Government and business have their work cut out to prevent South Africa from sliding towards a \u2018rocky road\u2019 scenario.<\/p>\n
This is the worst of four \u2018future\u2019 economic outcomes for the country, according to Dr. Frans Cronj\u00e9, CEO of the South African Institute of Race Relations (IRR).<\/p>\n
Cronj\u00e9 was speaking at the second annual i3 Summit hosted by Sanlam Investments and Glacier by Sanlam in Johannesburg.<\/p>\n
\u201cThe \u2018rocky road<\/strong>\u2019 is our worst-case scenario for a future South Africa, featuring a powerful and interventionist development state that believes it can head off future political defeat by destroying democratic institutions in a desperate bid to cling to power,\u201d he said.<\/p>\n Other scenarios include a \u2018wide road<\/strong>\u2019 scenario, underpinned by a popular mandate for market reforms, a \u2018narrow road<\/strong>\u2019 scenario where we will experience forced yet market-friendly reforms, or a \u2018toll road<\/strong>\u2019 scenario dominated by policy confusion amid vibrant institutions.<\/p>\n Cronj\u00e9 said the road South Africa travels will depend on the government\u2019s response to the extraordinary economic and socio-political pressures it currently faces.<\/p>\n \u201cMoney is tight, political supporters are jumping ship and global perceptions are swinging rapidly against the country.\u201d<\/p>\n Read: Why I choose to stay in South Africa<\/a><\/strong><\/p>\n Will the government be forced to reform to the right by adopting a single-minded \u2018pursuit of growth\u2019 policy in the realisation that, without this growth, it will be unable to meet its supporters\u2019 expectations?<\/p>\n Or will it persist with the view that an interventionist development state can work and that it just needs to regulate the private sector into greater compliance, the IRR asked.<\/p>\n “More importantly, do we remain a free and open society, or do we lose rights and freedom to the point where a future government can rule with impunity, ignore court orders and send the police to Parliament?” asked Cronj\u00e9.<\/p>\n SA GDP<\/strong><\/p>\n South Africa\u2019s GDP growth depends heavily on the growth of its largest trading partners, China and the European Union (EU).<\/p>\n “China\u2019s GDP growth rate is slowing and its commodity demand is slowing even faster as its economy moves away from a model of infrastructure and consumption-driven growth towards one that is internally focused on local consumer growth higher up the value chain,” said Cronj\u00e9.<\/p>\n The EU, meanwhile, achieved only 1% GDP growth in 2014, and will struggle to repeat that feat this year.<\/p>\n With just 1.5% growth in GDP in 2014 and a similar figure pencilled in for 2015, South Africa is way off the 5%-plus GDP growth that saw the economy on the proverbial front foot between 2004 and 2007.<\/p>\n “The global environment around China and the EU is conspiring in such a manner that an export-driven economic recovery for South Africa will be more difficult to achieve than it might otherwise have been,”\u00a0Cronj\u00e9 said.<\/p>\n The rand has lost between half and two-thirds of its value against the US dollar every decade going back to the 1980s. “We have penciled in R12.50\/$ for 2015 and expect that, if the four-decade trend continues, we will be looking at R20\/$ by 2024,” said Cronj\u00e9.<\/p>\n Long-term rand weakness has not translated into the domestic economy as expected, and three of the major structural contributors to South Africa\u2019s GDP have been backsliding over the past two decades despite this trend.<\/p>\n Socio-political landscape<\/strong><\/p>\n On the socio-political front, the government is battling a range of ills, including rampant unemployment, rising inequality, poor education and the progress of slow growth in the black middle class.<\/p>\n Cronj\u00e9 said that austerity was not a policy option due to some 60% of state expenditure going towards the social wage, including amounts spent on free housing, health, education, electricity, welfare and water.<\/p>\n Any cut would erode political support among the electorate.<\/p>\n At the moment South Africa finds itself in the \u2018toll road\u2019 scenario, a space where economic policy is way down on the interventionist development state axis, and the battle to remain a free and open society is heating up. The risk to the downside is a slip towards the \u2018failed\u2019 \u2018rocky road\u2019.<\/p>\n “Our sense is that there\u2019s a bounce coming into the \u2018narrow road\u2019 scenario because Government is starting to understand the longer-term consequences of its policy decisions,” said Cronj\u00e9.<\/p>\n In this scenario, the government\u2019s strong desire to retain fiscal and political sovereignty is twinned with the realisation that the environment must be welcoming to foreign investors and that certain rights and freedoms will have to be reined in to allow for labour market reforms.<\/p>\n “If enough people invest in the argument behind economic policy reform then we have a good chance to end this decade in a very different position to the one we find ourselves in presently,” he said.<\/p>\n ANC planning drastic shake-up for South Africa: report<\/a><\/strong><\/p>\n 5 ways to save South Africa\u2019s economy<\/a><\/strong><\/p>\n How to fix South Africa in three steps<\/a><\/strong><\/p>\nMore on South Africa<\/h3>\n