The South African economy – Are we rehabilitating or relapsing?

Then and now and everything in between

Ok, so let’s look at the facts. The pre 1994 South African economy was plagued with government controlled regulations (apartheid), public industries (Efkom, Telkom and many mines) and media censorship. This seemed like a good idea in the beginning, but soon the majority of the nation revolted and this eventually led to sanctions being imposed against South Africa and the economy spiralling downwards. Then the great 1994 reform, the ANC came into power and things started to look up. From 2004 to 2008 South Africa had an average growth rate of 5%, it accounted for almost half of the Sub-Saharan GDP and was widely known as the leading economy in Africa.

In 2008 the global economic crisis brought all this to an end. After a brief recession the economic growth slowed to a growth rate of between 2% and 3%. Investment in mining has also decreased over the last 5 years (mainly because of the talks of nationalisation), other causes that could also contribute to this dip was the increase in government regulatory frameworks and “all talk” policy of the government regarding infrastructure needs.

Although not identical some similarities can be seen between what was done in pre-apartheid and what is happening now with the post-apartheid government. To make matters worse, South Africa is becoming synonymous with corruption (this heavily deters legitimate investors), the educational system is down the drain and we have a labour market with no rigidity. (Prof. R. Parsons)

Consequences

As can be seen from the previous section the ANC’s initial plan was working. The recession however sent everyone onto a panic. Action plans were not preforming, the citizens were becoming restless because of all the broken promises made by government. To ensure that the ANC got re-elected they took shortcuts, instead of creating jobs they, just gave money away to people who did not have jobs. Sure, this made them very popular, but it also created a welfare state.

Now the government is caught between a rock and a hard place, their supporters have now become reliant on these grants, thus if the government reduces these grants or takes them away it will result in major decrease in support or even social instability. Thus the government cannot invest all the money at their disposal in the correct sectors, like education, infrastructure and industry.

To emphasize this point consider the following stats:

  • For every South African tax payer there are 6 people living of government grants
  • The amount of police officers has declined whilst crime increased.
  • There are fully equipped hospitals not being utilised because of the lack of trained staff.
  • The brain drain because of affirmative action.
  • And the list goes on…….

Conclusion

It can be strongly debated whether the government motivations, for the implementation of certain policies and institutions, to become more popular are worth it. One thing, however is certain, the economic cost is rising steadily.  The point I am trying to here is that policies and institutions should not be made because of how we want the country to be, or to increase popularity or power, they should be made on the facts and statistics that are on the table. This point is proven in the book “Why Nations Fail” by D. Acemoglu and J. A. Robinson. This book showed that nations failed because of the implementation of irrelevant and unfounded policies and institutions.

So to answer the question stated in the heading, South Africa is relapsing into a pre-apartheid government structure of control, nationalisation and censorship.

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