Want to keep learning?

This content is taken from the University of Stellenbosch Business School Executive Development's online course, Futurism and Business: Dealing with Complexity. Join the course to learn more.

Skip to 0 minutes and 5 seconds The South African economy is one that, of course, we’re best acquainted with. But sometimes it makes it more difficult to be objective about our economic performance. But what we could do, what we should do, is at least take a look at some macro economic variables and their developments.

Skip to 0 minutes and 26 seconds Typically, we are concerned with economic growth, inflation, unemployment, and then some measure of the world’s investment in South Africa. If we were to look at these four, historically, and go back to perhaps the mid-1970s, we’ll discover that– starting with the economic growth, the period from the 1970s through early 1990s, economic growth was really not all that great. It was highly volatile, often negative, and averaging barely 2%. Those, of course, were the days of its national isolation. Since the early 1990s, growth here has improved. It’s not become spectacular, but certainly far more solid, and far more reliable, and only one occasion, back in 2009, was the growth rate of this country negative.

Skip to 1 minute and 18 seconds It’s improved, amongst other reasons, because of the end of isolation. We have now opened up. We may now import and export if so wish, and the world will invest here, if it appears worthwhile investing here. In addition, like elsewhere in the world, we’ve seen a massive growth in the number of middle-income consumers. That’s also helped to boost economic growth. So if we look at the last 20 years, compared to the previous 20 years, economic growth has fared better. Unfortunately, if we look at the roughly five year period after 2009, we do observe a declining trend in economic growth. And that’s probably reflecting some fairly well-known constraints in the economy.

Skip to 2 minutes and 4 seconds These range from inadequate or inappropriate skills, which in turn implies that our labor force is not all that productive. That’s a crucial ingredient for better and sustained economic growth. Another constraint is clearly there is infrastructural backlogs, not least of which, electricity. Other constraints are at times of our own making, such as the fact that back in, around about 2007-2008, many households in this country borrowed a great deal of money. At the time, it made some kind of sense. The economy was booming, house prices were rising rapidly. It was almost worthwhile incurring more debt. But things have changed. House prices are no longer booming, interest rates are rising, debt is becoming more expensive.

Skip to 2 minutes and 56 seconds And therefore, many households since 2009 have attempted to reduce their debt exposure, which is wonderful thinking– very sensible thinking– but also implies they are no longer spending as much money as before. And that, in it’s own right, serves to slow down economic activity. In addition, the country is also, naturally, and not of it’s own making, a victim of international events. So the slowdown in Europe has a direct bearing on the South African economy, because Europe does remain South Africa’s biggest trade partner. The possible slowdown in China will have a negative impact on the economy. So a combination of external factors, as well as some self-imposed issues, have resulted in economic growth being rather disappointing since around about 2009.

Skip to 3 minutes and 52 seconds This country requires an economic growth rate of at least 5, 5 and 1/2, preferably 6%. 2% is simply not good enough. The slightly better news is that according to many experts, economic growth in this country probably reached a lower turning point in 2014, and from there onwards, was expected to move up modestly. That’s, as I say, slightly more positive news– not over encouraging. Still nowhere near the much required 5 or 6%. Turning to inflation, back in the years before the early 1990s, the inflation rate averaged for more than a couple of decades around about 14%. Now the practical implication of that is as follows.

Skip to 4 minutes and 39 seconds If the inflation rate is 14%, it means that prices of goods and services double every five years. Or, conversely, the value of money halves every five years. That’s where we were back in the ’70s and the ’80s. Since the early 1990s, the inflation rate has fallen to an average of 7%. Still high by world standards, but certainly be much lower than the previous 14%. And the implication is it now takes 10 years for prices to double, or if you like, it takes 10 years for the value of money to halve. So it is a good improvement. Thirdly, back in the days before the early 1990s, the world generally tended to withdraw their investment from South Africa.

Skip to 5 minutes and 28 seconds Since then, we have seen an overall net inflow of just over one trillion Rand. Which is suggesting that the world on average, for the last 20 years, has regarded this country in a more favorable light. They have been more willing to invest here. Unfortunately, after 2009, 2010, and since then, the world has lost a bit of it’s appetite for investing in South Africa. They are aware of slowing growth. They’re aware of labor issues. They’re aware of things such as load shedding and they’re less enchanted with South Africa. But nonetheless, in terms of economic growth, inflation, and the world’s interest in South Africa, we have seen a long term improvement. We cannot say the same about unemployment.

Skip to 6 minutes and 17 seconds Unemployment has always been high– if anything, it is higher today than 20 or 30 years ago. That’s probably our biggest single economic, social-economic, political concern. Not only is unemployment sad in it’s own right, it is a major contributor towards poverty, a major reason for a very wide income discrepancy. And the reasons for unemployment are complex. Not always as simple as we might think. The reasons include the fact that this country, South Africa, is no longer a country, an economy, that relies very heavily on mining and agriculture. So relatively unskilled workers are no longer guaranteed a job in the mining and agricultural sector. Most jobs are being created in the biggest part of the economy, the services economy.

Skip to 7 minutes and 9 seconds But, the jobs being created there require– the job content requires a certain minimum level of skills, which these days is probably around about grade 12. Due to all kinds of factors, historical factors, only about 40% of adults in this country have a grade 12 education. That means that 60% do not have the minimum requirements for most jobs in South Africa. They don’t have their learners license, as it were. So we find a structural mismatch between the nature of the economy and the kind of skills being offered. In addition to that, I think we’re all aware of all those aspects of labor unrest, labor wage increases, et cetera– what it boils down to is the following.

Skip to 7 minutes and 56 seconds In as much as wages rise more rapidly than does labor productivity, that implies the costs of labor rise very rapidly. And in many respects, our labor force is pricing itself out of contention. And for many employers, it seems far more worthwhile replacing labor with a machine. Machines don’t go on strike. Machines don’t ask for wage increases. Machines don’t stay away every now and again. Machines don’t suffer from a highly contagious virus called Monday morning-itis. So increasingly, labor is becoming less appealing compared to capital, compared to machinery. So the whole unemployment problem is not one that is of recent origin, meaning that it’s been a development of many, many years.

Skip to 8 minutes and 45 seconds And by the same token, it won’t go away very quickly either. So to summarize, at this wide liberal thinking, backward liberal thinking, in many respects we are better of than 20 or 30 years ago. But since around about 2009, there has been a largely disappointing performance. Growth has become pedestrian, prices trending to rise. And by the way, that always prompts high interest rates, unemployment chronically high, and then international interest in South Africa starting to wane– not go away, but starting to wane.

South African economics

This video focuses on the South African economy.

Issues impacting the South African economy include economic growth, inflation and unemployment. In this video we will take a look at some macro-economic variables and their developments.

Share this video:

This video is from the free online course:

Futurism and Business: Dealing with Complexity

University of Stellenbosch Business School Executive Development