Mining profits are booming. June saw the biggest trade surplus on record. The banks are paying dividends to shareholders again and StatsSA reports that the economy is 11% larger than thought. But unemployment has reached yet another record high. Incomes are falling and poverty is increasing. As the ruling class desperately looks for signs of a post-Covid recovery the inequalities and contradictions of SA’s capitalist economy remain as deep as ever. The few ‘green shoots’ the bosses point to are utterly dependent on the current conjuncture in the world economy and in fact underline the sickness of SA capitalism.
There has been some recovery in the world economy even though many countries have not yet reached their pre-pandemic levels of output, employment or living standards. A certain recovery was inevitable after the devastating slumps in 2020 under the impact of the Covid-19 pandemic and rolling lockdowns. But uncertainty, instability and dangers are present everywhere.
Two features of the world economic situation are particularly significant for perspectives for the South African economy. Rising commodity prices, boosting SA’s mining sector in particular, and the unprecedented stimulus packages, especially that of the United States, are allowing SA capitalism the appearance of defying gravity. But the fall to Earth will come.
The US stimulus programme has been crucial in postponing SA’s looming sovereign-debt crisis. On 27 March 2020, the day that SA entered its first ‘hard’ lockdown, the ANC-government lost its final investment grade rating. All the major ratings agency companies now rate SA sovereign (government) debt as ‘junk’. This caused a sell-off and an almost 30% surge in debt-servicing costs on SA’s crucial 10-year bond. However, the near simultaneous introduction of the US’s stimulus programme ensured there were enough (speculative) dollars in the world economy chasing higher returns that still saw SA debt as a good investment. In the last nine months of 2020 $360 billion (R5.4 trillion) has flowed into ‘emerging markets’. 
Exactly how much of this ‘hot money’ is invested in SA sovereign-debt is largely locked away behind the capitalist class’s wall of ‘business secrets’. However, SA Reserve Bank (SARB) data suggests it could be hundreds of billions of rands. Indeed, the SARB flags the significant increase of bond purchases by “non-residents” as behind a significant increase in SA’s total external debt in the second half of 2020.  In the short-term however, these inflows helped return SA’s debt-servicing costs to ‘normal’. Complementing this, the commodities ‘boom’ has further eased pressure on government finances with a series of tax ‘windfalls’, especially from the major mining companies and other exporters.
StatsSA’s “rebasing” of the economy’s GDP has also eased pressure in the short-term. The debt-to-GDP ratio and the size of the government’s budget deficit have both been revised down from 80.3% to 71.1% and 14% to 12.4% respectively. These are the key debt-measures watched by the ratings agency companies. The capitulation by a majority of public sector trade union leaders, signing a rotten pay deal with the ANC-government, has also helped reduce public spending.
However, all of this taken together has only given the ruling class a little breathing space. The direction of travel towards unsustainable debt levels and a possible sovereign-debt crisis has not changed.
Growing financial volatility around the US’s Jackson Hole meeting on 27 August show-cased SA’s vulnerability. This annual symposium is used by US bankers and officials to prepare the capitalist class for possible future policy changes. With inflation (price rises) in the US at its highest in more than a decade there had been speculation they would start to ‘taper’ (reduce) their stimulus.
Following the 2008 world economic crisis the US also embarked on a massive stimulus programme. Scaling this back from 2013 triggered a so-called ‘taper tantrum’ across ‘emerging’ markets leading to massive capital outflows which destabilised the huge financial markets and many economies. SA was one of the so-called ‘fragile five’ most affected.
The speculation in the run-up to Jackson Hole was sufficient to produce a micro ‘taper tantrum’. In the weeks before, the rand dropped to a six month low.  In the event, the chair of the Federal Reserve, Jerome Powell, indicated his preference to ‘wait and see’. A ‘taper’ would only be considered at the end of the year. In response, stock markets around the world surged. In SA, the rand and the JSE shot up and government bond yields fell.  The SA ruling class’s utter dependency on developments in the world economy was graphically demonstrated.
Today, SA is even more ‘fragile’ than it was in 2013. Since then the debt-to-GDP level has almost doubled. Debt-service costs are now the fastest growing item of government spending. They already consume 13% of the national budget. Any ‘taper tantrum’ in these circumstances will be disastrous. The development of the postponed sovereign-debt crisis would be posed. But forced to fall back on its ‘own’ resources the SA ruling class would have to admit what it already knows – the cupboard is bare!
Weak Domestic Economy
The Covid-19 pandemic and lockdowns have battered the SA economy. In 2020 it shrank by 6.4% (revised from 7% following StatsSA’s ‘rebasing’).  This is the steepest decline since at least World War Two and possibly since 1920. 
The effect on the working class, the middle class and small, informal, and even medium businesses, has been a disaster. Unemployment continues to climb. It reached a record high of 44.4% (and 64.4% among 15-24 year-olds) at the end of June.  The return to profitability in some sections of the economy is not translating into job creation. Standard Bank highlights the contradiction. They have retrenched 1,000 workers but plan to pay out R5.72 billion in profits to shareholders!
The middle class has suffered a massive loss of income. There has been a 17% drop in the number of individuals earning between R22,000 and R40,000 per month (175,000 people) and a 23% drop in those earning over R40,000 per month (113,000 people).  Up to the third quarter of last year 290,000 small, medium and “micro” (informal) businesses closed destroying 1.5 million jobs.  The third wave lockdown has permanently closed another 1,100 restaurants and liquidations and insolvencies continue at a high rate.  The long-term damage from July’s riots and looting – estimated at R50 billion – will be its consequences for jobs and small businesses destroyed.
However, the combined effect of the commodities ‘boom’ and the US’s stimulus programme in holding-up the rand has allowed the SARB the space to lower interest rates to historically low-levels and hold them there (from 6.25% before the pandemic to 3.5% now). This has eased some of the pressure on the working class, middle class and small businesses by reducing the cost of loan repayments, home bonds etc. However interest rates will quickly rise when the US’s ‘taper’ eventually begins, squeezing living standards even harder.
The desperate situation faced by huge swathes of the SA population also tells the other side of the trade surplus story – the weakness of domestic demand (also a factor in low-interest rates not yet contributing to inflation) and therefore lower levels of imports. SA’s real trade position is a disaster. The growth rate of exports has actually halved over the last decade and SA’s share of world trade fallen from 0.6% to 0.4%. Worse still from the point of view of the ‘health’ of the economy, the weight of primary exports (commodities and agriculture, whose prices are determined by the world market and denominated in dollars) has increased, further reinforcing the ruling class’s dependence on the world economy.
Despite some increase in mining production, the soaring commodity prices are not matched by corresponding increases in output. Quite the opposite. Investment in mining exploration has sunk to a twenty year low. On the African continent, SA’s exploration investment has fallen behind the DRC, Ivory Coast, Ghana and even Burkina Faso and Mali.  The commodities ‘boom’ is simply papering over the continuing decline of the sector.
Behind the headline of StatsSA’s ‘rebasing’ is more bad news. The growth is almost entirely accounted for by a larger-than-previously-thought “finance, real estate and business services industry” and “household consumption”! Manufacturing continues its decline. It has still not recovered to pre-pandemic levels which, before the March 2020 lockdown had seen ten consecutive months of contraction. Gross fixed investment spending (a key measure of investment in machinery etc.) is at its lowest level in forty years – just 13.7% of GDP. 
No Capitalist Solutions
The reinstatement of the R350 Social Relief of Distress social grant in the wake of the riots, debates about the introduction of a permanent Basic Income Grant (BIG), a National Social Security Fund (now U-turned) and the changing of pension rules to allow larger early withdrawals, all reflect an awareness within the ruling class that the social explosion seen in July can be repeated, and on a larger scale. However, the political crisis within the ruling class (which we will return to in the next article in this series) reduces every possible reform into a war of factional position. While we would support, for example, a BIG, all such measures, even if the ruling class was capable of implementing them, are ultimately only sticking plasters on a gaping and festering social wound.
The SA ruling class has no solution to the contradictions of their system. There is nothing in the Economic Reconstruction and Recovery Plan, or Operation Vulindlela, that can fundamentally alter the trajectory of SA capitalism (nevertheless we will return to analyse these policies in future material). Fearing inflation and the destabilising effects of massive financial speculation the US will, sooner or later, try to ‘taper’ its economic stimulus. This will mean that capitalism’s boom-slump cycle will come out into the open once more. The commodities ‘boom’ will end. Already before the pandemic struck the world economy was slowing down, now we face a far more unstable situation. In a weaker economy like SA’s the waves of economic crisis will wash ashore sooner rather than later. The ruling class will be compelled to increase its attacks on the living standards of the working class and middle class. The looming sovereign-debt crisis, which will plunge the entire economy into an even deeper crisis, is not likely to play out as a single once-off crash but more likely a series of deepening crises over a whole period.
Socialist Programme Needed
At each stage in the looming economic crises the classes will be brought into sharper and sharper collisions. The working class needs to be prepared for what is on the horizon. Between 2005/06 and 2020/21 the ANC-government transferred R1.8 trillion to the capitalist class in sovereign-debt interest payments. This could have paid-off nearly half of the government’s R4 trillion debt. But it did not touch a cent of the principle! A socialist programme would be clear that these capitalist vultures will not get any more money at the expense of the masses’ living standards.
The domestic banks (to whom a large portion of sovereign-debt is owed) will need to be nationalised alongside the monopolies and biggest companies in all the key sectors of the economy, including agriculture, mining, construction, transport, manufacturing, telecommunications, wholesale, retail and distribution. Nationalisation on a socialist basis would have nothing in common with the ANC-government’s run-down state-owned enterprises, bled dry through corrupt tenders and ‘cadre deployment’. They would be under democratic control, with representatives of workers and communities sitting on elected and accountable boards.
In the event of a sovereign-debt crisis, capital controls, price controls and controls on exports and imports will need to be implemented to defend against the revenge of the capitalist mashonisas. These policies must also be under the democratic control of workers and communities. Together this would lay the foundations for a democratically planned socialist economy in which the country’s resources, and the talents of its people, could be used for the benefit of the working class and poor, not the capitalists and their hangers-on.
But this will remain a paper programme without a vehicle for its implementation. Neither the ANC-government, nor any combination of the political parties represented in parliament, would ever contemplate such socialist measures. The creation of a mass workers party is urgent. In the stormy events that lie ahead, with a socialist programme and correct approach, a party with even a small beginning can be propelled forward rapidly by the masses, posing the creation of a workers’ government.
 “Emerging Economies Cannot Afford ‘Taper Tantrum’ Redux, Says IMF’s Gopinath”, Financial Times (30 August 2021)
 Quarterly Bulletin, No. 300, June 2021, SA Reserve Bank
 “Mixed Messages Cloud Timing of When Kganyago Will Turn Down the Music”, BusinessLive (22 August 2021)
 “MARKET WRAP: Rand Caps Best Week in Eight Months as US Fed Chair Softens Stance”, BusinessLive (27 August 2021)
 “Rebased GDP No Panacea as Real Growth Remains in Doldrums”, BusinessLive (25 August 2021)
 “South Africa’s GDP Contracts by 7% in 2020, a Once in a Century Event”, Daily Maverick (9 March 2021)
 “Record 34.4% Jobless Rate Likely to Worsen Due to Unrest Impact”, BusinessLive (24 August 2021)
 “Standard Bank Says Recent Riots Unlikely to Derail Economic Recovery”, BusinessLive (19 August 2021)
 “SA’s Shrinking Middle Class”, BusinessLive (12 August 2021)
 “Government Left Small Businesses to Sink During Lockdowns”, BusinessLive (21 July 2021)
 “Restaurants Call for End to Restrictions as 1,100 Eateries Close”, BusinessLive (15 August 2021)
 “Statistics of Liquidations and Insolvencies, July 2021”, StatsSA
 “SA Mining Exploration at its Lowest Level Since 2002”, BusinessLive (7 February 2021)
 “The Economy’s Growth Dynamics are Skewing in the Wrong Direction”, BusinessLive (30 August 2021)