SA Economy on a Precipice

by Hussein Solomon

Call me pessimistic but I just do not believe the newspaper headlines screaming out how well our economy is doing. I am sure you have seen it too: ‘Strong Growth in SA Economy,’ or ‘SA Banks Soaring Profits’. Let me confess that I am no economist, but each time I am confronted with these positive headlines I think of my friends and colleagues living from pay check to pay check. I think about the people in the Checkers queue paying for groceries with their credit cards. I think about the “For Sale” signs on homes I walk by everyday for months. Worse still, I am not the only person feeling negative about the economy. Indeed, South Africa’s business confidence index plummeted to a 10-year low.

For better or worse we live in a globalizing world characterised by an interconnected economy. The European Union is our largest trading partner and the woes in the Eurozone are bound to affect us. Whilst investors consider the very real prospect of Greece exiting the euro, Spain, Europe’s fourth largest economy, is calling for a credit line for its ailing banks. Neither is this an issue only affecting the southern periphery of the Eurozone. Last week German banks were downgraded. Germany is the very core, the heart of the Eurozone. These problems in the Eurozone are also mirrored across the Atlantic, in the world’s largest economy – the United States – where the economy refuses to take-off despite quantitative easing. Meanwhile, across the Indian Ocean, both the Indian and Chinese economies are slowing down as a direct result of the contracting economies in Europe and the United States. South Africa has already been negatively impacted by these developments seen in the fact that our economy lost jobs in the first quarter of the year as well as the volatility of the rand.

However, the problems confronting the South African economy are not only the result of external factors alone. Internal factors like corruption also play a role. According to Transparency’s International Corruption Perception Index, the country has been steadily slipping. With corruption perceived to be on the rise in South Africa, it is understandable when investors think twice in investing in the country. Given the poor savings culture, South Africa needs these foreign investors if we are to invest in the infrastructure of the country. Populist rants about nationalization are also sure to further dent investment confidence in the country.

More than anything, there is a desperate need for new social compact between government, business and labour. Government needs to move from rhetoric to demonstrate its seriousness to take on corruption, to facilitate small business development, to deregulate the labour market. Business has to understand that given legacies of the past, a business culture of focusing on profit alone and not also social redress is bound to undermine stability in this country. Labour unions have to accept that they need to shift their focus from those employed to the ranks of the unemployed – getting South Africa to work as opposed to focusing on those lucky enough to have jobs.

In this spirit of compromise, we can all serve as catalysts for our moribund economy.