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Privatization key to countering South African recession
July 30, 2017, 1:44 pm
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Over a month after the economy slid into recession, South Africa’s Minister of Finance, Malusi Gigaba, has revealed an ambitious 14-point growth plan that includes sale of non-core assets and partial privatization of several state-owned firms.

Announcing the “inclusive growth” plan comprising of 14 “action items” and 45 “interventions” spanning seven departments and with specific timelines, the minister said, “Extraordinary bold decisions that change the economy must be made to achieve the six percent growth needed to pull the country out of its current low growth trajectory.

The continent’s largest industrialized economy, which entered into recession in the first-quarter of this year, is struggling with high unemployment rates and unfavorable assessments from global credit rating agencies.

Elaborating on the potential risk from further downgrading by rating agencies and the severe impact it could have on the economy, Minister Gigaba said, “To stave off any further downgrade, we need to take urgent steps, and I think what we are trying to demonstrate here [with the new economic plan] is precisely that sense of urgency and action-orientated intervention with clear timelines that bind us as to what we need to do in order to stave off any further downgrade.”

Last year a team commissioned by President Jacob Zuma had recommended privatizing several state-owned firms and the government has now set March 2018 as the timeframe by which to roll out a “private sector participation framework”.

The government’s new warming to selling off select state assets is a marked departure and an ideological shift for the ruling African National Congress (ANC) whose close political alliance with labor unions had tended to make privatization an unthinkable act.

In his comments on the new plan, the opposition Democratic Alliances’ (DA) Shadow Minister of Finance, David Maynier, said, “The ‘inclusive growth action plan’ is a huge, though not unexpected, disappointment because it does not include even one big, bold, new idea capable of restoring business confidence and stimulating private sector investment in South Africa.”

The minister simply does not have the political will, or the political space, given the ongoing “civil war” within the governing party ahead of the ANC’s 54th National Conference 2017, to implement the structural reforms necessary to boost economic growth and create jobs in South Africa, said Mr. Maynier. 

Analysts agree that in order to drastically reduce poverty, unemployment and inequality, the South African economy will have to grow by 5 to 6 percent annually. But they add that achieving this growth in the short-term will be a tall order, given that GDP growth rate in South Africa averaged 2.84 percent from 1993 until 2017, including an all-time high of 7.6 percent in the fourth quarter of 1994 and a record low of -6.1 percent in the first quarter of 2009.

 

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