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South Africa’s contracting economy tells a story of a government failing its people

South Africa is clearly on the wrong economic path and the policies designed by the government and around which populism is created, are not delivering the economic and job growth the country desperately needs. These failing government policies will increasingly hurt the economy in future. 

Stats SA today announced that the country’s economy contracted 2,6% in Q1 2018 followed by another contraction of 0,7% in Q2 2018, meaning the economy is in a recession.

This is not s South urprising, though, as Stats SA recently announced that South Africa’s expanded unemployment rate increased to 37,2% in Q2 2018. This means that South Africa has more unemployed people than two of the largest economies in the world, namely the USA and Germany combined, as stated during yesterday’s presentation of the UASA 17th South African Employment Report (SAER).

Despite South Africa’s past goals and targets to find solutions to its unemployment crisis, the unemployment rate is not declining at all. Instead, the number of unemployed has increased from 6 million to 9,6 million between 2001 and 2018.

This is a 60% increase in the broader rate of unemployment which has had a devastating effect on the inequality and poverty in the country, said economist Mike Schussler during the presentation.

These facts tell a story – the current policies and/or lack of implementation of policies, are failing the people. Creating uncertainty about property rights, land invasions, uncertainty about the mining charter, proposals of unaffordable health policies, bad service delivery by municipalities, corruption, as well as weak energy and water infrastructure all play along to make South Africa even more vulnerable to the power of international financial markets.

In this sense, it is true that the rand exchange rate is weakening due to emerging market contagion because of events in Turkey and Argentina, but it is striking that the exchange rate of vulnerable economies such as South Africa is depreciating much more than that of other countries. And if the weaker exchange rates give rise to higher inflation and interest rates, it will reduce the country’s growth and job-creating potential even more.

Therefore the failing policies of government will hurt the economy even more in months to come. 

Government should as soon as possible get rid of the “vulnerability-creating” policies in order to attract domestic investments – and if successful, foreign investments will follow automatically. Such investments are the cornerstone of economic and job creation.  

For further enquiries or to set up a personal interview, contact Andre Venter at 083 251 3274.