Getting the economics right

RECENT weeks have seen a number of challenges for South Africa’s economy. The country narrowly escaped a recession as economic data showed an increasing trade deficit and a downgrading of the financial services sector, coming on the collapse of the unsecured lender African Bank. Medialternatives lists a number of issues to consider in regard to the economic situation.

1) Bail-outs

Parastatals such as Eskom and SAA continue to tax the treasury, with annual bail-outs from government. The country recently issued an Islamic bond known as a Sukuk, to cover the African Bank bail out and expenditure on projects such as Madupi and Kusile, Greenhouse Gas emitters will now redirect future revenue into servicing the bond, as the Reserve Bank offloads the bad bank and unrecoverable debt to the tune of some 9 billion into a special interest vehicle.

2) Balance of payments

South Africa like most of the world is hooked on Made in China goods, Unless the country is able to produce goods competitively while finding new markets, the unequal exchange of raw material in the form of mineral wealth for overseas goods will continue to result in a bulging trade deficit

3) World without Jobs

Unrealistic wage demands, increasing automation and lack of social entrepreneurship point to a world without jobs as South Africa joins those nations who are impacted by the disruption caused by the third industrial revolution. Instead of embracing technology, the country has been a slow adopter of fibre optic cable and other innovations.

4) Sovereign Wealth

The country needs to find ways to re-invest money gained from the sale of minerals into a sovereign wealth fund that will benefit future generations..While the Public Investment Corporation is massively invested in equities, earning some 18% per annum, the fund is geared towards government pensions and not the social wage which could liberate ordinary South Africans from poverty.

5) Social Wage

Without a social wage or unconditional basic income grant, citizens are forced into the job market. A social wage would alleviate the worst forms of poverty while freeing up individuals to contribute to society in a future in which permanent jobs no longer exist.

6) Flea Market Capitalism

South Africa’s informal sector contributes significantly to the economy and yet there is very little incentive from government for this important segment of the economy. Instead of burdening citizens with red-tape and costly licensing, the state should rather provide services and incentives to small business. An SMME ministry was recently set-up by government but it remains to be seen whether the ministry will offer anything except more bureaucrats.

7) Credit Bubble

Until now, a lot of growth has been driven by credit. The collapse of African Bank has shown how vulnerable the sector is, given the long-term sustainability of such growth. Unless private savings increase, the emphasis on credit will lead to more downgrading and an increasing burden on the poor.

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