South Africa could be headed for a recession in the next year, economist Chris Hart has warned.
Speaking at a Collaborative Stakeholder Movement (CSM) Jobs Pledge launch event to challenge organisations to grow an inclusive economy through the expansion, enhancement and preservation of jobs last month, he said industries across the board were suffering because of various self-inflicted problems.
“South Africa’s economic backdrop is looking ugly. The South African economy has entered a ‘stagflation’ phase, where growth is low and inflation is high.
“The bad news is that, if we continue the way we are, we will get the outcomes we expect; however, if we change course, South Africa could be a haven for investors,” he stated.
Hart said the country urgently needed to adopt policies to encourage people to save more and to increase investment.
“The economy is only bad if we don’t do anything, but we can turn it around. This country has deep economic potential and the only way to fund growth is to save more as a country,” he commented.
He further noted that interest rates are too low and are not compensating the saver, adding that South Africa had a debt-led consumption growth model, which is becoming an “exhausted, painful adjustment” to the country’s economy.
“We are seeing huge cost pushers through the public sector at the moment, with State-owned entity Eskom at the forefront of this.
“Our debt levels have shot up and are back to where they were in 1994 and our government budget is going down an unsustainable path. We have been downgraded from a credit rating point of view a number of times now since 2008,” Hart pointed out.
He outlined an economic crisis that can potentially push South Africa to the brink of insolvency but stressed that there are ways to negate negative outcomes.
He highlighted that expenditure threats, including the public-sector wage bill, national health spending, parastatal funding and nuclear energy costs, were contributing to South Africa’s looming solvency crisis, which he believes can take place within three to four years.
“South Africa’s public-sector wage bill is higher than Greece’s. That alone can [push] the country to a solvency crisis. National health has become a tax burden and parastatal funding needs to come out of the tax base, which is in deficit,” he stated.