On June 15, the Africa department of the International Monetary Fund (IMF) released a note titled ‘South Africaʼs Economy Loses Momentum Amid Record Power Cuts’. It evoked the words a former economics professor of mine would utter if a student didn’t apply his or her mind: “Sir/Madam, you have a knack for the obvious.” They are aptly applicable to the 307-word release.
The subhead – ‘Reforms are urgently needed to resolve the energy crisis and tackle structural unemployment’ – begs the question of what the definitions of ‘urgently’ and ‘resolved’ are. The definition of ‘urgently’ is “in a way which requires immediate action or attention”. ‘Urgent’ originates from the Latin word urgentem, which mean “to press hard”, and ‘urg’ means “to demand or insist”. So, who will insist on this immediate resolution, since South African policymakers talk a good game? But then talk is cheap, because supply exceeds demand. Yes, I went with the economics alternative, and not the excise equivalent – talk is cheap, because money buys the whiskey.
As for ‘resolve’, there are two definitions: to settle or find a solution to a problem or contentious matter, and to decide firmly on a course of action. A decision needs to be taken. But such behaviour would be quite unprecedented.
If you need reminding, the South African government has four ‘policy priorities’. The word ‘priority’ is derived from the Latin prioritas, which means first in rank, order or dignity. So, what’s the rank of the four policy priorities? Well, who knows? The challenge (yes, we cannot use the word ‘problem’ anymore) is that, with too many priorities, none gets the deserved attention to be accomplished.
The priorities (in no particular order) are: Resolve Energy Crisis – improve Eskom’s efficiency, foster competition, and accelerate the roll-out of renewable energy; Contain Public Spending – reduce the public wage bill and transfers to State-owned enterprises (SOEs); Advance Structural Reforms – reduce regulatory barriers to encourage competition, tackle corruption and improve labour market flexibility; and Bring Down Inflation – remain data dependent, and keep inflation expectations anchored.
Let’s turn it over to the IMF: “Newly released data shows the South African economy grew by 0.4% between January and March 2023. Crippling power cuts, volatile commodity prices and a challenging external environment have contributed to the country’s weak growth performance.
By year-end, we project real gross domestic product growth to fall sharply from 2022. Though we expect growth to pick up again in 2024, the pace is too slow to reduce unemployment, which at 32.9% remains close to an all-time high.
“South Africa has faced rolling blackouts after years of mismanagement of Eskom, prompting the authorities to ease the registration process and licensing requirements for energy production to encourage private-sector investment. Government also announced a three-year debt relief arrangement to help Eskom establish its commercial viability and mitigate the energy crisis.
“Additional far-reaching reforms are needed to achieve job-rich, inclusive and greener growth. These include improving the country’s energy and logistical constraints, reducing barriers to private-sector investment, addressing structural rigidities in the labour market and tackling crime and corruption.
“South Africa’s elevated public debt level – one of the highest among emerging markets – limits government’s ability to respond to shocks and meet growing social and development needs. Stabilising the country’s debt and creating room in the Budget for targeted social spending and public investment will require reducing the government wage bill and transfers to SOEs.
“Like elsewhere, persistently high food and energy prices have pushed up inflation and raised inflation expectations. Monetary policy normalisation should continue to keep inflation expectations anchored and bring down headline inflation to the midpoint of the South African Reserve Bank’s 3% to 6% target range.”