Few questionable economic analyses and disproven solutions to South Africa’s economic and socioeconomic problems deserve responses. However, when the writer is an experienced business leader of Colin Coleman’s calibre, with a history of leading business at the heart of South Africa’s economy, a response backed by facts and objective realities of the country’s economic problems is warranted. column of 3 October, titled “SA doesn’t have a debt problem. It has a growth problem – and a solution”.
First, let me provide the reality of South Africa’s growth track record relative to its true peers, and not just the US and China, economies that are very different to ours, which Coleman uses to justify a state-led growth. From 2000 to 2009, South Africa’s trading partners’ trade-weighted economic growth averaged 4.5% while the simple average growth was 4.2%.
One of the most troubling views from Coleman, when he says South Africa now has the wind at our backs globally, has to do with his commodity price outlook. He says the commodity price cycle we have seen since the recovery from the Covid-19 pandemic is not a flash in the pan, nor is it a post-pandemic bounce-back, but a secular long-term response to a changing global economy driven by climate change.
To base a commitment to permanent spending like an employment incentive scheme on a source of economic growth and tax revenues that is highly uncertain, like a future commodity super cycle, will be a major policy mistake. The tragedy of this view is that politicians facing local government elections in less than a month and a national general election within two years, with a misfiring economy and record high unemployment, will find that idea appealing.
Economic growth might not actually rise as projected and the leakage from the imports will mean tax revenue collections will not rise enough to self-finance the increase in debt. In line with this, the other implication of the revised national accounts is that tax buoyancy, the amount of tax generated for each rand growth in the economy, is lower than previously thought, which further deems the view that the stimulus can be self-financing in the long run.
By fiscal year 2019-20, social spending had doubled to R1.4-trillion, accounting for 76% of total consolidated spending, which is a decline as a share of total spending. This resulted in South Africa’s credit ratings being downgraded to sub-investment, and consequently debt-servicing costs significantly rose from R66.2-billion in fiscal year 2010-11 to R204.8-billion by fiscal year 2019-20. The share of debt service costs in the total consolidated spending went from 7.5% to 11.2% over the same period and is projected to rise to 16.2% by 2023-24.
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