The Institute for Race Relations (IRR) has warned that recession may loom faster than anticipated after Statistics SA (Stats SA) announced on Tuesday that the country’s gross domestic product (GDP) sank by 0.7% in the second quarter.
Stats SA said the decline was predisposed by the KwaZulu-Natal floods and the ongoing load-shedding.
The decline in the GDP rate indicates a lack of productivity within the government, according to IRR head of campaigns Gabriel Crouse, who said South Africa is faced with counterproductive government policies that threaten the recovery of an already ailing economy considering the country’s high unemployment rate and looming food security crisis.
“Total domestic value-add, known as GDP, shrank by 0.7% from April to June this year, according to Stats SA’s latest data, heightening concerns that South Africa may have exited the Covid-19 crash only to enter a recession,” said Crouse on Tuesday.
“Average productivity, measured as real per capita GDP, is lower than it was in 2009. South Africa has the highest unemployment rate on record, globally, and is one of the very few countries with declining productivity too. In this sense, South Africa is already recessionary.”
According to Crouse, counterproductivity is only going to get worse, saying if the Expropriation without Compensation (EWC) Bill is passed into law on September 14, “it will trigger a shift from recession-to depression economics and may trigger a domestic financial crisis as well”.
“On the more immediate scale, it is worth noting that the agriculture sector shrank in the second quarter of this year despite global prices in unprocessed food products skyrocketing at the onset of the war in Europe, which was also the peak domestic harvest time.
“Together with the shrinkage in mining and manufacturing, these are yet more signs that crumbling infrastructure and anti-investment policies make it impossible for domestic producers to take advantage of major one-off opportunities.
“South Africa has the highest food security in Africa, but the UN estimates that the number of malnourished children is increasing so rapidly that, by 2025, 1.7-million children under the age of five will suffer from stunted growth.”
Deriding President Cyril Ramaphosa’s administration, Crouse said the country should be learning about the significance of food security from other states like Zimbabwe, however, “Ramaphosa’s administration is determined to make a terrible situation even worse”.
“The expropriation bill has an open-ended list of circumstances in which expropriating authorities, including municipal officials at cash-strapped organs of state, can impose EWC. This includes where owners have failed to exercise control over property and where the property is bought to benefit from appreciation in its market value.
“The anti-profit policy of EWC will succeed in driving down profit, shrinking productivity further, and therefore driving away the new investments that would otherwise have provided opportunities to the unemployed.”
He added that if the ANC passes the expropriation bill it will be a firm signal that the party is preparing to go into the 2024 elections without being able to say it helped grow the economy and jobs.
“Instead, it will be able to promise EWC. Independent polling commissioned by the IRR shows that one in seven white people prefer EWC to economic growth, but 80% of black South Africans prefer growth to EWC,” said Crouse.
Meanwhile, the DA believes that the ANC policies have trapped the country in a low growth phase.
DA spokesperson on finance Dion George said: “South Africa’s economy is trapped in a vicious downward, spiraling, self-reinforcing cycle driven by failed policy agendas, low growth, high unemployment, high government budget deficits, unstable energy supply, declining foreign and local private capital formation due to uncertainty regarding the future of private property rights, poor national and local governance, and vast poorly run public sectors dominated by state enterprises and patronage networks.”
George said the decline is concerning in the midst of unemployment and soaring inflation, noting that it could be “attributed to the constant over-reachers of ANC interventionism”.
“South Africa’s so-called post-pandemic recovery has been underperforming on every front and the size of the economy is once again smaller than it was before the pandemic.
“As an emerging market with a massive labour force at its disposal, the South African economy should be well on its way to experiencing a virtuous growth cycle, which, by the end of this decade, could see the country’s economy [given the implementation of the necessary fiscal reforms] emulating the growth rates of the world’s most successful emerging markets.
“Unless the necessary fiscal reforms are implemented, a tipping point will be reached, and untold damage will be done, from which there will be no return,” said George.
Also read: Prolonged power cuts, deadly KZN floods put a damper on GDP
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