When the South African economy is covered on Bloomberg, you know the situation is serious.

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Messenger and message

The article quotes the South African Chamber of Commerce and Industry (SACCI), who say that South Africa must “stop making excuses” for its economic struggles and address the deeper systemic issues hindering growth.

They like Operation Vulindlela, which “shows promise” (because it’s making them a lot of money in the short term), but falls short of resolving structural unemployment, inequality and poverty. SACCI argues that focusing solely on corruption (arguable whether that is even happening) overlooks other factors, including fiscal and monetary policy shortcomings and “insufficient private sector leadership with a global perspective”.

That seems like code for something, but the precise reforms they have in mind are difficult to ascertain. The alignments around the recently thwarted monopoly takeover of the telecoms sector suggest that this means partnerships between local oligarchs and foreign conglomerates to squeeze out SMEs and centralise private governance.

Nedbank has also reported slowing credit demand. Nedbank is worried that people have taken on as much debt as they can afford, and want the government to increase inflation somewhat by lowering interest rates - a 75-bps cut in 2025 - to gradually boost household credit demand. This is seen as positive, not because increasing the amount of debt in the private sector is good exactly - people are clearly in debt up to their ears - but because financial institutions are the primary beneficiaries of inflation.

What the Chamber of Commerce is afraid of, is not just the rafter of increasingly strict racial and other market regulations coming down the pipe, but the structural effects on political stability. Nedbank appears to be worried only about the short term.

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What grew, what shrank?

Statistics South Africa’s quarterly report Shows South Africa's GDP contracted by 0.3% in Q3 2024. GDP is a poor and imprecise indicator, and changes smaller than 1 percentage point can be generally regarded as noise. After all, GDP includes government spending (among other methodological issues), the report shows significant shrinkage in several key private sectors which must be taken seriously.

The agriculture sector, which dropped 28.8%, was the largest negative contributor to GDP, accounting for a 0.7 percentage point drag. Drought and adverse weather conditions severely affected crop and fruit production, as did the slowness of our notoriously inefficient ports and the squeeze from chronic issues in labour and market regulations.

Transport and trade sectors experienced setbacks, and government services were hampered by reduced civil service employment - the new government has been cutting civil service jobs, but has not been cutting out the dead wood.

Finance, electricity, mining, manufacturing, and construction sectors posted growth, with construction seeing its largest rise in two years, but construction is a mid-term growth sector highly driven by economic flight from decaying areas into new builds in the Cape, and not a reliable indicator of robust development.

Exports fell by 3.7% - the largest drop in three years - due to reduced trade in key commodities and machinery. Imports also declined by 3.9%, with significant decreases in vehicles and mineral products.

Household consumption rose by 0.5%, led by increased recreation and gambling - gambling revenues soared by 25.7% in 2023/24. This is not a sector you want to grow, though Martin Moshal, one of the biggest ruling party donors, is probably feeling good about himself right now.

The automotive industry though, faced challenges in production, trade, and consumer spending, contributing to overall economic weakness.

Nedbank’s report is also a little worrying, and a potential indicator that people simply cannot afford even to borrow anymore. Private sector credit extension (PSCE) growth declined to 4.3% year-on-year (yoy) in October from 4.6% in September, with loans and advances slowing to 4.4% yoy. Household loans fell to 3.2% yoy, reflecting stretched household finances amid high interest rates.

Specific declines included home loans (2.3%), vehicle finance (7.3%), and personal loans (-1.2%). Corporate credit growth also weakened, falling to 5.2% yoy from 5.7%, despite improvements in general loans (4.5%), commercial mortgages (4.9%), and credit card usage (2.4%). Overdrafts dropped sharply to 13.1% from 17%.

To many people, what these reports signify, is in deeper trouble than the GNU may be willing to admit.

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Political consequences

In the big picture, the reason the market is so important is that the performance of the GNU, and by extension the DA, is tied to these numbers - if the economy does badly, voters (and non-voters) will look to more extreme solutions.

But more structurally, the state desperately needs more revenue to cover electrical grid expansion, infrastructure overhauls, and all the state dependents in the system. We cannot afford to go sideways, but must grow, and vigorously, in order to escape the fiscal cliff coming at us at the end of the decade.

Welfare dependents currently constitute nearly half the population. While these grants are relatively small in absolute terms, they are a big deal to those who depend on them, and a firm source of state legitimacy. The DA themselves have often tried to grab black votes by advertising their commitment to the welfare state.

Another big source of income has been the grey and black markets, but SARS has been clamping down on spaza shops to increase revenue and transition to a cashless society. This will reduce quality of life for a significant minority of the population who depend on this sector for income.

Helen Zille, by her own admission, avidly follows the quarterly labour statistics reports, nervously watching the needle rise and fall. While the Western Cape has been doing well in this regard, largely fuelled by the massive influx of citizens fleeing the collapse of the rest of the country, the development model here has been to focus on construction, services and tourism, which are evanescent in the long run, and are being emphasised at the expense of the much more important issue of industrial development.

This is a precarious position to be in.

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It’s structural

South Africa has been stagnant for a very long time, since around 2008, and has been unable to recover from the structural change in global finance since the Great Recession, largely because Mbeki had neglected infrastructure, policing, electricity generation and undermined anticorruption functions in the state, setting the stage for the profligate and kleptocratic Zuma administration, and also because we missed the main commodities boom during this period.

This has led to a growing disillusionment with mainstream politics, and among the poor, even a hatred of the democratic process. AfroBarometer, an opinion monitoring institute funded by the United States security complex, the EU and the World Bank, has been worried about the rise in desire for authoritarian government among South African citizens for over a decade now.

The broad population have become highly disillusioned with the political system. In the run-up to the previous election, the IEC was actually chased away from township recruiting drives in several locations.

With the decline of the ANC, votes are not crossing over to minority-led or liberal parties, but to harder-left and harder black-nationalist factions of the ANC who have broken away from the mother party - the 2/3rds black nationalist voting bloc has not shrunk in 30 years.

The inclusion of the DA into government came with a wealth of American and European support and pressure, including from local oligarchs, who rallied behind the coalition plan in almost hysterical fervour.

What the Americans and the foreign markets want, is for there to be a big blue doorstop keeping the radicals out of government, and for the state to be competent enough not to collapse, since that would take out the entire regional economy - most bordering states rely on customs revenue from trade with and through South Africa for the plurality of their national revenue.

But Ramaphosa, despite paying lip service to these forces, has continued to roll out radical socialist and racialist reforms, including BELA, NHI and the Expropriation bills, as well as a massive increase in the strictness of racial quotas and blocks to economic participation for minorities, where only Sakeliga fights on with any measurable effect.

This means the noose is tightening on minorities and the private sector as a whole, while legitimacy is falling - MK’s performance is no fluke, and even if the ANC succeed in decapitating their radical opposition (EFF and MK) and returning to majority, as seems likely for now, the stage is set for a much more radical political dispensation, and the DA have been blocking the exits.

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Checkmate

The trouble is, there are not many moves the state can make. There is only so much revenue it can squeeze before tax evasion becomes worth the risk, or consumption takes a nosedive, and they are already scraping the bottom of the barrel.

There is also only so much expenditure that can be cut, since the ANC relies on patronage to stay in control, not just in terms of welfare, but also in terms of looting of state resources.

If he cannot keep the taps open, Cyril’s rivals in the Mashatile camp increase in strength, and threaten to dissolve the coalition. They already hold spoiler power in Gauteng, the most important constituency in the country for patronage.

Then the whole house of cards comes down.

The state is also taking on more debt in order to meet its carbon reduction targets, which will also choke economic growth while funneling money back into Western banks and economies.

We may need to start looking for more radical solutions soon.

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