South Africa may have emerged from recession, but its
recovery has been patchy. Business figures such as Gidon
Novick, the man behind Kulula Air, the countrys low-cost
airline, see an improvement in the economy but only a
modest one. Weve seen a turnaround in terms of [the
economic fortunes of] corporates, he says to Emerging
Markets. Theyre less frightened and
conservative than they were a year ago, but have we seen a
massive turnaround? We havent.
His caution is borne out by the numbers, which show that
while South Africa has emerged from the global recession, it
has yet to return to its past highs. After its first recession
in 16 years, Africas largest economy crept back into
growth with an annualized rate of 0.9% in the third quarter and
3.2% in the fourth quarter of last year.
South Africa has much to be thankful for: it has skirted
around the edges of the global economic crisis; the
countrys banks, in the main, avoided the US-led subprime
craze that brought many institutions to their knees; currency
controls prevented crisis-induced capital flight; a renewed
Chinese appetite is keeping mineral exports healthy.
But the economy has yet to recover fully. Consumers, whose
spending makes up over 60% of gross domestic product, have not
yet shaken off their malaise, and no full recovery is expected
until next year.
But in a development that may have profound implications for
the economy and the countrys development, debate has
flared up about the liberal economic policy course South Africa
has charted since Nelson Mandelas presidency (even though
then vice-president Thabo Mbeki was largely steering the
In contrast to the tight grip on policy Mbeki held as
president, giving little room for questioning, president Jacob
Zuma shows little firm direction, and at times it seems as if
the ground is shifting.
A new cabinet post under Zuma is minister for economic
development, now occupied by former trade unionist Ebrahim
Patel. How much influence over policy Patel will have is as yet
unclear. The ANCs Youth League faction, led by populist
Julius Malema, has been calling for the countrys mines to
be nationalized. Officials and cabinet ministers respond that
nationalization is not government or ANC policy, but
Malemas continued lobbying for it to become policy leaves
In his February budget speech, finance minister Pravin
Gordhan reaffirmed the inflation-targeting focus of the South
African Reserve Banks mandate, but within days said he
had given the bank a new and expanded mandate to take into
account the concerns of the labour federation Cosatu about job
creation and growth.
Analysts say there were no substantive changes to the
policy, which already allowed the bank a level of flexibility.
But the seeds of doubt have been sown.
Does any of this mean the country is losing its way? A
country has a choice of policies to drive economic development,
but it needs to choose one and stick to it, says Nick Binedell,
director of the Johannesburg-based Gordon Institute of Business
Science (Gibs) business school.
That might be China being led by the Chinese Communist
Party or the US being led by democracy and competition,
he says. But whatever one you have, youd better
execute it well. That is not happening in South Africa,
he says. Weve lost momentum.
Others are not so worried. Theres a lot of
noise, a lot of positioning, but the policies are sound,
says Novick. Were not really concerned about the
government changing tack and being taken over by Communists or
something like that. We see a very high level of awareness
around economic growth.
But it may not be that clear cut. Goolam Ballim, group
economist for Standard Bank, the countrys largest bank,
says South Africa will continue to question its economic
policies for a long time to come. We will remain on a
perpetual hunt for a robust and transcending economic solution,
given the very deep and pervasive deficits that prevail, be it
in income, assets, skills and so forth, Ballim says.
Its not surprising when the economy stutters as
profoundly as it has that the clamour for more activism in
policy and more targeted and aggressive policy outcomes can be
The current open disagreements over policy may, in fact, be
an indicator of progress the country has made, Ballim says.
Of the Mbeki era, you could also argue South Africa was
not really privy to enormous flexibility in policy choices
because of the precarious economic and financial conditions,
whereas today there is a more robust dynamic, and the
underlying strength of the foundation in economy does open up
space for a diverse set of ideas and a greater sense of
activism from all manner of public and private
How economic policy develops will be crucial to the welfare
of the poor majority of this nation of nearly 50 million. It is
also crucial that the machinery of state improves its ability
to put its resources to the benefit of people. The performance
of state-run schools in poor areas is dismal, with politically
powerful teachers unions hostile to attempts to sack or
discipline lazy or incompetent teachers.
Inequality is increasing. Between 1993 and 2008 the mean per
capita annual income of the poorest fifth of the population
rose 28% to R1,485. Over the same time, the average income of
the richest fifth rose 37% to R64,565. While over 90% of
residents in a city like Johannesburg have access to water,
electricity, sanitation and waste removal, in a rural
municipality such as Alfred Nzo in the Eastern Cape, the
proportion shrivels to less than half.
This unchecked inequality poses a bigger risk to the
countrys long-term future than the recent high-profile
apparent racial instability resulting from the murder on April
3 of right-wing extremist Eugene TerreBlanche or ANC youth
leader Malemas provocative singing (until ordered to stop
by his political bosses) of an ANC struggle song with the words
kill the Boer.
Rather, it is the growing ranks of poorly educated,
unemployed and unemployable young black people the
constituency Malema directly appeals to that pose the
greatest risk to the countrys stability.
The number of economically inactive people between 15 and 24
in age those neither employed nor unemployed in the
formal definition, which presupposes an intention to find work
jumped 5.1% to 7.4 million in the last quarter of 2009
from a year earlier.
Without significant liberalization, South Africa will not
grow fast enough to raise overall welfare levels, says Frans
Cronje, deputy chief executive of the South African Institute
of Race Relations, a think tank. In an analysis published last
year, Cronje said a failure to reform education, labour or
race-based affirmative action policies, along with a more
interventionist, higher-taxing and deficit-borrowing
government, would ensure an annual growth rate of no more than
Assuming such a growth rate to 2030, mean per capita annual
real income would rise from R25,950 in 2008 to R39,950. This,
Cronje says may well be a case of too little too late to
prevent social instability from further compromising the growth
potential of the country.
If, by contrast, the government ended union dominance,
particularly in education, eased labour market regulations and
changed the current focus on race-based affirmative action to
one of opportunity for all disadvantaged people, growth rates
of 6%, or even 8% would be possible, Cronje says.
Annual growth of 6% leading to a per capita annual
income of R75,135 by 2030 would move South Africa on to a clear
middle-class income trajectory, Cronje says. At 8% and a
R113,360 income, the country would become a predominantly
middle-class society within a generation.
Still, that is unlikely. The post-war economy has never
reached that, touching only as high as 7.9% in 1964, 6.6% in
1980 and 5.6% in 2006 its highest since democracy.
Another concern is corruption, symbolized perhaps in the
ANCs equity stake in Hitachi Power Africa, a company that
won a R20 billion state contract to build boilers for a new
coal-fired power station. Political fights are increasingly
seen as struggles for access to procurement and tender
decisions. Corruption is deeply corrosive to economic growth
and employment creation, Ballim says. Novick ranks it as the
biggest risk the country faces. If it gets out of
control, then we dont have a country, he says.
South Africa may yet be lucky. With the world economic
crisis subsiding, attention is again turning towards Africa as
the next global growth market. Resources such as oil and iron
ore are drawcards, but so are the growing continental demands
for telecommunications and financial services.
In February, Russian investment bank Renaissance Capital
opened an office in Johannesburg in addition to those it
already has in Nigeria, Kenya, Zambia, Zimbabwe and Ghana
to help it reach further into the rest of the
South Africa is soon to host the 2010 Fifa soccer World Cup.
This is unlikely to bring the massive boost of tourist revenues
many had expected it to be. The global downturn, the negative
publicity around the TerreBlanche murder, widely publicized
public-sector worker strikes, and fears of crime have lowered
the likely number of foreign visitors from an initially
It will still be a massive event, however. Even if we
get 300,000, its much bigger than weve had at any
one point in time, Novick says.
Separately, inflation is coming under control and is likely
to stick around 5.5% this year and next within the
prescribed 3% to 6% band. As a consequence, expected nominal
wage growth of 9% will mean reasonably healthy real
wage gains, says Ballim.
Finance minister Gordhan, briefing parliament in April,
indicated he may raise his February forecasts of 2.3% growth
this year and 3.2% next year. So its not inconceivable
that by the end of the year, the South African consumer could
be helping propel the economy along once more.