In a recent speech delivered at the University of Cape Town, International Monetary Fund (IMF) first deputy MD David Lipton noted that several institutions, including the IMF, had downgraded South Africa’s “potential growth” from 3.5% to 4% previously to between 2% and 2.5%.
Besides weak external demand and soft commodity prices, Lipton pointed to “home-grown shocks” that were undermining the performance of Africa’s most diversified economy and limiting its ability to accelerate growth, create jobs and reduce inequality.
As would be expected, electricity-supply disruptions and the country’s propensity for protracted, sometimes violent, strikes topped the list of the structural impediments to the country’s potential growth, or what Lipton described as a “sort of speed limit for the economy”.
His remarks came only days after Finance Minister Nhlanhla Nene’s maiden Budget address in the very same city. In his speech, Nene made it uncomfortably clear that government had exhausted the fiscal resources available to it to help stimulate the economy through increased expenditure. In fact, he argued that consolidation was now urgently needed if those resources were to be rebuilt over the medium term.
To address what was fast becoming a fiscal imbalance, Nene announced a R25-billion lowering of the expenditure ceiling, tax hikes of R17-billion and a commitment to limiting government debt to below 45% of gross domestic product.
The package – together with hoped for, but, as yet, unsecured, wage-bill restraint – was delivered in a bland wrapping of ‘fiscal responsibility’. Absent, though, was any obvious decorative ribbon designed to balance prudency with a sense of growth optimism.
For this reason, like the IMF, few observers are currently hopeful that South Africa’s speed limit can or will be raised any time soon. Instead, the outlook is for a pedestrian performance well within the IMF’s depressing potential-growth band.
To break free from these limits will require new thinking and new energy – ingredients that have hitherto been in short supply (quite literally in the case of energy).
For this reason, it came as a pleasant surprise to learn that government, through the electricity war room, was actively engaging with the private sector on a plan to build the infrastructure needed to begin importing gas to be used in power generation (see page 14).
Such public–private collaborative efforts could prove critical not only in the energy milieu, but also in raising South Africa’s speed limit in areas as diverse as education and skills development through to public transport and municipal service delivery.
Such injections of private capital, ingenuity and energy will need to be balanced, however, with the public imperatives of affordability, good governance and accessibility.
To be sure, such balances are not simple to strike. But the alternative is an economy whose pace of expansion is simply inadequate to ensure that the key social challenges of unemployment, poverty and inequality are addressed sustainably.