South African Economy: Economist Recommends One Way To Fix The Mess We Are In


South African Economy: Under Mr Zuma, the South African elected president since 2009, debt has quickly risen up to 45% of GDP from about 26%.

Now that may appear to be low when compared to European countries such as Britain, where public debt is about 80% of GDP. But given its unsteady credit rating, South Africa must pay as much as four times more interest than Britain on every dollar of debt (8.6%, compared with 1.9%).

South Africa’s economy has been hit hard over the past years, with several factors to blame for the downside. These factors range from external conditions out of our control from countries like the US and China to internal factors that policy makers have brought upon us.

A complete manifestation of these factors hitting all at once in the past week led to the Rand hitting an all new record low against the dollar on Sunday 10th January 2015 briefly trading at R17.99 to a dollar before pulling back to around R16.45.

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According to Economist Dawie Roodt, Zuma is one of the biggest factors contributing to South Africa’s economic mayhem.

While South Africa is facing severe economic problems, the president’s ignorant attitude towards the terrible state of affairs has done little to help issues.

It should be recalled that in December 2015, Zuma removed popular and honorable finance minister Nhlanhla Nene from office and replaced him with an unknown lawmaker with little experience in the task allocated to him, David van Rooyen. This was done without any good reason and instead heeding to warnings that implied it was likely to downgrade the country’s ratings to nothing considering South Africa’s slow rate of economic growth and its increasing public debt, Zuma went ahead to fire Nene

Upon the announcement of Nene’s removal, the rand declined to its lowest level against the dollar in the last four years and the fastest one-day fall since 2008, according to Bloomberg. This led to a collapse in the market, pushing the rand to several record lows against the dollar plus all the other factors working against the country’s progress.

The change in finance ministers came at a time when the government was desperately trying to avoid going over an economic cliff. Public debt is rising fast, as well as the costs of servicing it. Investors fret that South Africa may soon lose its investment-grade rating, which would trigger a sudden sell-of.

Nene’s replacement is a clear sign that South Africa has reached a point where politics have begun to rank higher than economics in the president’s decision-making. Nene was seen as an independent figure in the government and a strong critic of Zuma’s spending decisions, especially his plans to bail out struggling South African Airways and invest in an expensive nuclear energy project. This may have hastened his downfall.

What To Do To Save South African Economy:

Chief economist at Efficient Group, Dawie Roodt, identified the biggest factors hurting the economy – and what can be done to improve it even though he did not specify when this could take effect.

Roodt pointed out the following five factors contributing to the current state of South Africa’s economy:

~Unsustainable fiscal accounts, where we are spending more than we earn;

~Ongoing drought conditions, forcing us to import food at high prices thanks to the weak rand;

~Low commodity prices, impacting the country’s biggest exports;

~An ideologically confused government;

~President Jacob Zuma.

Now to fix the mess, the economist said the country would have to implement a few strategies:

~We would need to get a smaller and more efficient civil service;

~Scrap many labour laws (particularly the ones that make doing business in the country unnecessarily onerus);

~Privatize state-owned businesses;

~and stop undermining private property rights.

And for a start, though – we should fire Jacob Zuma.

Subsequent interviews revealed Zuma saying that everyone – foreign investors, executives, analysts, economists, the citizens and the world all “overreacted” to his actions.

In response to Zuma’s comments, Prince Mashele, executive director of the Centre for Politics and Research, said that it is very dangerous to have an uneducated man as president. Apparently, he feels the fact that the president is not educated is affecting the South African Economy.

See Also: “Reaction To Sacking Of Finance Minister Was Exaggerated” – Zuma

“We don’t need any more evidence of the dangers of an uneducated president…He can’t read numbers.”

“To have a guy who is illiterate when it comes to economics lead a sophisticated economy like ours – that is in dire straits – you must know you are going nowhere,” he said.

Meanwhile, no hope yet for a lasting solution to the issues bedevilling the South African Economy.

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