Socio-economic Watch

Recession not in the stats but in the streets

At least, follow Mathews Phosa’s advice
Masthews.jpg

To the vast majority of ordinary South Africans one more digit this way or that way or technical definitions do not matter. For them the economy is slipping dangerously in the wrong direction.

The lived economic reality of the majority of the population is driving their mood in the direction of depression, despair and deep pessimism. It is an atmosphere in which extreme populist politics thrive and social stability becomes threatened.

According to figures revealed in the report on Gross Domestic Product of Statistics South Africa (Stats SA) for the third quarter of 2015, the country has just escaped a ‘technical recession’ by growing with 0,7% compared to the decline of -1.3% in the second quarter.

Put another way, the GDP was ‘only’ 0.6% worse off than it was in the first quarter of the year. If there had been another contraction in the third quarter, in other words, two consecutive quarterly contractions, the country, in “economic speak”, would have been in a recession.

For the majority of the population that would have meant very little. Reality is that the sectors that affect them most directly in terms of job opportunities and cost of living, like mining and agriculture, are in deep recession – mining having contracted by 9.8%, agriculture by 12.6%.

In the meantime, while electricity consumption has also contracted by 8%, Eskom has already given notice that they will be asking for tariff increases in the new year.

And according to another report delivered in parliament last week by the Department of Agriculture, the present drought will continue to push up food prices.

The market-to-market price for white maize for delivery in October was up by 79% compared to the previous year, while the price for yellow maize was up by 65% in comparison.

What stats hide

One of the sectors that did show growth (2.8%) during the second quarter, was finance, real estate and business services. This has very little impact on the ordinary person in terms of either job opportunities or cost of living, except for interest on bonds and loans for those who could afford it in the first place. And that has just gone up.

To put the contribution of this sector to GDP and the broad public into perspective, it is important to take note of a statement in an Institute of Race Relations report earlier this year: “South Africa is largely a tertiary services economy. In 2014, for example, the value of the finance sector as a share of total GDP was almost double that of the mining and agriculture sectors combined.”

To this can be added the insight shared by well-known economist Mike Schussler after the release of the Stats SA report: With estimates of a 1.7% population growth rate (mid-year population estimates show 55 million people in SA) and the economy growing at 1% over the last year, the average person is -0.7% poorer at present.

“So for the average person ...  it is a recession and feels like a recession because we are worse off than we were before,” he said.

Sanisha Packirisamy, chief economist of JSE-listed financial services company MMI, the holding company of Metropolitan and Momentum, said the primary sector of the economy has already entered a technical recession (two consecutive quarters of negative growth), declining by 10% q/q in the third quarter, following a 9.5% q/q contraction in the second quarter.”

It would seem, against this background, as if the bare statistics of the Stats SA report as presented, hide rather than reveal to the ordinary person the real impact on him of what is happening in the economy– unless he has enough background to analyse it in finer detail.

What lies ahead?

As Schussler and a few other economists warn, there is a real possibility that the South African economy can slip into a full-blown recession in 2016.

And not all the factors that might contribute to this are remotely under the control of domestic role players.

For one, the country might have been in a proper and “technical” recession already if it was not for – in line with other commodity prices – a much lower recent oil price. But then, last week thousands of kilometres away in the border between Turkey and Syria, a Russian war plane was shot down. In response, the oil price jumped because of fears for the safety of supply lines.

The incident also reflected in currency market movements with, among other things, the flight from the US dollar to safe-haven currencies like the Japanese yen.

Then there is the prospect of an increase in US interest rates in December, which is widely predicted will impact negatively on the South African and other emerging economies’ currencies.

In the meantime there seems little prospect of a turnaround in commodity prices, which is putting thousands of jobs in the mining sector in danger. At the same time the present volatility on the labour front with its tendency towards violent strikes is expected to continue.

The drought is also taking its toll on South Africa’s neighbours in the Southern African Development Community (SADC). While the South African maize crop is expected to be half of what it has been in the already below-par past season, the same applies to normally self-sufficient neighbours Malawi, Zambia and Mozambique.

Apart from increased pressure on already struggling infrastructure to handle substantially increased imports into the region, there could be a large migration south. With it comes the danger of another flare-up of xenophobic incidents.

Past promises catching up

Also last week past ANC secretary general Mathews Phosa said of the party: “We made many promises, the expectations of our people are around those issues. They are founded. They are founded on our own promises.

"There’s an extent to which we tried to meet those expectations, but the backlog is huge and massive and it has become intolerable to the masses."

He concluded: “Simply put, there’s no money to meet those expectations.”

As far back as August 2013 we wrote that one of the reasons for increased unrest in the country is “frustrated expectations among the majority of the population”.

We firmly believe that it remains one of the main driving factors in the #Must Fall protest that has mutated from Rhodes’s statue to university fees and more.

On the back of a struggling economy the danger that during 2016 it could become a full-blown #Everything-must-fall-revolt is real.

To this can be added the warning by Judge Dennis Davis, heading a committee to re-examine the country’s tax system, that the country might be facing a “tax revolt” soon.

What’s to do?

Simple solutions there are not and neither a single political party nor government on its own will solve the problem. Now, more than ever, the country needs an ‘economic war room’.

The country needs to get its act together and focus across socio- and political-economic sectors. Maybe the time has come to pull representatives from the leadership of these sectors together in an ‘economic war room’ or to properly empower the forums, like the National Economic Development and Labour Council (NEDLAC), that already exist.

At least the advice from Phosa in his interview with ENCA should be followed. He said that the ANC should go back to the drawing board, look at their budget again and create a South Africa where there’s hope that people outside the country would want to invest in South Africa.

And, if you were hoping to pour yourself a cup of Rooibos tee to calm you down in the face of all this, take note that the South African Rooibos Council also warned last week that due to the drought this beverage could cost you 90% more next year.

                                                                                                                                                                                     by Piet Coetzer

Also read: Time to talk about a climate crisis in Africa? 

                    Massive infrastructure expansion Africa’s greatest environmental challenge? 



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