Slippery Slope, or: The Economic Outlook for S.A.

 October 18, 2019
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Current affairs

I find it amazing that there is so much discussion about the ecomony of South Africa, and all of these discussions skirt around the main issue, DEBT. From every SOE, to every municipality and the central government itself, the biggest single problem is the staggering amounts of DEBT. Even the simplest household budget cannot sustain too high levels of DEBT.
If one were to examine the situation at Eskom, they have debt of about R 460 bn (billion), this means that to service this debt (just the interest) costs Eskom about R50 bn per year. In order for Eskom to service this debt they will have to recover R50 bn above their running costs from consumers, before they reach break-even point. In the context of the SA economy, they would have to increase tarriffs on electricity by about 45% in order to make a profit and grow as a company. Considering how much the tariff for electricity has grown over the last 10 years, I doubt very much if the market can accept a 45% increase. This means that Eskom will not get sufficient revenue to service its debt even if a tariff increase is approved. If Eskom is able to increase tariffs, then demand will drop, if demand drops there is less revenue, the nett result of this situation is that Eskom is essentially bankrupt, no matter what happens from this point on, Eskom is in very serious financial trouble.
Whatever measures the government takes to restructure Eskom, the DEBT will not disappear. Therefore the future of Eskom is very bleak, and likely to remain so. The scenario for Eskom is actually just the tip of the iceberg, the other SOE's and the various sections of government, including the central government itself, are all in exactly the same position. The only way forward from our current position is severe austerity measures. The sooner such measures are implemented, the less severe they will have to be.
The real bad news for SA is that even thougth it is now common knowledge that the ANC is largely to blame for our terrible economic situation, they are stil able to win elections by a large margin. It will require a new political mindset to drag SA out of the current hole, and this mindset is unlikely to come from the ANC. This means that the hole is going to get deeper. The government will need to find ways of increasing revenue in order to fund existing social welfare grants (which are growing all the time), whilst at the same time it will have to service increasing DEBT. In attempting to achieve this taxes will be raised, in raising taxes, investment will be negatively affected and thus economic growth curtailed, One can see that the situation is deteriorating on a daily basis, you do not need a degree in economics to understand this. Far from creating jobs and expanding the economy, it is far more likely that jobs will be lost and the economy forced into recession.
The recent "xenophobic" riots in Gauteng are merely a continuation of "service delivery" protests that have been occurring around the country, and are going to get worse. The citizens who have no income and no prospects, are getting very restless, and who can blame them. Across the country the youth especially are beginning to realise that the current government is not adressing their problems, and is not capable of adressing them. This is leading to a frustrated and restless mass that are just waiting to explode, it is only a question of when, and not if.
The headlines next year (2020) are going to be increasingly dominated by violent riots/protests, and more than likely some loss of life will occur. This is unavoidable since the authorities have not the means nor the will to bring change to the situation. There will be damage to vehicles and infrastructure which of course will only make matters worse. Many of South Africas most productive people (black and white) are leaving the country to find a better future which they know is not available here. The saddest part, is that these are precisely the people that could help turn the country around should the politicians suddenly come to their senses.
How do we fix SA ? Firstly our current political system is not capable of fixing the problems we have, there will have to be a major realignment of political parties in SA in order to make the neccesary changes to the system. None of the existing parties are capable of achieving the sort of political will, now required to eliminate corruption, which is neccesary in order to have a hope of making any progress. Severe austerity measures will need to be introduced, for instance, a cut in salaries for all state employees by about 20% (this includes politicians, MP's, ministers etc). A total ban on any new loans by any organ of state. Scrap all BBEEE policies. Introduce measures to limit population growth. Depoliticize the police and armed forces and strengthen anti-corruption measures. Support for homeless and jobless people will have to be provided. Education will have to be improved, and ways must be found for schools to discipline unruly learners, the current state of affairs in schools is chaotic. These are just some of the measures that will have to be taken in order right the mistakes of the last 20 years. Very few of these measures will be popular, that is why we will need a statesman the likes of Mandela to persuade people to work together.
The fact is, things will get worse, before they get better. Our current batch of politicians are more likely to make matters worse than to improve things. What this means for most citizens is that our lives are going to be severely disrupted and crime will increase dramatically. Hold tight we are in for a rough ride.

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