1% as South Africa grapples with a deteriorating picture.
It’s no secret why. High inflation, a less favourable backdrop for commodity prices, crippling logistical bottlenecks due largely to Transnet, as well as power blackouts due to Eskom, have all contributed to this slowdown. Add in the policy confusion, which has only soured investor sentiment further, and you can see why the country’s prospects might look dicey.
With winter here, South Africa is bracing for an escalation in electricity shortages as demand surges. It doesn’t help anyone’s mood that, as the Reserve Bank pointed out, the country would have witnessed a 2% higher growth rate this year, but for the power outages.
Government revenue isn’t looking rosy either, what with the fall in commodity prices and the fact that companies are spending more of their profit on alternative energy plans, to mitigate disruptions to their business.
But despite this, there has been a flurry of new demands on the fiscus to make the social relief of distress grant of R350 a month a permanent feature, while civil servants have successfully wrung out salary hikes which outstripped the budgeted wage increases.
When you factor those demands into debt servicing obligations, it raises grave doubts about the feasibility of the National Treasury’s plan to cut its budget deficit to 3.9% in this fiscal year.
All of this places an extra burden on South Africa’s monetary policy, at a time when the country can hardly afford to pay higher financing costs on its debt.
Yes, a number of dark clouds have gathered in a rather short period of time.
Yet the outlook for 2024 and beyond doesn’t look too bad. In particular, the electricity supply in the months ahead looks much more solid. Granted, this may be too late to save the country from the immediate consequences of the higher stages of load-shedding, but it’s still welcome.
The brighter energy outlook is attributable to a few factors: the expected completion of repairs to three generation units at Kusile; the introduction of an extra generating unit at Kusile; the reinstatement of the second unit at Koeberg by April; and the return of generating unit 4 at Medupi by July next year.
If this all goes to plan, load-shedding could be cut by four stages by the second half of next year — and that’s even when you factor in possible delays in the government’s timeline.
At the same time, Meridian Economics reckons that six projects from the fifth round of renewable energy bids should be operational by August 2024.
This is largely because of progress with Operation Vulindlela — a project office in the presidency driving structural reforms — which has led to the removal of licensing thresholds for embedded generation projects.
The welcome bottom line is that there is a pipeline of 108 energy projects, with a combined capacity exceeding 10,000MW.
What does all of this show? First, it reveals that where the state has become largely ineffective, the private sector has stepped up to fill the void with no small degree of success.
And the government is increasingly creaking open the door for the private sector. This has happened with logistics, where Transnet has called for private operators to run the Durban to Joburg rail corridor on a long-term lease. Transnet even plans to appoint an infrastructure manager to assist private companies that want to run freight trains on its tracks.
There is plenty of scope for the private sector to work with the government in other ways. This includes on job creation, providing access to financial services and helping to boost growth in underserved communities.
Ultimately, however, the success of any such partnership will be judged by whether the political gains of democracy can be matched with a more equitable distribution of wealth. We need to create greater opportunities for those on the cusp of the middle class, instilling a greater sense of optimism in our society.
A credible growth path is what is fundamentally needed to sustainably fix these entrenched inequalities, and to allow the poor to properly participate in the economy.
To do this, South Africa’s leaders must answer the most crucial question: are they bold enough to take the decisions needed to wrench the country out of the cycle of low growth and high inequality, in which it has been trapped for years?
* Packirisamy is an economist at Momentum Investments