The message from the annual Autumn jamboree of the IMF/World Bank last week in Marrakesh, Morocco could not be clearer.
The global economic recovery from the COVID-19 pandemic, from the food and fuel supply chain disruptions due to the Ukraine conflict and the resultant monetary tightening to contain rising inflation and a cost-of-living crisis, remains slow and uneven with widening divergencies between developed and developing nations.
The resilience of countries says the latest World Economic Outlook (WEO) 2023 launched last week in Marrakesh is nothing short than remarkable, albeit economic output has slowed not stalled and the world is limping towards recovery albeit there are signs of a softer landing over the next economic cycle largely due to better-than-expected US economic fundamentals. Despite economic resilience earlier this year due to an inevitable rebound in 2021 thanks largely to the easing on pandemic lockdowns, and progress in reducing inflation from the 2022 peaks, it is too soon to take comfort in 2023, warns the IMF.
The growth dynamics for the global economy points to continued market volatility over the next year. The October WEO forecast global GDP growth to slow from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024. For developed economies, the expected slowdown is from 2.6% in 2022 to 1.5% in 2023 and 1.4% in 2024 due to stronger-than-expected US momentum but weaker-than-expected growth in the Euro area.
The good news is that emerging market and developing economies are holding their own with growth projected to decline modestly from 4.1% in 2022 to 4.0% in both 2023 and 2024, primarily reflecting the property sector crisis in China. In sub-Saharan Africa (SSA), growth is projected to decline to 3.3% in 2023 before picking up to 4.0% in 2024, still remaining below the historical average of 4.8%. The projected decline reflects, in a number of cases, worsening climate shocks, the global slowdown, and domestic supply issues, including, notably, in the electricity sector. It is no secret which economy the IMF/World Bank were alluding to.
“In South Africa,’ says the WEO, “growth is expected to decline from 1.9% percent in 2022 to 0.9 percent in 2023, with the decline reflecting power shortages, although with a 0.6 percentage point upward revision thanks to the intensity of power shortages in the second quarter of 2023 being lower than expected.” GDP growth is projected to rebound to 1.8% in 2024. This compared with much better growth dynamics for Nigeria, Africa’s largest economy, of 3.3% in 2022 to an estimated 2.9% in 2023 and 3.1% in 2024.
On several other key indicators, the news is similarly encouraging with a downward trajectory for key indicators for the next two years. Consumer price inflation is projected to decline from 6.9% in 2022 to 5.8% this year and 4.8% in 2024. South Africa’s current account balance of payments, the value of exports and imports of both goods and services and international transfers of capital, is projected to decline from -0.5% in 2022 to -2.5% in 2023 before slightly increasing to -2.8%. The elephant in the room is the static adult unemployment rate – stuck at 33.5% in 2022 and projected at 32.8% in both 2023 and 2024. The figures for youth jobless are even more depressing – one of the highest in the world.
The pace of development of the South African economy like all others will be beholden to various factors – some completely beyond its control, namely, geopolitical tensions, conflict, catastrophic events such as climate change, pandemics and natural disasters, and its associated food and fuel insecurity and cost-of-living implications due to supply chain disruptions and price hikes. The other major determinant is the volatility of global commodity prices especially crude oil, natural gas, metals such as gold, platinum, manganese on which the economy is heavily dependent on either in terms of imports or revenues.
As far as internal factors are concerned, there seems at last to be a more concerted push back especially against corruption and organised crime in an effort to recover state assets purloined during the Zuma era especially from the beleaguered electricity utility Eskom, and a pragmatic approach to restructuring festering municipality debt arears to Eskom. On October 12, a SARS-led operation across five provinces involving “exceptional inter-governmental co-operation and information-sharing” regarding a host of tax crimes allegedly committed by members of a coal-smuggling syndicate, including ex-Eskom employees and foreign nationals, helped net R500 million through the prevention of revenue loss to the Treasury.
More intractable is the shocking state of municipality finances and the difficulty in redress. According to the Treasury, of South Africa’s 257 municipalities, 136 municipalities owed Eskom R58.5bn in arrears debt as of 31 March 2023. Finance Minister Enoch Godongwana’s Eskom Municipal Debt Relief Support Programme is targeted at resolving the electricity utility’s “financial and debt crisis which also requires a solution for non-payment of electricity consumption by municipalities.”
As of 22 September 2023, 37 municipalities have applied to be part of the Debt Relief Programme, of which 28 have been approved with 9 of them still being assessed. There are 25 additional applications resting with the respective provincial treasury for submission for approval. The low uptake is a concern for the efficacy of the Programme, which has forced the Treasury to extend the application deadline from end September to end October. The question remains why the Programme has not been made mandatory for all affected municipalities.
Beyond that an intriguing decision facing President Ramaphosa and his cabinet is the issue of “Countries Switching Blocs”. South Africa straddles between the BRICS Bloc, and its relations with China and Russia. The BRICS summit hosted by Ramaphosa was a lack-lustre largely procedural affair, highlighted by the extension of the Bloc by five new members. But it was overshadowed by the G20 summit in India in September and a firm US/Europe commitment to develop the Trans-African Lobito Corridor through a Greenfield Railway line connecting DCR and Zambia to regional and global trade markets via Lobito Port in Angola.
The US in 2022 overtook China as South Africa’s largest export market. The total export value of South African goods to the US through Washington’s African Growth and Opportunity Act (AGOA) mechanism alone with its preferential tariffs on a range of goods amounted to R47.4 billion in 2022, leading to Ramaphosa, his Trade and Industry Minister Ebrahim Patel and even his coalition partner Cosatu singing the praises and importance of AGOA to the South African economy. In contrast, BRICS accounted for 21% of South Africa’s global trade in 2022. An entrenched real estate crisis in China has led to subdued growth dynamics, diminished consumer confidence and investment in China, which according to the IMF “poses significant risk for the global economy. China’s real-estate crisis could intensify, posing a complex policy challenge. Restoring confidence requires promptly restructuring struggling property developers, preserving financial stability, and addressing the strains in local public finance.”
This, says the Fund, raises the intriguing case for major commodity producers such as South Africa facing powerful incentives to switch geopolitical allegiances, with such switching representing a new source of supply shocks and price volatility. “For highly concentrated commodity markets, a single exporting country switching to the other bloc could lead to a large supply gap and trigger hefty price changes. Uncertainty about a country’s geopolitical alignment could itself lead to price volatility as traders update their priors regarding potentially large fragmentation-induced price swings.”
Minerals at the mining stage tend to be the most sensitive, given their highly concentrated production. “South Africa,” says the IMF, “produces one-third of the world’s manganese, a metal used in steelmaking and batteries. If South Africa switched to the US-Europe+ bloc, the price of manganese in the China-Russia+ bloc could rise more than 800 percent.” Messrs Ramaphosa and Godongwana the choice is clear - country coffers or bloc loyalty?
Parker is an economist and writer based in London
Cape Times