Efficient Group chief economist Dawie Roodt has warned that South Africa’s high levels of poverty and unemployment – coupled with rising food and energy prices – are a recipe for disaster.
“South Africa is in tremendous trouble,” Roodt said during a discussion with Nuuspod regarding South Africa’s economic challenges.
Roodt said 32 million South Africans rely on the state for income and the tax base is not strong enough to carry this burden.
The economy is also not growing fast enough to finance the increasing number of grants paid by the state.
“The high levels of poverty and unemployment with rising food costs is a recipe for mass unrests and disorder,” he said.
“My biggest fear is that a spark can make the situation explode. It is a highly volatile situation waiting to explode.”
Although global economic issues like the war in Ukraine and higher energy prices contribute to the problem, most of the pain is self-inflicted.
Roodt blamed most of South Africa’s economic problems on bad macroeconomic policies and poor leadership.
“The government has been implementing the wrong things and mismanaged the economy for many years,” he said.
Fixing the problems is relatively easy – implement business-friendly policies and show strong leadership.
However, infighting in the ruling party and a lack of political will means the state is essentially paralysed and cannot make the needed changes to fuel economic growth.
The chart below shows South Africa’s unemployment rate over the last decade.
South Africa in a downward spiral
Roodt said the state is collapsing at all governmental levels, including the national, provincial, and municipal.
Highlighting the challenges at the local government level, he said most municipalities are basically bankrupt.
“Taxpayers owe municipalities around R300 billion, and municipalities owe in the region of R100 billion to their suppliers,” he said.
Because of the dismal state of municipalities, people are starting to tire of poor service delivery and mismanagement.
As a result, South Africans are protesting by paying less of their taxes. When service delivery continues to decline, people stop paying altogether.
It is a downward spiral, with municipalities having less money to deliver services, leading to fewer people paying for services.
“We are facing a disaster when it comes to paying for service delivery,” said Roodt.
The same situation can be seen at a national level, where nearly all state-owned enterprises face severe challenges because of mismanagement.
The impact of the collapse of state-owned enterprises can be felt throughout the economy.
A good example is Eskom – it has been destroyed because of poor leadership, mismanagement, and corruption.
As a result, the power utility cannot produce enough electricity, limiting economic growth and leading to unemployment and poverty.
The chart below shows the increase in load-shedding over the last five years.
South Africa is facing serious problems
Roodt said the state’s finances are deteriorating rapidly, and the situation is unsustainable.
Part of the problem is that the state spends too much, which increases its debt levels which are already too high.
“We cannot continue to run a fiscal deficit at the magnitude that it is currently happening,” said Roodt.
The pressure on the state’s finances is also increasing, with calls for a basic income grant and higher pay for government employees.
The way to tackle these problems is through strong political leadership, the right policies, and good implementation of these policies.
Unless South Africa sees this from the government, Roodt said he fears that the country is facing tremendous problems.