OPINION: Why an IMF intervention might not be a bad thing for South Africa
In the absence of a credible opposition party with sufficient electoral power to challenge the ANC, perhaps the IMF is best placed to help the ANC to discover 21st century economic consciousness, writes Ayabulela Dlakavu.
In recent weeks, economists and political analysts alike have deliberated on the state of the South African economy. Such deliberations come against the backdrop of dwindling state revenue, the collapse of state-owned enterprises, weak investor confidence in the South African economy, a weakening rand, rising food prices and unprecedented unemployment.
These alarming economic trends have raised concern that South Africa may be heading towards the direction of a bailout from the International Monetary Fund (IMF), an institution maligned for its reputation of compromising a borrowing state's policy and governance sovereignty.
Much has been written about the conditions of IMF loans, not least because they tend to compel the borrowing state to adopt structural adjustment policies that are neoliberal in nature. Examples of policies typically imposed by the IMF include balancing the national budget, removing state subsidies, privatising state enterprises, liberalising trade and currency policy, and removing barriers to foreign investment and capital flows. Such structural adjustment policies are intended to stabilise the borrowing state's finances and to place it on a path of economic growth.
Unfortunately, the IMF's austerity policies tend to bite hardest on the poorest sections of society, because they include policies such as the removal or reduction of social programs that often cushion the poor. Other IMF structural policies include a reduction in state expenditure on healthcare, as well as a removal of subsidies on energy, education and childcare. While such austerity measures help to balance the state's finances, they unfortunately result in a higher standard of living in an already depressed economy.
As a social welfare state, South Africa's working class would bear the brunt of the hardships that would result from reduced state spending if the state turns to the IMF for a bailout. An IMF bailout in South Africa would likely result in the unfortunate cutting of healthcare expenditure, including the ARV program that has helped to manage the HIV/Aids epidemic in the country. Second, a reduction in state subsidies on basic goods would result in an increase in food and energy prices, causing many South African households to slip into an already flooded poverty bracket.
Despite these grim possibilities, an IMF intervention could be the silver lining that redirects South Africa to its developmental path. IMF policy prescriptions will firstly solve the primary issue of policy uncertainty that deters domestic and foreign businesses from investing in the South African economy.
The governing ANC's inability to formulate and implement coherent development policies since 1994 has been tragic, and has hampered South Africa's socio-economic development potential. A combination of government policy certainty and South Africa's relatively developed economic infrastructure and financial sector could have propelled the country to high levels of economic growth on par with the emerging economies of East Asia. However, that opportunity has been lost as a result of ANC indecisiveness that partly stems from its alliance with ideologically different political and labour formations (SACP and Cosatu). The IMF could liberate ANC from policy uncertainty, thereby opening the door to foreign and domestic investors that have long been attracted to Africa's most diversified economy.
The gradual return of investor confidence could then have the ripple effect of resuscitating economic sectors that have collapsed as a result of poor economic policies. The mining, manufacturing and construction sectors are two such sectors that could be revived by the adoption of prudent and rational economic policies. These sectors are labour intensive, interdependent, and have significant employment generating capacity that can help reduce the unacceptable 30% unemployment rate.
Lastly, the IMF can compel the ANC government to confront the difficult policy choice between rational and populist policy choices. One of the reasons why South Africa's economy has stagnated is the ANC's flirtation with populist policies, particularly nationalisation policies and unclear policies on land.
South Africa is not self-reliant when it comes to investment into the economy, and this vacuum is naturally filled by foreign investment. Foreign investors by default require legal protection of their investment from government. When a governing party, or factions of a governing party, threaten nationalisation of businesses, this inevitably sends investors into panic – and they end up disinvesting from the economy.
As a party that has governing experience of 25 years, the ANC ought to know that disinvestment is a 21st century challenge to its historic mission of achieving the elusive National Democratic Revolution. Marred by ideological and careerist factionalism, the ANC appears incapable of making sound economic policies. In the absence of a credible opposition party with sufficient electoral power to challenge the ANC, perhaps the IMF is best placed to help the ANC to discover 21st century economic consciousness.
Should the South African economy continue its regression, there might be nothing left to nationalise nor expropriate. Difficult and rational policy choices need to be taken to stabilise the South African economy. The IMF could be the harsh, yet necessary, answer.
- Ayabulela Dlakavu is an independent political analyst and Political Studies PhD Candidate at the University of Johannesburg. He possesses a Bachelor of Arts in Political Studies (cum laude), a BA Honours in International Relations (cum laude) and a Master of Arts in Political Studies.