In for a crash landing

Unless we witness a drastic change in government’s policies and action, the South African economy is in for a difficult time.
Issue date: 29 February

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Unless we witness a drastic change in government’s policies and action, the South African economy is in for a difficult time.

The modern aeroplane is a technological marvel. Once in the air, the pilot can put it on autopilot and it will fly safely for a long time without any intervention. In fact, the pilot may even exchange his seat with a gorilla and the plane will continue to fly safely and adjust automatically to changing conditions, provided the gorilla leaves well enough alone.

Once the gorilla asks “I wonder what will happen if push this button?” and pushes it, disaster will strike. A plane can’t stay on autopilot indefinitely – the pilot’s intervention is needed to land safely, even if an engine falls off as we saw recently. The gorilla won’t be able to land safely and the crash will have dire consequences for the passengers.

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The economy closely resembles a plane. If left well alone it can weather storms and adapt automatically to changing conditions with what Adam Smith called “the hidden hand”. For a long time it can provide the population with their needs. In the free-market economy we live in, the less government intervenes, the better. If they push the wrong buttons, the economy can and will crash. In 1994 the new government inherited a fully functional economy, albeit with some serious problems in terms of public debt and inflation.

With limited intervention and the influx of capital into the new “flavour-of-the-month”, “Madiba magic” country the economy improved from 1994 onwards. We have now enjoyed good times since 1993 with positive growth in households’ per capita income, robust growth of expenditure and, until recently, single digit inflation. The cash registers were ringing, companies declared record profits and the new middle-class enjoyed their new homes while the new elite in high-paying corporate and government jobs filled the roads with their luxury SUV’s.

As with the plane, there comes a time to come back to earth. Usually this happens when conditions are bad. This is the time when one needs the experienced pilot with many years of training. Unfortunately for the South African economy, the experienced “pilots” are no longer on board, but are at home running their own small businesses. In the last 10 years we lost thousands of years worth of experience as the experts who worked for the former government and corporate sectors were phased out and new people with little or no experience were appointed.

Originally affirmative action was defined as hiring the best person for the job, but with a bias towards previously disadvantaged people. This has changed to a situation where vacancies aren’t filled unless a previously disadvantaged person is found – notice the number of vacancies government advertises weekly in the newspapers. The results speak for themselves – local authorities can no longer provide services, the administration of vehicle registration and drivers licenses is in chaos, and powercuts are an everyday occurrence.

Eskom even told industry that they should put major projects on hold until 2013! Judging by this a plane crash is imminent. Government’s failure to deliver services adds to the total cost. The sale of petrol and diesel electric generators increased from below R10 million/month in 2002 to 2004 to a peak of R170 million/month in June/July 2007. There is another problem. The airline’s admirable safety record is based on strict adherence to safety schedules and correct and regular maintenance. In many industries this aspect was either ignored or got very little attention. That is why engines are falling off planes, Eskom can no longer supply electricity, a trip between Pretoria and Johannesburg can take up to two hours and there are more potholes signs on the road than there are Blue Bulls supporters in Pretoria (especially with the Curry Cup in Bloemfontein).

Without proper maintenance, no machinery and equipment will keep on performing. Economic indicators only show one side of the total economy. They don’t yet indicate the extent of deterioration in infrastructure and loss of skills and experience, but they will in time – growth will slow down, unemployment and inflation will increase, we may see a weakening of the rand and a further increase in the deficit on the current account of the balance of payment as we import more and export less. During the first decade of democracy we enjoyed the support of the world and could still lean on the infrastructure developed during previous years. This supported our growth.
Unfortunately we have been mining our capital and spent very little on infrastructure development to support the growth. The capital base has now been eroded to a level where it limits production and growth.

The future

The SA plane must come in to land while two pilots are still fighting over who should handle the landing on a potholed airfield with a plane that wasn’t properly maintained. crash is imminent unless we see a drastic change in government policy and service delivery. We need the experts back with the support of politicians and the authority to make the needed changes. Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy.