South Africa’s economic cliff-edge

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Late last year Robert Mugabe was ousted as president of Zimbabwe. He left behind him a legacy of economic turmoil, tyranny, and poverty, and in many ways stood as a lesson in how not to run a nation. Though it may be comical that Zimbabwe circulated $100 trillion notes during the peak of hyperinflation, it is also a tragic reflection on the state of the economy at the time, and the hardships its people had to face. Many commentators list the land-reform programmes pursued by Mugabe and his party ZANU-PF as the leading cause of this economic crisis, as in order to address perceived long-standing injustices, land was taken from experienced white farmers and transferred to unskilled government officials and other citizens, leading to a collapse in the Zimbabwean agricultural industry. A country once known as the ‘breadbasket of Africa’ went from being a net exporter of food to a net importer, much of its population faced starvation, and life expectancy plummeted to just 40 years.


The lessons from Zimbabwe do not seem to have been heeded by the South African government, who in February approved a bill by a large majority which would allow the constitution to be amended in order to facilitate land owned by white farmers to be expropriated without compensation. The justification for the bill, as given by the leader of the far-left Economic Freedom Fighters (EFF) party Julius Malema, was in order to “ensure that we restore the dignity of our people without compensating the criminals who stole our land.” Malema has previously been criticised for singing “Kill the Boer”, an apartheid-era song which the ruling African National Congress (ANC) party defended the use of. South Africa’s newly elected president Cyril Ramaphosa also pledged in February that he would speed up the transfer of land from white to black owners after his inauguration, though he said that food production and security must be preserved.


Even if prudent measures are taken, it would still seem that South Africa is gazing over an economic cliff-edge. The land seizure in Zimbabwe prompted a collapse in the banking sector and in capital investment, which spread the crisis from the agricultural industry to the rest of the nation. South Africa faces similar risks. For one, if land is expropriated en-masse, it is likely that many farmers would default on loan and mortgage repayments, leading to heavy losses for the banking sector, which could potentially trigger a crisis. The South African agricultural industry association AgriSa share this view, stating in a tweet that “Expropriation without compensation is an economic time bomb”.


To date in South Africa, land redistributed (with compensation) has been far less productive than it was before expropriation. It is estimated that 70% of the 8 million hectares of transferred land is now fallow. This mirrors the situation in Zimbabwe decades before, where the impact was so severe that wheat production fell from 300,000 tonnes in 1990 to 50,000 tonnes in 2007, while the tobacco industry’s revenues fell from US$600 million in 2000 to less than US$125 million in 2007. An expansion of South Africa’s expropriation programme therefore threatens to expand the economic consequences of the pursuit of social justice.


To make matters worse, South Africa’s economy is not approaching this situation from a stable economic position. GDP has been in decline since 2011, and over a quarter of the country remain unemployed. This has had a serious impact on the price of government borrowing, especially since the country’s credit rating has been consistently downgraded by three major credit rating agencies over the last few years. If the South African government mishandles this situation, it may not be able to finance a solution to the crisis which unfolds. If this occurs, foreign investment is likely to plummet, leading to a crash in the value of the Rand, therefore greatly increasing the price of imports and causing a spike in inflation.


While the situation South Africa differs in that its agricultural industry is not as much of a significant proportion of GDP as it was in Zimbabwe at the beginning of the crisis (15% in zimbabwe versus less than 5% in South Africa), the risk is still far too significant to ignore. The agricultural industry provides South Africa with 10% of its formal employment, as well as providing work for casual labourers, all of which would be at risk should the industry be endangered. Another difference pointed out by commentators is that South Africa is a democracy whereas Zimbabwe was a dictatorship. However, this difference has not stopped almost identical legislature from being passed, and while the democratic nature of South Africa may prevent excess violence being carried out by the government against white farmers, it has not stopped violence by citizens against white farmers, as farm attacks are still a regular occurence.


Whether or not South Africa’s economy can handle the potential shock that lies before it remains to be seen. One can only speculate as to whether or not the pursuit of these policies at such a economically uncertain time isn’t just to defer responsibility from the government to the white farmers in order to maintain power until stability can be realised. In any case, South Africa’s economy hangs in the balance, and regardless of perspectives on social justice, no one wants to see a 100 trillion Rand bill.

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