South Africa on the brink of collapse — economist

Eunomix CEO and chief economist Claude de Baissac said South Africa is collapsing and that the lack of economic growth means the country is facing a debt crunch.

Speaking to Classic Business, De Baissac said people are opting out of the South African economy because it is structurally hollow and on the verge of collapse.

The process includes skilled and wealthy individuals leaving the country, capital moving to other countries, and providers of goods and services limiting local operations.

“Our data shows South Africa is two to three years away from a massive debt crisis,” De Baissac said.

The reason is that South Africa’s budget forecast is overstating economic growth by between 1.2% and 1.4%.

“If I take the average forecasts over the past five years, excluding 2020 and 2021, we are going to be back on the normal growth curve of the country, which has been going down since 2011,” he said.

He predicts that South Africa’s economic growth is going to be between 0.2% and 0.4% this year, which is significantly lower than the government’s forecasts.

The slow economic growth, coupled with poor policies, bankrupt parastatals, and rising debt, is creating serious financial problems.

The growing debt burden is partly due to the government continuing to bail out failing state-owned enterprises, like Eskom, Transnet, the SAA, and the SA Post Office.

“None of the tough decisions are made. We continue to wag our fingers at the parastatals every year, saying it is the last, and then we add another R50 billion bailout,” he said.

The bailouts continue because the government is politically obligated to support state-owned enterprises and ideologically opposed to opening up the economy.

Instead of welcoming the private sector to grow the economy, the government will continue to support bankrupt companies like Eskom and Transnet.

“These companies are artificially kept alive and are hurting the economy. We are going to end up the same as places like Zambia, the DRC, Tanzania, and Mozambique,” he said.

Dawie Roodt, Efficient Group chief economist

Efficient Group chief economist Dawie Roodt shares De Baissac’s view, saying the government’s interference in the economy is detrimental to the country.

Roodt said companies should be allowed to go bankrupt as it is part of a healthy economy and how the system works.

“When a company is mismanaged and gets into trouble, it gets liquidated, and the scarce capital is given to somebody else to give it a go,” he explained.

However, in South Africa, there are numerous laws and regulations trying to keep businesses alive which are not supposed to be alive.

“Eskom is a good example – it is not supposed to be alive. South African Airways is not supposed to be alive,” he said.

Roodt said the government interferes so much with the normal creation and destruction process in the economy that it does not function properly.

The result of government interference in the economy, De Baissac said, is that the country is collapsing at an accelerating rate.

He said the country is going bankrupt because the government is spending more than it earns.

“To make up for the deficit between your income and spending, you borrow money. However, one day, everyone comes knocking asking for their money and interest,” he said.

“You are suddenly bankrupt and end up on the street without your shirt. It is where South Africa is heading.”

“People may say we only have a debt-to-GDP ratio of 75% to 80%, which will improve with stronger growth.”

“But where will this growth come from? We don’t even have electricity,” he said.

This article was first published by Daily Investor and is republished with permission.

Now read: The collapse of Eskom

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South Africa on the brink of collapse — economist