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GDP growth stats hide why South Africa’s capitalist economy fails us all

Fake news today from StatsSA is that the first-quarter Gross Domestic Product recovery is recovering at a healthy 4.6% annualised growth rate. For those in Treasury and the Reserve Bank who like to brag, these seems impressive compared to 2020’s -7% GDP decline.

But in reality, the headline figure focuses only on a bogus variable, GDP, that – as a measure of “goods and services produced” – entirely ignores the country’s depreciating equipment (wear and tear on machines), women’s unpaid work, pollution damage and especially the depletion of our natural wealth that is stripped out as minerals and only counted as “income.”

So at the same time as the fake-economy rises, the amount of Gross Fixed Capital Formation in South Africa actually declined, StatsSA admits, “at a rate of 2,6%. The main contributor to the decrease was machinery and equipment.” (This translates to a “contribution to growth in GDP” of -0.4%).

In short, our productive capital is still shrinking and unemployment is at a record level, of at least 43.2% using the expanded definition.

To make matters worse, the kind of GDP growth the government can claim is based on fake-economic prosperity in which the activity is parasitical or so volatile we cannot count on it continuing. This is implicit in StatsSA’s own decomposition:

  • The finance industry increased by 7,4% and contributed 1,5 percentage points to GDP growth.
  • The mining industry increased by 18,1% and contributed 1,2 percentage points to GDP growth.
  • The trade industry increased by 6,2% and contributed 0,8 of a percentage point to GDP growth.

For finance, it is simply outrageous that the Johannesburg Stock Exchange index has jumped by more than 70% from its low point in April 2020 to a record 69 000 this week, while the real economy collapsed over the same period. This is the essence of a “rentier” system in which casino-type gamblers take our hard-earned pension monies to “invest” JSE in shares, especially in firms – led by Naspers/Prosus but also the Anglo American group, British American Tobacco, BHP Billiton and many other massive firms – which take the vast bulk of their profits out to Amsterdam, London, Melbourne and other overseas headquarters.

Mining had the biggest boom, because global financial volatility always raises the gold price, and the commodity super-cycle has also artificially inflated prices for commodities such as platinum, iron ore and coal. The latter commodity should be in decline – for good reason – due to its major contribution to the climate catastrophe, but with China failing to cut emissions and importing South African coal for the first time, the price and exports are temporarily higher than they should be otherwise.

For the same reasons, the overvalued rand – which usually tracks commodity prices – is just as vulnerable to a crash as it was in 2015, 2008, 2001 and at other points when the financial and mining bubbles collapsed. Again, we stress that while mining provides a positive on income accounts, StatsSA’s new Natural Capital Account should not be ignored – as did StatsSA’s announcement did today – because if measured properly, minerals are also logically a debit on our wealth accounts, as depleted sovereign resources.

And finally, on the one hand, it is pleasing that the wholesale and retail trade, and accommodation and tourism sectors are in recovery. But on the other hand, in comparison to real-economy production of goods and services required by the masses, this is not to be celebrated as reflecting government’s reindustrialisation and localisation objectives.

Some economists will be pleased to celebrate these figures even though they exemplify activities which are essentially destructive or parasitical, since those who rely on GDP truly have no regard for socio-economic and environmental impact of production, and especially whether these activities create desperately needed jobs.

What SAFTU demands, as ever, is an economy that meets people’s needs. Again and again, we are reminded of why South African capitalism – with the worst inequality in the world, the most corrupt capitalist class (according to PwC), the third most carbon-addicted economy, the most angry workers over the past decade, and some of most furious social protests – cannot meet our needs.

We pledge to continue working with all sectors of society committed to transcending this outmoded system and introduce an economy that works for all South Africans. To that end, Working Class Summits are now being scheduled for provinces in coming weeks, once the third wave of Covid-19 ebbs and outdoor meetings are feasible.