18 August 2024
On May 29, the South African elections ushered in a new area of coalition politics. After 30 years of unchallenged ANC rule, the former liberation party’s support dipped below 40%. This forced the ANC to work with several opposition parties in grand coalition. These are significant milestones in South Africa’s history and are promising signs of the country’s maturing democracy.
Lets face it, South Africans do tend to buy-in to a hopeful genre. The Ramaphoria that swept the nation in 2019, in many ways, has parallels to the optimism that exists now for this grand coalition in the sense that they both arise from desperation and hope more than probabilities. Reports of new investments, an economic revival, increasing economic confidence and a new dawn for South Africa are not supported by any policy shifts or new legislation enacted by the government. This top-down sentiment is not shared on the ground and, importantly, is not born in the data.
While South African politics have shifted, the government and executive are essentially the same. Yes, the ANC received only 40% of the vote; however, it still holds the Presidency, Speaker of Parliament, 63% of the ministers and 77% of deputy ministers in the largest cabinet in our history. South Africa’s executive is 70% the same as before and even coalition partners are pre-empting their defense of any further consideration of Phala Phala – hardly a renewal.
The post-election media narrative has shifted from “doom-and-gloom” to “renewal and optimism.” There has been no shortage of commentators keen to promote the work of this new grand coalition government. I read last week with great amusement how one minister even claimed credit for the reduction in the petrol price – something easily attributable to the international decline in the cost of brent crude.
Unemployment remains pervasive, growth is weak, investments are lacking, and more. Manufacturing production decreased 3.3% y/y in June and was down 6.9% over the past five years. Mining activity dropped 2.4% y/y in June and was down 11.3% over the past five years. Worst of all, the unemployment rate rose from 32.9% in Q1 to 33.5% in Q2. The situation is even worse for young South Africans, with youth unemployment rising from 59.7% in Q1 to 60.8% in Q2 2024.
Yes, changing the ship’s course takes time, and macroeconomic data does lag. That said, there are high-frequency economic indicators that paint a more realistic picture of the post-election economic landscape in South Africa.
The first indicator is the Purchasing Managers Index (PMI). The PMI is based on monthly surveys conducted by the Bureau of Economic Research (BER) and gives us a snapshot of private sector business activity. The PMI indicates how South Africa’s manufacturing and services sectors performed compared to the previous month. A PMI print above 50 indicates that economic conditions improved over the past month, while below 50 signals a deterioration.
According to BER, the PMI dropped to 45.7 in June but rose to 52.4 in July. While rising activity in July is welcomed, this marginal improvement is nothing to write home about, especially after years of sluggish growth. Furthermore, during the GNU’s two-month tenure, the PMI averaged 49.1 points, signalling persistent weakness in the South African economy. This figure is only slightly higher than during the last six months of unchallenged ANC rule, with the PMI averaging 48.9 points from December 2023 to May 2024. Nevertheless, in both instances, private sector activity was weak and contracted.
The second indicator is the exchange rate. From June to July, the rand averaged R18.3/$ - a slight gain from the R18.7/$ recorded during the six months leading up to the election. This is barely an improvement, especially considering the rand trended below R15.0/$ during most of 2021.
Despite the ongoing narrative of new investment inflows and economic improvements, the currency has barely budged over the past three months. A good rule of thumb is to consider currency fluctuations of more than 5% as significant. Using the 5% rule as a benchmark, the rand will need to appreciate to R17.8/$ or better to be considered notable. We are currently well within the margin of error, and the purchasing power of the rand remains very disappointing.
The third indicator is the JSE all-share index. Since election day, the JSE all share index has gained between 3%-4%. Regarding South Africa’s underperforming stock exchange, all gains are welcome. However, the latest gains follow considerable weakness over the past year, especially considering global stock market fluctuations over the same period. In mid-August 2024, the JSE trended around similar levels as in February 2023. This hardly shows increased business confidence and significant investment inflows into the country.
Despite the optimistic media narrative, South Africa’s stagnant private sector, rising unemployment, and lacklustre exchange rate and stock market gains are hardly signs of a booming economy. Importantly, South Africa’s media, opposition parties, and civil society must keep a sober mind. We need to hold the ANC-led government to account lest we forget the past decades failed promises.
The photo-ops and announcements by new cabinet members aside, and they have been busy, this government will live and die on whether it can generate economic growth that creates jobs and addresses pervasive socio-economic inequality. To move the needles on this, there must be serious reforms to economic policy, adherence to a national strategy and performance-based management of all government departments to the work of driving our economy forward. In terms of these vital levers of economic change the silence has been deafening.
This week’s job stats are a strong reminder to this grand coalition government that the optimism of South Africans tends will make way for impatience if their circumstances do not improve in the coming years. Every South African, even those of us in the opposition benches, wants government to succeed for the benefit of our long-suffering citizens but this is going to need more than gimmicks and headline chasing, it is going to need real reform.
Pieter Scribante, ActionSA Member and Senior Political Economist
