Cees Bruggemans: Consulting Economist Bruggemans & Associates
Cees Bruggemans: Consulting Economist Bruggemans & Associates



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2014-05-18

The SA governments of the past 20 years have had two great objectives, social re-engineering (which goes wider than just redistribution) and faster economic growth and rising living standards for all.
It has achieved the one in spades but has fallen down on the other.
 
Growth has remained dismal, and certainly the things that drive and accompany faster growth, such as better educated labour cadres, higher employment, more resources for social delivery and much more infrastructure maintenance and new additions, have remain scarce.

Apparently, the larger part by far of the electorate keeps forgiving these severe disappointments.
Instead, it has kept rewarding the governing party for having delivered freedom in the first instance, and for the redistribution already achieved, be it sharply changed national budget allocations, government and private sector jobs, the creation of a large Black middle class, the social grants given to those millions with no or very limited access to income, and the empowerment access that has been gained by select elite cadres.

Having won the latest election with only a slightly diminished majority of 62.2%, the fifth successive election with a majority vote comfortably in excess of 60%. the ruling party can still feel vindicated about its set of priorities.

There remains the growth imperative and what it will buy us. Despite the many signals being sent out, such as wanting to implement the national development plan in pursuit of faster growth, this isn't necessarily going to be translated into the kind of action that will give faster growth.

Only considerably better external luck, such as the world economy recovering much faster and/or financial markets giving us a much better deal via higher export prices, lower import prices (oil) and stronger capital inflows firming the Rand, lowering inflation, improving real household purchasing power and even convincing SARB to lower interest rates, might boost our growth fortunes, and private business confidence, further reinforcing the growth agenda.

Such external favours may in time again materialise, but for now the global backdrop still looks mainly constrained.

In contrast, the domestic policy priorities of government, regarding labour relations, inhibiting industry intervention and regulatory changes, and the state of infrastructure, as implemented rather than talked about, are likely to prevent general business confidence from lifting and keep the growth constraints of recent years in place.

With modest fiscal restraint continuing in order to bring down the post-crisis budget deficit and arrest the rising national debt ratio, government today can only provide diminished spending impulses.
Furthermore, private household credit growth is restrained by regulatory means. Infrastructure bottlenecks such as electricity and export rail capacity are yet to be meaningfully lifted.

Labour relations are remaining a severe test of wills in many places, thereby disrupting the work flow and preventing a better absorption of available labour into work.

As such, the building blocks for achieving higher business confidence, greater private balance sheet commitment, faster growth and more jobs bolstering household incomes and spending, will likely remain elusive.

None of this will likely prevent the government policy message from being highly upbeat, regarding economic targets to be made, and the way the general welfare will benefit thereby.

The main beneficiaries, however, will be those narrowly targeted by social policies aiming to expand a high-level Black business cadre, and expanding the reach of the public sector.

This will be only a very modest achievement in an economy barely growing by 2%, with private jobs shrinking, as compared to winning a much higher level of general business confidence through less disruptive interventions and negative incentives.

A 3%-5% growth rate, and creating 300 000 new formal jobs annually, in addition to the 100 000 jobs needed to be filled through retirement, as well as pulling into existence a lot more informal jobs, would improve the general welfare much more and faster, considering the higher tax revenues collected and what this would make possible.

Instead, it is much more likely that we will have to continue living with yet more dissonance, disharmony  brought forth by clashing intentions and realities , yet apparently not sufficiently upsetting for the electorate to insist on different priorities giving different (comprehensively better) results.

How different the Indian reality this past week where the first serious economic reformer in decades won through with an overwhelming vote of confidence from a sorely tested electorate in the world's largest democracy, some 65 years after democracy was first gained.

For the present, promising words are apparently enough for us to keep proceeding along the lines we have been committed to for a generation now. But economic performance is likely to keep lagging well below our expressed aspirations and capabilities.

Until the next external windfall soothes the senses anew.
 
Cees Bruggemans
Consulting Economist
Bruggemans & Associates
Website  www.bruggemans.co.za
Email  economics@bruggemans.co.za
Twitter  @ceesbruggemans




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