GDP 2ND QUARTER
The countless calls of SAFTU, our allies in the working class and many other progressive formations, that the government must overhaul the economy so that it is based on meeting our basic needs of full employment, eradication of poverty and inequalities and assuring future generations have a planet worth living on, have fallen into deaf ears.
That is why under African National Congress political rule and capitalist class domination, our economy remains neo-colonial and parasitical: its core is still the Minerals-Energy Complex: drawing profits from extraction of mineral wealth and export to the colonising countries and to the Asian economies which sell us back finished goods.
The profits are not being reinvested in plant, equipment, education or other productive purposes, and instead are spirited out of the country – between 3-7% of GDP according to Treasury – and being sucked into financial markets that are booming at a world-leading rate, run by corporations recognised as among the world’s most corrupt (in biannual PwC Economic Crime and Fraud reports).
Despite the many left-leaning statements from the ANC government emphasising the need to beneficiate and build downstream industries in South Africa, in order to industrialise and resurrect our once-strong manufacturing base, the government has been steadfast in amplifying the neo-colonial structure, amplified by financialisaton, capital flight, neoliberal deregulation, rising interest rates and budgetary austerity.
It is the combination of these factors that has worsened already-unprecedented unemployment, poverty and inequality. Over the past decade, at least, South Africa has held several infamous titles: the most unequal society, the industrial economy with the worst unemployment rate, even more extreme youth unemployment, the highest degree of corporate corruption and – as the World Economic Forum’s Global Competitiveness Report has testified – the most alienated, angry working class.
The government knows that this self-destructive path leads directly to a powder keg that can explode and lead to common ruin, as shown so vividly and tragically in July 2021. Instead of reading the signs – including our reputation as protest capital of the world, as the second most depressed nation in the world, and with violent crimes that leave 71 people dead on average, daily – the government keeps believing that doubling the dose of failed policy will eventually work.
The stagnation and decline are now causing a whirlwind, probably leading soon to a broader local and indeed global economic crash. This tendency to periodic crisis characterises capitalist economic development, because of the inherent contradictions of capitalism. With our massive idle capacity in the industrial economy and workforce, with the whims of speculative global commodity, food and energy markets leaving our wallets bear and our mineral exports booming, and with financial bubbles rising to untenable levels – such as the Johannesburg Stock Exchange index at nearly double its March 2020 lows (and the real economy not yet back to pre-Covid output) – South Africa’s capitalist managers are exemplary in letting this crisis build to break point.
The new GDP figures confirm this decline, including manufacturing which fell by 5,9% (contributing -0,7), agriculture by 7,7% (-0,2), mining and quarrying 3,5% (-0,2) and catering and accommodation by 1,5% (-0,2). The growth areas are worrying: finance and logistics at 2,4% growth each, representing manic speculation and the export of our mineral wealth.
Religious adherence to neoliberalism and the desire to profit at all cost, are the watchwords of the Ramaphosa government and big business. These unpatriotic forces are engaged in an investment strike that has run by both government and the private sector. No economy will realise robust growth with redistribution if the government and its parastatals, plus business, continue their investment strike.
Treasury’s austerity is a core reason for the stagnation. Although there has been a minor increase of government final general expenditure over the past three quarters, the state’s consumption declined by 0,7% in the 2nd quarter of 2022. This includes spending on schools and health facilities, and with cuts in these sectors, there will be steady declines in demand for procured goods and services.
The sectors of the economy that directly benefit from government expenditure and from maintenance of its institutions include manufacturing and construction, where massive backlogs in infrastructure have emerged, and procurement of textbooks for schools and equipment for institutions such as hospitals have slowed. Both manufacturing and construction sectors declined, indicating a direct correlation to government’s investment strike.
The rising cost of living also contributed to a decline in other sectors. From the end of the first quarter when the Russian war on Ukraine sent oil, gas, coal and food prices into a frenzy, and in turn caused prices of other goods to spiral, household consumption became skewed. Areas of priority – food, electricity, water and transport – were becoming unaffordable, as households’ buying power diminished due to rising costs. Because prices on basic needs shot through the roof, households refocused their spending to basic goods, reducing expenditure on clothing, furniture and what are now being considered to be luxury consumption items.
Even the manufacturing sectors that produce basic goods saw a decline in their GDP. This means the rising costs of living would have contributed to lower production of these goods, and the increase in consumption is mainly attributed to a rising cost structure.
The private sector investment strike resulted in the cash hoarding of more than R1,4 trillion (as last measured for the 50 largest companies in 2016). The main reason why this investment strike continues, is that South Africa’s monetary authorities at the Reserve Bank are continually lobbied by the financial industry to adopt an inflation target of between 3 – 6%, which can only be achieved by using the blunt instrument of interest rates. With rising interest rates since last November, the tycoons will leave even more of their money in the bank and still make a profit of 4%. If they can rake in 4% profitability by just lying next to the swimming pool and playing golf, why should this capitalist class bother themselves by investing in the productive sectors of the economy?
This hoarding combined with other unpatriotic practises such as illicit cash outflows, mispricing and misinvoicing, corruption and stealing 35-40% of the government procurement budget, tax dodging schemes, etc. means that the country is left with no resources to invest. The decaying infrastructure and shrunken manufacturing capacity desperately need investment. But the capitalist class and their friends in the state have succeeded in blackmailing some unions to accept workers’ wage increases under the inflation rate, which is now more than 7,5%. This is not new, as witnessed in the decline in the share of wages as a share of GDP since 1991. Lower wages weaken the demand for goods produced in the economy. The monied class do not buy locally produced goods.
Capitalists are withholding investments by claiming that SA is not investment-friendly because of labour instability and our demands for more radical reforms. In accordance with this neoliberal logic, low levels of investor confidence are used to continue with austerity and wage cuts.
Because of the low investments both from the public and private sector, the rate of Gross Fixed Capital Formation (GFCF) is historic lows, having declined by 19,1% from 2018 to 2020. Gross Fixed Capital Formation is today just 13% of GDP, in contrast to the neoliberal National Development Plan target of 30% in order to boost and drive economic growth. But as the SA Reserve Bank recently admitted in their mid-2022 Quarterly Bulletin, “Total gross fixed capital formation amounted to R214.0 billion compared with the consumption of fixed capital of R213.9 billion,” another obvious reminder of the elites’ investment strike.
Myth of trickle, stimulus, and public ownership
The NDP had envisioned that generalised investments that constitute 30% of the GDP would be sufficient to boost the economy to grow by 5,4% and reduce unemployment to 6%. This is based on trickle-down economics of neoliberalism, which believes economic growth will lead to increase in employment and distribution of wealth.
The record-breaking profits of some South African banks and mining houses proves the fallacy of the trickle-down theory every day. The more they maximise their profits the more they take money out of the country.
SAFTU will continue to campaign in the streets until the following demands are met: