South Africa is in deep trouble, warns economist

Efficient Group chief economist Dawie Roodt said South Africans have been getting poorer for a decade and warned that things are set to get much worse.

The latest figures from Statistics South Africa showed that the country’s gross domestic product (GDP) contracted 0.7% in the three months through June.

The data also revealed that South Africa’s economy is smaller than before the coronavirus pandemic struck.

Speaking to David Ansara from the Centre For Risk Analysis (CRA), Roodt said South Africa is in deep trouble.

He explained that he prefers to focus on GDP movements over longer periods — instead of quarterly reports — as it gives a better view of the economy’s growth trajectory.

“The South African economy is stuck in a growth trajectory of between 1.5% and 2%, and it is unlikely to grow much faster,” he said.

“It is horrible. It is in line with population growth, and South Africans are getting poorer on a per-capita basis.”

He said that although global economic challenges affect the South African economy, many problems are self-inflicted.

Macroeconomic policies — like restrictions on power production and import protections — harm local growth.

Mismanagement of vital state-owned enterprises, including Eskom and Transnet, prevents important industries from performing to their potential.

The government’s fiscal policies are another problem. “We cannot continue to run a fiscal deficit at the magnitude that it is currently happening,” said Roodt.

He added that South Africa could not continue to increase its debt levels as it becomes unsustainable.

The tax burden is also getting heavier on a smaller number of individuals. The economy is not growing, and many taxpayers are leaving the country.

The biggest problem in South Africa

The biggest problem, Roodt said, is that there is no political leadership to guide the country in the right direction.

“It is not only a policy issue. It is also a case of the politicians being absent from taking real action because they are fighting each other to stay in power,” he said.

He said the problem in South Africa is not economics. “It is easy to fix the country’s economy — the answers are out there,” he said.

“The problem is political, but before we resolve the political problems, we have to wait for the next general election.”

Roodt said he is very concerned about South Africa’s economic situation because so many people rely on the state for income.

“32 million people get an income from the state. Ten million will lose this income when the Covid grant falls away,” he said.

“The state cannot afford this anymore. The tax base is simply not strong enough to carry it,” Roodt said.

The country has high levels of unemployment, poverty is rising, and food and energy prices are going up.

“This is a recipe for disaster,” Roodt said.

This article first appeared on Daily Investor and is republished with permission.

Now read: South African Bitcoin Brothers’ big lie about Dawie Roodt

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South Africa is in deep trouble, warns economist