Damage done to South Africa by state capture worse than previously thought

It is becoming clearer that the damage done by ‘state capture’ is worse than previously understood.

This is according to the South African Reserve Bank’s Monetary Policy Review for April 2019 which found that capital expenditure, especially by state-owned enterprises, has been less productive than anticipated.

“To take one highly visible example, the economy has less electricity than it had a decade ago, despite massive Eskom investments in new generating capacity,” the SARB said.

“Repairing the state and parastatals is also proving expensive, requiring higher administered prices and taxes. These adverse conditions seem to be blocking a stronger rebound in growth. Indeed, there are risks that electricity shortages could cause even lower growth rates than currently projected.”

South Africa’s potential growth rate is at long-term lows estimated at only 1.3% this year, and rising to 1.5% by 2021.

“Despite this low potential, recent shortfalls in actual growth outcomes – for 2016 and 2018 in particular – mean the output gap is still negative at an estimated -1.1% of potential GDP.

“The forecasts indicate output will only realign with the economy’s supply capacity in 2021,” the SARB said.

W-shaped recovery 

The South African Reserve Bank’s (SARB) growth forecasts had previously indicated a V-shaped recovery, with a trough in 2016 and a rebound thereafter.

“Growth was slightly better than expected in 2017, at 1.4%, with most of the positive news in the second half of the year,” the SARB said.

“The forecast narrative held that this momentum would be sustained by better business and consumer confidence. Instead, the economy slumped in the first half of 2018, recording a technical recession.

The SARB’s projections now indicate a W-shaped recovery, with dips in both 2016 and 2018. The pace of the recovery has also been marked down, it said.

Read: The world’s most miserable economies includes South Africa

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Damage done to South Africa by state capture worse than previously thought