SA recession looming

6 September 2022

Total domestic value-add, known as GDP, shrank by 0.7% from April to June this year, according to Stats SA’s latest data, heightening concerns that South Africa may have exited the Covid-19 crash only to enter a recession.

Average productivity, measured as real per capita GDP, is lower than it was in 2009. South Africa has the highest unemployment rate on record, globally, and is one of the very few countries with declining productivity too. In this sense South Africa is already recessionary.

The greatest challenge to productivity is counterproductive government policy, but the IRR warns that this is currently set to get worse. The Expropriation Bill, which allows for Expropriation without Compensation (EWC) will be voted on by a parliamentary committee on September 14. If it is passed into law, the IRR has warned, it will trigger a shift from recession- to depression-economics and may trigger a domestic financial crisis as well.

On the more immediate scale it is worth noting that the agriculture sector shrank in the second quarter of this year despite global prices in unprocessed food products skyrocketing at the onset of the war in Europe, which was also the peak domestic harvest time. Together with the shrinkage in mining and manufacturing, these are yet more signs that crumbling infrastructure and anti-investment policies make it impossible for domestic producers to take advantage of major one-off opportunities.

South Africa has the highest food security in Africa, but the UN estimates that the number of malnourished children is increasing so rapidly that, by 2025, 1.7 million children under the age of 5 will suffer from stunted growth.

However, instead of learning the lessons of failed states like Zimbabwe, addressing the need for greater food security, and strengthening the framework within which businesses can grow jobs and value, President Cyril Ramaphosa’s administration is currently determined to make a terrible situation even worse.

The Expropriation Bill has an open-ended list of circumstances in which “expropriating authorities”, including municipal officials at cash-strapped organs of state, can impose EWC. This includes where owners have “failed” to “exercise control” over property and where property is bought “to benefit from appreciation in its market value”.

The anti-profit policy of EWC will succeed in driving down profit, shrinking productivity further, and therefore driving away the new investments that would otherwise have provided opportunities to the unemployed.

The IRR has further tracked the interconnection between the Expropriation Bill, the Land Courts Bill, the Unlawful Entering On Premises Bill, and the so-called “PIE-Act”, which will minimize protections for landowners and maximize incentives for land-grabs.

Said IRR Head of Campaigns Gabriel Crouse: “If the ANC passes the Expropriation Bill that will be a firm signal that is preparing to enter the 2024 election without being able to say it helped grow the economy and jobs. Instead, it will be able to promise EWC. Independent polling commissioned by the IRR shows that one in seven white people prefer EWC to economic growth, but 80% of black South Africans prefer growth to EWC.”

Issued by Gabriel Crouse, IRR Head of Campaigns, 6 September 2022