Why has South Africa's economy stopped growing?

Wilting.

The World Bank announced today that they have reduced South Africa’s growth forecast for 2013 from 3.2 per cent to 2.5 per cent.

This follows poor results released earlier in the week which show that GDP growth for the first 3 months of 2013 slowed to 0.9 per cent.

The slowdown has a number of possible causes including the uncertainly caused by recent mine strikes and labour market disputes.

The World Bank said “firms are delaying investment and hiring decisions within the country until there is a rebound in private investment and household spending”.

Last week, the South African Reserve Bank decided to keep interest rates at 5.0 per cent. Their ability to reduce rates is of course limited by rising inflation which is linked to Rand weakness.

The South African Rand has depreciated by 16 per cent against the US dollar since the end of 2012 and reached a four year low of R9.84/US$ earlier this week.

This trend is also reflected in the valuation of local companies. In US dollar terms, the JSE all share index is down 5.7 per cent this year (between 31 Dec 2012 and 29 May 2013). This is alarming as most major worldwide exchanges are up significantly this year in US dollar terms: the MSCI world index is up 11 per cent and the Dow is up 17 per cent.

South Africa has a number of underlying issues that could impact on growth going forward. A recent report from WealthInsight highlighted the following major risks in the country:

  • Unemployment rates in South Africa exceed 24 per cent, which is well above the emerging market average. This is partly due to a relatively high degree of labour market rigidity with trade unions having a strong presence in the country. The apartheid government has also created a large pool of poorly educated people, contributing to widespread skill mismatches.
  • The ANC government’s close relationship with Robert Mugabe, the Zimbabwean president, is a concern both from an ethical and economic point of view. It is estimated that over four million Zimbabwean refugees have come into South Africa since the Zimbabwean crisis began in 1999.
  • Government corruption is a growing problem. This is likely to continue as the ANC’s dominance makes it difficult for other political parties to challenge ANC officials.
  • A relatively high crime rate, which deters foreign investors and tourists.
  • The HIV epidemic – it is estimated that 21.5 per cent of the adult population is HIV positive, which equates to over five million people. This places significant strain on South Africa’s long-term prospects, both from a social and economic point of view.
Photograph: Getty Images

Andrew Amoils is a writer for WealthInsight

Getty
Show Hide image

Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle