I was amused but not surprised to read that ratings agency Moody’s recently pointed out that in South Africa, “Progress on structural economic reforms has been very limited amid social and political obstacles.” I am fairly confident that international ratings agencies such as Moody’s have had their fair share of frustrating experiences with socialist regimes that refuse to implement pro-freedom, pro-market reforms in their countries. That the South African government is dragging its feet in terms of implementing the necessary reforms (something that would require it to grant people some actual measure of economic and individual freedom), comes as little surprise.
The COVID-19 pandemic has further exposed the country’s structural economic problems. Regulations in every area of the economy increase the cost of operating a business, and make it exceedingly difficult for new players to enter the field. Where the unemployment rate sat above 30% before the lockdown, we can be sure that it’ll be much higher in the second quarter of the year. Where more developed countries (read: freer economies) built up some measure of savings, so they could weather this kind of storm, our economy has been so gutted by interventionism and the ravages of statist thinking, that we did not have that buffer in place before COVID-19 hit.
South Africa’s ruling party, the African National Congress (ANC), recently unveiled their proposed plans for the country’s economic recovery. The plans are strongly focused on investment in infrastructure. And to help fund this infrastructure-building drive, pension funds and other savings are firmly in the discussion. For now, the mobilisation of such funds is said to be on a ‘voluntary basis.’ I don’t think a committed socialist government would respect anything as ‘voluntary’ for too long, especially if it encounters resistance.
Given the government’s abysmal track-record in running state-owned enterprises, and the endemic corruption – state capture – that took place over the previous decade, I would hope working South Africans (in the public and private sectors) would resist any attempt by government to take anything they have built up over many decades of work and investment.
Let us presume for a moment that the government obtains the funds it needs for these new proposed infrastructure plans that will cure all the country’s problems. The ever-growing government debt-to-GDP ratio will, within the next few years, pass the 100% mark. In the interest of the future of South Africa’s youth, has the government begun to implement significant cutbacks in terms of salaries, and the number of employed public servants? In its latest note Moody’s also mentioned that “interest payments are consuming an increasing share of the budget.” It will fall to the youth of the future to pay off the debt, but one has to wonder how they could possibly do that, given their ever-lower prospects of finding employment.
One element of the government’s apparent stubbornness in implementing reforms is the expected pushback from the ANC’s trade union allies. But a simple choice must be made: continue placating one’s traditional allies (with the hope that their members will continue voting one way) at the cost of the long-term growth and prosperity of the country; or take the hit in lower support now, cut government spending, and give the fiscus the necessary room to breathe and slowly recover over time.
Moody’s also made clear that further downgrades would come if they “concluded that growth will remain very weak and the primary deficit wide and/or if financing costs were to rise significantly.” What better time is there, while the world is trying to push on from the devastating effects of COVID-19 lockdowns, for the South African government to show the international community that it is serious about hard, necessary reforms, about abandoning its spending plans? The country could become a premiere destination for foreign direct investment and large capital accumulation – none of which will happen if we continue down this path of government controls.
The relationship between citizen and government is supposed to be one of mutual respect and accountability. In this respect, the South African government has performed abysmally, destroying the country’s economy as it implemented its socialist policies of regulation, high taxation, and redistributionism.
The government does not deserve one more cent of taxpayer money, never mind the opportunity to use pensions for its ‘new’ plans. Giving the government yet more resources to squander away will not solve South Africa’s economic miasma; only reforms based on the principles of individual freedom can turn the country in the right direction.