Since Javier Millei — a self-styled anarcho-capitalist who carried a chainsaw at election rallies to show what he would do to government spending — became Argentina’s president in December 2023, the country’s benchmark stock exchange index has soared by more than 70%. But during the first six months of his presidency, 3.4-million people were pushed into poverty and Argentina’s poverty rate soared to 53%, its highest level in two decades, according to the country’s statistics agency.
Argentina is an example of the dichotomy between what South African Federation of Trade Unions general secretary Zwelinzima Vavi refers to as the “fake economy” of financial markets and the “lived experience” of ordinary people. Financial markets are casinos that are not related to the real economy of bricks-and-mortar investment, jobs and food on the table. In South Africa, six years after Ramaphoria fizzled, the same people who brought us the “New Yawn” are trying to convince us that all we need is government of neoliberal unity (GNU) vibes to revive the economy after 16 years of declining living standards. The new wave of optimism is based on intangibles that cannot be measured.
The media and business are trying to manufacture a consensus that an “elite pact” between parties that represent 30% of eligible voters is popular and good for the economy. They are using “fake economy” statistics to create a dangerous illusion that “GNU vibes” alone can create jobs. The signing of the elite pact on June 14 coincided with a pivotal turning point in the world economy when it became clear that the US Federal Reserve (Fed) would start a new cycle of cutting interest rates. When the Fed cuts rates the mighty dollar usually weakens and more capital tends to flow to emerging markets.
From June 14 to October 10, the JSE all share index increased by 10.8%, but the MSCI emerging market index was also up by 7.4%. Let us not forget that almost 80% of the assets of JSE-listed companies have nothing to do with the South African economy. The rand appreciated by 5.1%, but that is what usually happens when the dollar weakens. A strong currency does not necessarily reflect a strong economy. It tends to reduce net exports, the fourth component of GDP, together with consumption, investment and government spending. The rand’s movements have very little to do with the performance of the South African economy. Bond yields have declined, but that is what happens when there is disinflation, and the Reserve Bank is expected to cut interest rates for the next year.
Financial markets are casinos that are not related to the real economy of bricks-and-mortar investment, jobs and food on the table
If one looks at real economy indicators, the short-term outlook is bleak and there are five ominous signs that things are getting worse. The number of unemployed people increased by 718,000 during the first two quarters of 2024, which is much higher than my forecast for the whole year of about 400,000. The economy has shed 71,000 jobs since the start of 2024, which is worse than my forecast that the economy would create 150,000 jobs during 2024. The construction industry has shed 118,000 jobs since the start of the year. There have been four consecutive quarters of declining gross fixed capital formation, a measure of investment. Finally, more than 17-million people applied for the R370-a-month social relief of distress grant in September. This included 945,000 people who had tertiary qualifications.
Some analysts believe that the economy will magically grow faster because the lights are on. But they forget that the multiple Eskom plant breakdowns started in 2018, not 2007. The economy was collapsing before the “six years of darkness” and there were four years of declining GDP per capita from 2014 to 2017 as austerity resulted in deep cuts to public investment. This shows that macroeconomic policy settings matter. The 2025 budget will tighten the screws of fiscal policy and introduce a primary budget surplus target of 2% of GDP, which will continue to suffocate the economy.
The IMF is not feeling the GNU vibes. It has forecast that the economy will grow by 1.2% a year from 2024 to 2026. This means that there will be three more years of declining GDP per capita. Nedbank has also crunched the numbers and forecast annual GDP growth of 1.3% over the same period. The Treasury’s modelling shows that its structural reforms — code for privatisation, deregulation, liberalisation and the withdrawal of the state from electricity, transport, telecommunications and water — will add R439bn to the economy from 2022-2030.
This is a trivial amount given the likely cumulative GDP over the period. The benefits are insignificant during the early years — for example R10bn, R21bn and R35bn during the first three years, which is the equivalent of spare change in a R7-trillion economy. But these estimates are “thumbsucks” because it is impossible to model the effects of most structural reforms as they involve myriad intangibles such as “establishing a water regulator”. The only tangible that can be modelled is expected private sector investment in renewable energy, the flagship of the reforms.
The government-business partnership said the structural reforms could result in 3.3% GDP growth by 2025 and create 1-million additional jobs by 2030. The modelling of the 2025 “stretch target” is based on additional private sector investment in renewable energy of R23bn and investment in rail of R28bn. But there was a 56% collapse in the registration of new embedded generation facilities at the National Energy Regulator of South Africa during the first six months of 2024. The end of load-shedding and grid capacity constraints may have contributed towards this trend. This is another red flag for the economy because renewable energy investment is the star act of the structural reforms.
The rest of the document requires multiple leaps of faith to believe that there will be private sector investment of R6bn on a broken rail network during 2025 or that intangibles such as reforming tourist visas and addressing the work visa backlog will create 400,000 work opportunities for youth by the end of 2026. The private sector must stop raising the hopes of young people with empty promises of 1-million additional jobs, when it knows that they cannot be created out of thin air.
In February 2018, in an effort to provide political support to the New Yawn, the business elite met with President Cyril Ramaphosa and launched the Youth Employment Service, which promised to create 1-million work opportunities over three years. But it has created only 157,000 “work experiences” over five years, of which about half are full-time jobs. The latest partnership to support “GNU vibes” is another gimmick that will fail like the New Yawn. The GNU is a sandcastle that will collapse because it does not have a strong foundation of a credible plan to grow the real economy and create jobs.
• Gqubule is an economist.
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