The South African economy is being assaulted, from many angles simultaneously.
This is not a reference to the infamous supply side ambushes, as in going without electricity (load shedding) or going without labour (crippling union strikes).
This assault is strictly demand based, and it is coming simultaneously from many different angles.
Firstly, Eskom wants yet more cash flow from its customers via an extra tariff increase being decided shortly by Nersa, without which it may not be able to meet its diesel bills, threatening more electricity shortfalls & interruptions.
Thus we have a choice as to pain, either less disposable income or less electricity (and having to incur compensating expenditures or other inconveniences). Not much of a choice.
Secondly, Minister of Finance Nene informs us we are growing to slowly, therefore not generating tax revenue fast enough to feed the state’s appetite. His solution: raise taxes. This would sound funny if it wasn’t so serious.
The state carries a large part of the responsibility for the present slow SA growth performance. We are then invited to accept double jeopardy by ponying up more tax revenue while an enormous complex of vested interests looks on comfortably (for instance the 1.5 million civil servants netting 40% of the state revenue via their wage & benefit bill).
It may be raw political power that dictates that taxpayers will feed this hungry mouth, but that doesn’t offer good enough reason for such sacrifice. The state should be seen to do more to live within its own created limited means. Instead, it is proposed that taxes are increased.
The third attack on household & business cash flows is coming from SARB wanting to raise interest rates into a weakening economy. SARB functions here as middleman.
The real source of pain sits elsewhere, most directly in America where the Fed is expected to start raising rates in coming months, through this expectation having set in motion recalibration of global capital flows.
The fourth attack, from the same source where interest rate hikes originate, is a weakening Rand pushing up petrol & diesel prices, with another 50c/l hike looming next week. This drains disposable income and erodes other forms of spending and output.
Between them, these four attacks erode our ability and willingness to spend and produce, as households & businesses.
They undermine growth by making the sense of inadequate income & demand yet more inadequate. They invite further second-round cautiousness, in borrowing, investing, job creation.
We are leaving growth to look after itself while matter-of-factly attacking wolf-pack like what remains. That doesn’t suggest much revival potential for the coming year or two. It calls into question the whole growth outlook.
And this before we turn to politics and its complexities.