The unconvincing art of Zumanomics

Only a year from an election, Zuma emphasised the positives in South Africa’s economy. He’s been lucky to have been blessed by some recent information. In April, South Africa announced a 10% increase in tourist arrivals, beating the world average of 4%. Since the economy’s quick recovery from the global financial crisis, where it achieved 1.9% growth in 2009, boasting points have been few and far between, save for the omnipresent strength of the financial sector and its regulations. Real gross domestic product (GDP) growth has been below estimated potential every year since 2008 as South Africa lags behind other middle income and developing countries.

“We need faster growth. Without faster growth we cannot succeed in reducing unemployment, poverty and inequality,” said Zuma, speaking at the Union Buildings in Pretoria. The “special” press conference was supposed to be an update on the economy and the mining sector. On Tuesday, Statistics South Africa announced GDP fell to an annualised 0.9% from 2.1% in the fourth quarter of 2012. It means the economy is growing at its slowest rate since the second quarter of 2009 and is continuing on its sluggish path since the 2008 recession.

Chiefly, the president needed to offer confidence. The fall in growth was due to a contracting manufacturing sector, dropping 7.9% annualised after it expanded for the previous three quarters, mainly caused by halted operations at key manufacturers. The focus, however, is now on the mineral sector. As it enters wage negotiations, there are fears that there could be a repeat of the wildcat strikes that crippled the mining industry in 2012. The National Union of Mineworkers is demanding hefty increases and its continuing rivalry with the Association of Mineworkers and Construction Union could cause a repeat of the violent strikes. Mining houses have warned of potential job losses, with Anglo American Platinum already announcing 6,000 retrenchments (scaled back from an initial 14,000).

The economy also faces the threat of load shedding. Eskom has repeatedly warned of straining demand and is currently running at razor thin surplus margins as low as 0.45%. “If we continue along this path, we risk the possibility of a widespread and unplanned power outage that would cripple businesses of every size, undermine our quality of life and compromise investor confidence in South Africa for years to come. Eskom cannot allow this to happen,” said Eskom chief executive Brian Dames on Monday.

It’s no wonder investors are scared and the rand has breached the 10 to the US dollar level soon after the President's speech. Zuma didn’t mention electricity or manufacturing on Thursday, but he insisted interventions will take place in the mining sector. Deputy President Kgalema Motlanthe will lead “interactions” with the mining companies and labour. He will be assisted by the ministers of finance, labour, and mineral resources.

“Given the beginning of the collective bargaining season in both mining and other industries, we call on parties to recognise the impact of the industrial relations environment on jobs and development. We call for fair and expeditious settlements of wage negotiations that can contribute to the attainment of the country’s job creation and job retention goals,” said Zuma.

The economy’s woes go beyond mining. Speaking in Pretoria recently, International Monetary Fund deputy managing director David Lipton noted the local concerns. “Employment is too low, especially in the private sector. One in two young South Africans is unemployed. At the same time, real wage growth has outstripped productivity growth. South Africa’s competitiveness problem is manifesting itself in a growing trade deficit, even against a backdrop of weak growth. Power and transportation bottlenecks are a drag on the economy. And despite strong corporate performance, depressed business confidence has held back private investment,” he said.

A recent OECD report on South Africa mentioned the links between education and a struggling economy. “Skill mismatches represent one aspect of the persistently high unemployment rate, especially for youth: the education system is not producing the skills needed in the labour market.”

Zuma mentioned the National Development Plan (NDP), the country’s 2030 blueprint to end poverty and reduce inequality, but current growth rates fall completely short of the rapid development the country needs to make the plan work. If South Africa can’t hit 7% GDP growth, it’s no failure, as the Democratic Alliance likes to argue. But it’s a travesty when the president is rallying confidence “for us to achieve the projected annual growth of 2.7%”, a dismal figure far below what’s needed for serious job growth and the implementation of the NDP.

To be fair, Europe, a key trading partner, has not recovered from the recession as many observers had hoped and downturn in the European Union remains a key concern for the South African economy. The country has also been dealing with a volatile rand (some would say overvalued until now) and the mining industry has suffered somewhat from lower commodity prices.

The president came out on Thursday to inspire us to overcome the malaise and show that he’s taking charge (as he will continue to try to prove ahead of the 2014 vote). He failed dismally. South Africa’s been full of promise on economic development and short on action. Zuma said, “Government will redouble its efforts to support the economy towards achieving this objective [of 3.5% GDP],” but failed to explain how. He mentioned the crucial R860 infrastructure development programme but couldn’t detail what work has begun.

One can only hope that the Zuma administration is doing better than the president conveys. South Africa’s economy and its future depend on it. DM

Photo: President Jacob Zuma (Greg Nicolson)