South Africa in 2022 is Zimbabwe in 1998

Here we go

I have developed a reputation as a prophet of doom, particularly for my nasty little catchphrase, “first a global South Africa, then a global Zimbabwe”.

Here’s a nice little piece of that picture - our national finances are now very nearly what Zimbabwe’s were in 1998, the last year in which the country had positive GDP growth before terminal collapse. Here are your sources:

International Monetary Fund. 2002. Public Information Notice: IMF Concludes 2001 Article IV Consultation with Zimbabwe. 19 June.

Treasury of South Africa. 2022. Medium Term Budget Policy Statement. 26 October.

The reasons for this have been explored elsewhere, but the logic is simple - populist policies offer gimmes to the people, in the form of lavish public services. These need to be paid for with debt and high rates of taxation (of which richer countries in GDP/capita are capable of tolerating a higher threshold).

Those services do not generate miracle growth, for a variety of reasons, most of them obvious. But for political reasons, stemming from not only organised labour, civil service, patronage networks and left wing media (which is almost all media in SA today), “austerity” is not an option beyond some cosmetic trimming.

After all, this is a democracy, and while Mugabe did eventually rig the living daylights out of the electoral system, he had to suffer catastrophic loss of political security first. Before that crunch time comes, most states are rather scared to do more than stuff a few boxes in marginal or swing constituencies.

So debt has to be restructured, but the budget can’t come down by any substantial amount. Cue “quantitative easing”. South Africa has managed a relatively stable rate of inflation at under 8% for a long while, and it is currently at 7.8%. Our debts are largely (>90%) denominated in Rands, and the annual growth rate of the debt service cost is 7.3%, just below inflation.

The growth of government expenditure before debt service costs is 2.5%, and 4% after debt service costs. GDP growth is at 1.6%. Government expenditure is at 32.6% of GDP, and since government spending is counted under GDP, the growth of the economy before government spending is at around 0.8%, and 27% of it is taken up as state revenue each year.

At this rate, government spending will be half of GDP and double the revenue by 2035. To turn the ship around, we need an economic miracle (lol imagine) or we need to freeze government spending in nominal terms indefinitely.

Now in 1998 in Zimbabwe, the government debt was at 77.8% of GDP, debt service costs were 21.2% of export value, and government expenditures were at 35% of GDP. Current account deficit was just below break-even (0.16%), while state balance deficit was 4.9%. the following year, growth went negative, bonds were dumped, and within three years, the state was in hyperinflation and seizing everybody’s land and businesses.

South Africa’s total public debt currently sits at roughly 70% of annual GDP. According to the Treasury’s medium term budget policy statement for 2022, the budget deficit (R296.7bn; 4.7% of GDP) was roughly the same size as the debt servicing cost (R307.7bn).

The difference is that Zimbabwe was then suffering an inflation rate of 46%, while South Africa is currently at 7.8%. On the other hand, it had a real GDP growth rate (that is, adjusted for inflation) of 2.9%, whereas South Africa’s is at 1.6%.

At the same time, Zimbabwe’s schooling system was still recognised to be among the best on the continent, while South Africa’s is recognised to be among the worst, making long term prospects rather bleak. Also, our electrical grid is failing, and our homicide rate is still at civil war levels.

So Zimbabwe had some advantages over us.

But the similarities only continue from here - Zimbabwe, in order to maintain political control and enough cash to feed its security forces (both formal and informal), it seized the land in a haphazard and violent way.

South Africa is attempting to go through the selfsame process, by empowering all levels of government with the ability to seize property with no (real or meaningful) process necessary. We call it “expropiation without compensation”, and the bill has recently passed through parliament and is awaiting the president’s signature.

While Ramaphosa may be willing to hold off on national suicide for a while, his potential successors have no such scruples. On the other hand, he is currently facing a serious crisis of legitimacy in the runup to the ANC leadership competition, and may be the third president removed before his term is up due to a public corruption scandal.

His friends are defending him with the same lines Zuma’s allies defend him with - nothing has been proven in court, therefore this is nonsense and shouldn’t be investigated, and is just a setup. Media staples are desperate to see him stay on regardless of his flagging stamina.

Opposition parties are all clamouring to be national coalition partners with the ANC in 2024, but this will solve nothing, because none of them have leverage.

You may be holding your breath as you read this.

But for those who are panicking, I can offer a little assurance - our treasury is at least somewhat more responsible (somewhat), executive power is weak, the ruling party is struggling to maintain unity, and we have something the Zimbabweans didn’t.

For the past couple of decades, the Afrikaner civil society has been building a large and resilient set of parallel state structures. Our businesses, especially mid-sized enterprises, are increasingly organised in employers’ organisations.

Some whisper of a tax revolt. Others inform me that there are sufficient material resources to deter any seizure of property.

I can neither attribute anything here, nor quote named figures. But I’m feeling confident that change is coming soon, and this time, we won’t be taking it lying down.