South Africa goes from hero to zero

South Africa has not always been in poor financial health. In the early 2000s, the country regularly ran a budget surplus, but deficits from 2008 onwards dragged the country from an international sweetheart to a fragile state.

Many South Africans and economists underestimate just how well the ANC ran the country’s economy in the immediate aftermath of Apartheid, head of the Social Research Foundation, Dr Frans Cronje, said.

Before South Africa’s first democratic election in 1994, its economy stagnated, with economic growth averaging 0.2% between 1990 and the election. 

The country was also facing increasingly strict international trade embargoes and boycotts, crippling its ability to import oil and other vital commodities. 

As a result, South Africa was battling rising debt and a weakening currency. In other words, the country was heading for bankruptcy and needed urgent economic and political reforms. 

“The ANC in its first decade in power does much better at restoring economic stability and raising living standards than it was ever given credit for,” Cronje said. 

“You will continue to read, including in the business press, that the ANC has presided over an era of service delivery failure, which is plainly wrong on its facts.”

Cronje said the basic living standards of many South Africans increased significantly and rapidly during the first decade of ANC rule. 

To turn the country’s economy around, then-President Mandela and Deputy President Mbeki created and implemented a policy framework to cut government debt and grow the economy. 

This was done by gradually reducing government spending to cut its deficit and stabilise the currency and the broader economy. The first democratic administration achieved an annual growth rate of 2.7%. 

South Africa’s economic growth picked up even further under Thabo Mbeki, where it averaged 4.1% growth annually. 

Mbeki’s administration saw the country run consistent budget surpluses, reducing government debt and enhancing its credit rating, as shown in the graph below. 

The above graph shows how rapidly the country’s economic fortunes turned after Jacob Zuma dethroned Mbeki as ANC president. 

Pravin Gordhan took over from Trevor Manuel as Finance Minister, and government spending skyrocketed while growth declined.

The last time the country posted a budget surplus was the 2007/2008 financial year, after which the government has run 16 years of budget deficits. 

This trend has accelerated under President Ramaphosa despite his promises to limit government spending, tackle debt, and reinvigorate the economy. 

The country’s fiscal deficit will be around 6% of GDP in the current financial year. This means South Africa’s debt-to-GDP ratio will increase to over 75%.

In 2008/09, gross loan debt amounted to R627 billion or 26% of GDP, with net loan debt at R526 billion or 21.8% of GDP. 

By last week’s Budget Speech, the government’s gross loan debt had reached R5.21 trillion, or 73.9% of GDP.

This has also seen the government’s debt servicing costs skyrocket. It is now one of the largest spending items in the budget, with the country paying over R1 billion a day in interest on its loans.

However, the main issue is not necessarily an increase in the government’s debt levels. It is the country’s poor economic growth, meaning the country is unable to take on additional spending even in times of crisis. 

Some economists have argued that the country’s economic growth crisis has manifested itself as a financial crisis, with the only long-term solution to increase the size of the local economy. 

The rapid growth in the government’s debt burden and consistent budget deficits can be seen in the below graphs. 


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