Page 58 - IRMSA Risk Report 2023

State capture and corruption together, with external of demand for goods and services. Combined with
factors and other internal factors, have severely a shortage of supply (especially in China where a lot
damaged the economy, where one is likely to see of production facilities have been interrupted), this
economic growth subsiding in 2023. Forecasts are has resulted in the highest inflation rate in the world
that economic growth in 2022 will have achieved in more than 40 years. This is exacerbated by the
somewhere between 1½% and 2%. When we look Russian invasion of Ukraine, which has resulted in
at 2023, we’re looking at a figure closer to 1% and, food and fuel prices rising even more steeply than
at best, 1½%, and the possibility of a full-scale they might otherwise have done. This results in a
recession in the meantime. There is no sign of the perfect storm of inflation that has built up. Central
South African economy collapsing completely. It’s banks have now been compelled, led by the United
degenerating gradually, but it’s not collapsing. States, to start increasing interest rates very sharply,
having a massively negative impact on the world
The South African economy was doing reasonably economy.
well between 2004 and 2007, and the country
managed to record growth more than 5% per year. On top of this, China – which is the biggest single
In part, that was due to a commodities-price boom, driver of world economic growth in recent years –
but it was also due to solid fiscal and monetary has reinitiated COVID-19 lockdown restrictions,
management of the economy. imposing headwinds on global economic growth.
That means lower commodity prices. This poses a
South Africa was impacted by the 2008 global threat to the South African economy despite the
financial crisis, but not as seriously as other countries. increase in the price of coal, which helps compensate
In part, this was because in 2007 the country was for the decline in other commodity prices. A further
able to generate sufficient growth in government inhibitor of economic growth for SA is the lack of an
revenue to bring our government debt down to 21% efficiently functioning rail or port infrastructure.
of GDP, which is exceptionally low. The economy
contracted by 1.5% in 2009, which was less of a Domestically, there are several major headwinds. The
contraction than most other countries. In 2010, it obvious one is loadshedding and the intensification
recovered quite nicely. thereof. For every stage of loadshedding, the
economy arguably loses R500-million a day. The
Since then, we have seen a progressive slowdown, second headwind is that we too have suffered from
especially from about 2013 onwards. There are an increase in inflation due to higher fuel and food
reports of slowdown in the rate of growth, including prices, albeit not as much as many other countries,
negative growth in 2016 and again in 2020 with which has compelled the South African Reserve Bank
the COVID crisis. 2021 saw a big recovery, but off to raise the repo rate sharply to 7.25% at the end of
very low base from 2020 in line with everyone else. January 2023.
However, we now sit at a dismal growth rate of 2% or
less. Some of the main reasons are to follow. The longer-term factors are more insidious. The
major one is corruption and state capture. Until
In 2009, Jacob Zuma became president of the such time as we eliminate that, resources will still be
country and it saw resources being diverted towards channelled to those who are considered ‘powerful’.
enriching a few, and one of the key vehicles through In addition, the administration of the government
which this was enacted was the state-owned and the quality and competence of individuals has
enterprises – Eskom in particular. The problems at deteriorated over the past decade. This has been
Eskom arose prior to the Zuma presidency, when further exacerbated by an exodus of skilled people
during the Mbeki regime no new power stations overseas. This has led to a shortage of skills in many
were commissioned to be built back in 1998. areas of the economy, but also a deterioration in the
Essentially, however, during the Zuma presidency quality of the roll-out of public services. The lack of
government institutions were hollowed out and the delivery by municipalities is prevalent in many parts
resources of the country were redirected, resulting in of the country.
the systematic crippling of the entire economy.
Post COVID-19, there has been a dramatic build-up

58 IRMSA RISK REPORT 2023/24