South Africa’s first-quarter GDP figures were released early this week, providing further evidence of the economy’s rebound from the devastation of the Covid-19 pandemic that resulted in our worst economic performance in a century.
The Reserve Bank has been bullish, recently revising its growth forecast for the quarter to 2.7% from a 0.2% contraction. For the full year, the bank sees growth coming in at 4.2%. The figures of course appear buoyant because they are coming off a low base off Q1 2020 when the economy contracted by 2% as
the effects of the pandemic were starting to be felt. SA went into its first lockdown on 27 March. Furthermore, most economists expect GDP growth to subsequently decelerate capital markets research house Intellidex expects GDP growth of 2.4% next year and 1.5% in 2023.
Recent unemployment data also highlight how dire our economic situation remains, regardless of GDP growth figures: the Quarterly Labour Force Survey released by Statistics SA show an increase in our official unemployment rate to a new record of 32.6% in the first three months of this year.
This points to a now desperate need to concentrate all our energies on structural reforms if we are to put a lid on a growing unemployment crisis. A special focus needs to be on youth unemployment, which is among the highest in the world.
As I write we are in yet another bout of load-shedding as Eskom’s ageing fleet of coal-fired power stations struggles to meet demand in an economy not exactly motoring on all cylinders. Undoing our dependence on, or rather our vulnerability to, the 98-year-old state-owned utility is perhaps the most important item on this reform agenda. Our ailing electricity system will eat into our growth prospects while other nations cement their recovery from the devastation of the pandemic. This is but one of the reasons why we desperately need the licence-exemption threshold for embedded generation to be increased to 50 MW. This will enable companies to build their own electricity generating facilities for their own use, and potentially supply excess power onto the grid. Such increase is in line with the recommendation made by Eskom CEO, Andre de Ruyter as well as President Ramaphosa.
It was therefore incredibly surprising and disappointing to note that, in mid-May, Mineral Resources and Energy Minister Gwede Mantashe doubled down on his view after allegedly surveying 10 000 people who supported a lower threshold of 10 MW. This lower threshold is currently in draft amendments to the Electricity Regulation Act.
Reforms in energy, communications and the labour market in particular will over the medium to long term help us deal with unemployment, which is at its highest level since the Statistics SA survey was first introduced 13 years ago. Our economy continues to battle to create enough jobs to meet the growth of the labour market, a situation we’ve struggled with for more than two decades.
In responding to the jobless numbers this week, I agree the comments attributed to Maarten Ackerman, chief economist at Citadel, in Business Day. “Whether the unemployment rate peaks at 33% or 35% is actually irrelevant — the point is that South Africa is sitting with structurally high unemployment and that isn’t going to go away until we get the real economic reforms that make for a more friendly business environment.”
We’ve sounded the alarm for the need for deep reforms for a number of years. Without a strong commitment to these structural remedies and implementing the hard policy decisions that are required, we are likely to again lag the global economic recovery.
The Organisation for Economic Co-operation and Development (OECD) this week raised its growth projections across the world’s major economies. It now expects global GDP growth of 5.8% this year, up from the 4.2% it projected in December. In the case of South Africa however, the OECD doesn’t see a recovery to pre-pandemic levels before 2025, lamenting the slow pace of our vaccination rollout.
The OECD also highlighted structural reforms as key for the country’s recovery. “Implementing the government’s infrastructure plan and reforms to reduce the cost of doing business are key to lift potential growth. In addition, restoring the financial sustainability of state-owned enterprises can contribute to investment and boost confidence,” it said.
With regards to record high unemployment, the OECD called for an employment policy incentivising job creation “to help regain the 1.4-million job losses since the beginning of the Covid-19 pandemic that have disproportionally affected low-skilled workers”.
The global recovery and high commodity prices have supported our economy this year, easing the fiscal pressures that at one stage had us considering a tax increase. We can’t, however, rely on these factors for a sustainable recovery and to solve the growing unemployment crisis. There’s little to no room to widen the social welfare net at this point, as it would mean an increase in public debt that will further undermine already low confidence levels in the economy.
President Cyril Ramaphosa acknowledged in the state of the nation address (Sona) this year that “we will not achieve higher rates of growth and employment if we do not implement structural economic reforms”. His office has set up Operation Vulindlela along with National Treasury to drive the implementation of agreed reforms and Business is excited to work with the Vulindlela team to support its efforts.
Our only path to escape the unemployment crisis and underperforming economy is structural reform. The unemployment figures should serve as yet another reminder of this as we interrogate the first-quarter GDP figures.
This column was written by Busi Mavuso and was first published in fin24.
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