Economic growth has allowed South Africa to spend above the global median on social programmes. (Image Credit: Hannelie Coetzee/Media Club South Africa)
The Ebola epidemic, contained in three West African countries, has had the knock-on effect of scaring off tourists from South Africa’s beaches and resorts. The upshot is that, although it is only a minor cause, it will slow the growth of South Africa’s economy.
However, South Africa will return to the 4% growth rate it experienced in March 2010 – growth stimulated by fiscal policies that helped to lift 3.6 million people out of poverty – according to a World Bank report, the SA Economic Update. That earlier growth was driven in part by World Cup-related tourism and expansion in wholesale, retail and motor sales. The manufacturing sector and general government services were secondary contributors.
That upward movement came off a significant low: in the depths of the global recession, South Africa’s gross domestic product (GDP) shrunk by as much as 6.3% in March 2009. By 2010, the government’s growth rate projection, as per its Accelerated and Shared Growth Initiative for South Africa (AsgiSA, launched in 2006) programme was 6%. At this rate, the government believed it could continue to fund its social programmes, programmes that favoured the poor.
In the World Bank’s sample of 12 middle income countries – South Africa, Armenia, Bolivia, Brazil, Costa Rica, El Salvador, Ethiopia, Guatemala, Indonesia, Mexico, Peru and Uruguay – South Africa’s reductions in inequality and poverty showed the largest swings. Its fiscal policy favoured the poor, the World Bank said.
According to economist Catriona Purfield, social spending on child support, disability grants, pensions and free basic services lifted “the lowest income from a tiny R200 a year to R2 800 in 2010/11. Because of those cash transfers… and free basic services, the poverty rate after receiving those falls to 39% (from 46.2%).”
The first democratic government inherited an economy that grew 1% in 1994 after three years of contraction; but government debt was 49% of GDP – 52.5% if the debt of the former homelands was included. The new regime’s commitment to sound fiscal policy helped to reduce debt to 35.4% of GDP by 2003. And the lower cost of servicing debt, improved tax collection and stricter controls on government expenditure, freed up resources to improve service delivery. By 2008, South Africa was recording surpluses that became deficits by the following year when the global economy went into meltdown.
Global economic meltdown
The benefits of South Africa’s sound fiscal policy meant the country was able to ride out the worst of the recession. It was able to tap into the international bond market and by 2012 it was the first African country to be included in Citigroup’s World Government Bond Index, a vote of confidence in the country’s economy that lowered the cost of borrowing. Also in 2012, the International Budget Partnership’s Open Budget Index ranked South Africa second after New Zealand and ahead of the US, France and England.
The number of social grant beneficiaries has quadrupled since 1994; at present, school feeding schemes, pensions, child support, early childhood development and disability grants provide a safety net for 16 million South Africans. The well-targeted grant system comes in at 3.5% of GDP, which is twice the median spending compared to other developing countries. This public spend will allow South Africa to meet the UN’s Millennium Development Goals on primary education, health and gender indicators.
South Africa has built 56 000 new classrooms putting it on track to meet UN Millennium Development Goals on primary education. (Image Credit: Media Club South Africa)
By 2009, South Africa had built 56 000 new classrooms and 1 700 clinics, and had provided 2 million homes to low income families. For the first time, 73% of the population could throw a switch and have light, and 9 million people had access to stable sanitation services. Even the spending on the construction, rehabilitation and maintenance of 21 000 kilometres of road has helped to lift millions out of poverty by growing the economy and providing employment.
Purfield, while praising the country’s progressive economic policies, cautioned: “Even though South Africa has a very effective use of its fiscal tools, the original problems in income inequality are so high that South Africa is going to need other things to help it address the problem of inequality. You need to complement fiscal policy with higher and more inclusive growth that essentially generates jobs, especially at the lower end of the distribution.”
A better life for all
In 2006, the South African government calculated that the economy would need to grow by 7% annually for it to fund its ongoing social and infrastructure programmes. As late as that, it was difficult to foresee the crash of 2008, and the government remained optimistic it could and would fulfil its promise of a better life for all.
The World Bank report revised the outlook for growth downwards for 2014 and 2015, with a modest 2.5% growth expected in 2015. A five-month strike in the platinum industry and pressure on the power grid were the biggest factors in the downward revision but fortunately did not push the country closer to a recession.
The bank expects the labour situation to stabilise and more power capacity to be added to the grid. As long as South Africa can ride out external factors – slowing economic growth in Europe and China, tighter US monetary policy and the Ebola crisis – the economy will grow and the government will be able to continue its social programmes. “If this does not happen, we will have a continued negative (impact)… on investor confidence… which over time will impact the growth potential and will also make the fiscal targets more difficult to meet,” Purfield warned.
The newly devised National Development Plan, with its aim of eliminating poverty and reducing inequality by 2030, makes the government and citizens partners in building a better South Africa: the government, hand-in-hand with energised, active citizens, dreams of a fairy tale ending to South Africa’s story.