Current Economic Policy Priorities�

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Wits University

5 July 2023

Kenneth Creamer

What is economics?

• Economics is the study of how people interact with each other and with their natural surroundings in producing their livelihoods, and how this changes over time (www.core-econ.org)
• What tools do economics use?
• Empirical (what is the level of A and B)
• Historical (how have the level of A and B changed over time and why)
• Institutional (what laws rules and practices impact on A and B)
• Theoretical (what is the relationship of A and B, if A increases what might we expect to happen to B)
• Policy proposals (what actions can government take to influence the level of A and B in the future)
• Example: Let A be economic growth and B be level of employment

Historical Growth Rates in SA Economy

Apartheid Period

• Apartheid growth model (1950’s and 1960’s)
• SA characterised as Colonialism of a Special Time (CST) settler and colonised living together in one country, period of very unequal growth characterised by super-exploitation, ongoing land dispossession and racial exclusions, as well as inward industrialisation and the Minerals Energy Complex (MEC) (unlike pure extractive colonialism in most parts of African and the rest of the colonised world)
• Crisis of apartheid (1970’s and 1980’s)
• Capitalism had benefited from apartheid, then Marxists writers like Wolpe characterised the relations as historically contingent – initially apartheid was functional to capitalism but then it became dysfunctional – not producing the internal market, the skills or the stability needed - “Apartheid Form became a fetter to capitalist development” (as well as the impact of intensified struggle and international isolation)

Post 1994 Period

• Initial Post-apartheid period (Transition to democracy 1994 to 2008)
• Growth dividend of peaceful settlement with some growth and employment creation, increasingly open to trade and part of globalising world economy, but not enough investment and strategic state guidance of the economy to overcome the historical CST structure of race, class and gender inequality
• Recent Post-apartheid period (Persistent low growth 2009 to 2023)
• Hostile global conditions (global financial crisis and mineral prices falling as China adjusted its growth model) combined with and state capture and corruption resulting in low growth and social and economic indicators in wrong direction (See falling GDP per capita since 2015)
• Current challenge: Need new growth and transformation model - infrastructure, basic needs, green transition, digital transition, capable developmental state, racial and social cohesion to guide SA’s economy beyond CST structure by period of sustained, inclusive and transformative growth (economic growth based on changing structure of the economy, new opportunities, investment in new infrastructure and services – changing the structures of opportunity in the economy)

Sachs et al, Public Economics Project, June 2023

Current Policy Priorities

• Lift levels of investment
• Accelerate Job Employment and Reduce Unemployment
• Restore electricity supply
• Correctly manage Fiscal Policy – Promote Growth and Redistribution while Avoiding Debt Trap
• Correctly manage Monetary Policy – Promote Growth and Investment while avoiding inflation
• Navigating geo-politics

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Lift Investment Levels

Accelerate Employment and Reduce unemployment

Restore Electricity Supply

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Fiscal Policy and SA National Debt

Sachs et al, Public Economics Project, June 2023

Monetary Policy Inflation and interest rates

Inflation Rate 2013 to 2014

Interest Rates 2013 - 2023

Navigating geo-politics

• Emerging tensions between South Africa’s economic interests in international relations
• Four channels through which international relations impact on the economy:
• The currency – as rand weakens, imported inflation rises putting further upward pressure on interest rates
• Trade and supply chains - In 2022, SA exports to BRICS countries was R291-bn. The US, Germany, Japan and the United Kingdom took R582-bn. China was our biggest export market at R188-bn, the US second with R178-bn
• Investment - Foreign direct investment from Western countries into South Africa in 2021/22 was around $20 billion, and from BRICS $6,9
• Liquidity – South Africa saving are lower than the investment we need, foreign savings flow into South Africa as foreigners buy SA govt bonds and private assets, with these inflows growth in the SA economy will slow further (as happened in the mid-1980’s to the apartheid govt), about 2,5x more foreign liquidity in SA come from Western Countries vs BRICS

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Strategic approach to geo-politics

South Africa is clearly economically integrated into the West and is building strong economic ties with the BRICS countries, particularly China, Brazil and India as they rise economically

There must be an improved balancing of our political stance of non-alignment and our economic priorities so that we don’t find our economic performance weakened by international relations errors.

Hopefully, the recent move by SA and other Africa leaders visiting Ukraine and Russia and calling for an end to the war indicates a more sophisticated and pro-active approach to our non-alignment policies.

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SA’s national interest must shape our strategic approach

• Since 1994, democratic South Africa has a noteworthy history of advocating for a more just and inclusive global order. 
• In addition to pushing for African economic development, South Africa has consistently spoken in favour of multilateralism, negotiations and the peaceful resolution of conflicts. 
• The current world situation is changing and there is an urgent need for South Africa to review, recalibrate and sharpen it foreign policy framework.
• The country’s economic problems will be worsened if missteps occur. 
• We need to work to ensure ongoing market access to key trading partners like the United States, Europe and China, just as we work with rising economic powers like India and Brazil in developing new economic relationships.  
• To be effective, our stance in favour of non-alignment and a more just global order will need to be forward-looking, actively pursued and astutely navigated.�

Thank-you