SAFTU ON GDP FOR 1ST QUARTER OF 2024
Measured through the Gross Domestic Product (GDP), the South African economy shrunk in the 1st quarter of 2024 by . It has continued to show a zigzag growth pattern, in which it rose in the 4th quarter of 2023, from a previous decline in the 3rd quarter.
Five critical industries (Mining, Manufacturing, Electricity, Construction and Transport) have shown a decline in nominal outputs. Mining declined by 2,3%, manufacturing by 1,4% and construction by 3,1%. Understandably, the loadshedding crisis that continued unabated in the first quarter of 2024, affected other industries such as manufacturing. Manufacturing in South Africa is capital intensive, and any power cuts negatively impact output.
The decline is not surprising. It reflects the structural faults that the South African Federation of Trade Unions (SAFTU) has repeatedly pointed to in the past. These faults are even reflected in the expenditure on real GDP. All key categories of expenditure including government consumption, investment spending, household consumption and exports, have declined. How can production grow if consumption has declined in real terms?
Interest rates sabotage the economy
The restrictive monetary policy of the South African Reserve Bank (SARB) is one of the factors that are sabotaging the economy. Their premise is that inflation is always caused by ‘too much money chasing too few goods.’ Their solution rests on restricting credit and reducing money supply by increasing interest on debt liabilities for businesses and households and discouraging further credit by hiking interest rates. Interest rates are high today, with the prime lending rate at 11,75%. Consequently, this has increased debt and credit liabilities for small businesses, causing them to default, go bankrupt and close businesses. The liquidation statistics by StatsSA show that 513 companies have been liquidated between January and April 2024 across all industries. Causes may be multiple, but increasing debt service costs have certainly contributed.
But by increasing debt and credit service costs, the SARB is not only sabotaging businesses directly but indirectly too. Capitalists enter the realm of business to make returns. If there is no guarantee for returns, they do not enter business. The first and foremost guarantee for this return is demand. Therefore, a monetary policy that fights to reduce aggregate demand is meant to hold the economy stagnant because businesses have reduced consumers for their products.
Lack of industrialisation, hyper financialisation
The two decades from 1990-2010 witnessed the rapid deindustrialisation of South Africa’s economy, as concentrated capital responded to greater pressure by shutting down half the country’s manufacturing capacity (especially in labour-intensive clothing, textiles, footwear, appliances, and electronics).
Simultaneously, finance bubbled so much (measured as stock market capitalisation to GDP). Due to financialisation and the promise of high return in financial assets, owners of capital have been divesting from the productive sectors of the economy (manufacturing). The levels of investments in manufacturing are, more than a decade later, still below the levels of investments at the time of the Global Financial Crisis (GFC). This is even worse when compared to the rest of investments across the economy.
The little investments go hand-in-hand with the character of South Africa’s economy a neocolonial economy. This entails a condition in which raw materials including minerals are manufactured into value-added goods somewhere, not here. This undermines the possibilities, opportunities and plans for industrialisation. In other words, it undermines the potential growth of this economy.
Reliance on attracting Foreign Direct Investment (FDIs) as a basis for economic growth is doomed. It is a tried and tested policy, and each time has produced dismal results at the expense of sustainable jobs. Government has to take direct responsibility for investing in the economy. It has to abandon the stance of creating an “enabling environment” for the private sector, particularly the FDIs.
Our propositions amount to nothing but mere reforms. They will not solve the central contradiction of capitalism: accumulation is not compatible with an economy that serves people’s needs and improves their living conditions. The zigzags of the South African capitalist economy simply confirm this and affirm our stance in renewing our fight to abolish capitalism and to establish socialism.
