31 October 2020 | www.moneymarketing.co.za
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YOUR OCTOBER ISSUE
CONSIDERING 100% ALLOCATION TO OFFSHORE FUNDS IN LIVING ANNUITIES – IS IT SENSIBLE?
EXPLORING NEW BUSINESS FRONTIERS WITH EMPLOYEE BENEFITS
How much to invest offshore and where to invest offshore are questions that advisers grapple with Page 12
Although the employee benefits industry is highly regulated, it is easy to enter the market Page 30
Will SA become a failed state by 2030? JANICE ROBERTS Editor, MoneyMarketing
S
outh Africa is heading towards economic and political collapse by 2030, unless it changes its economic model. That’s the conclusion of a report written by Claude Baissac, CEO of Johannesburg-based risk consultancy, Eunomix. The socio-economic consequences of COVID-19 have been brutal for the country. “South Africa entered the pandemic highly vulnerable, weakened by a ‘lost decade’ of abusive governance and poor growth,” Baissac writes.
Claude Baissac, CEO, Eunomix
In April 2019, he was quoted by Bloomberg as saying that the likelihood of arresting SA’s decline was limited by “the unsustainable structure of South Africa’s economy, in which economic power is largely held by an elite that wields little political influence, a product of its apartheid history and its status as one of the world’s most unequal societies. The ability of politicians to make the unpopular decisions needed to boost growth is hampered by this imbalance.” Eunomix’s pre-pandemic model forecasted that South Africa would fall into lower-middle income and very high fragility in the early-2030s. The coronavirus pandemic has sped up the clock. Apartheid state The report, described by Baissac as “a strategic, structural analysis of the fundamental impediments to growth in this country,” finds that the design of the apartheid state to exclude black people led to the creation of one of the most unequal societies in the world. “The apartheid elite was incentivised to resist large-scale labour mobilisation because doing so would have shifted the politicaleconomic balance toward the majority. The regime feared a black middle class as much as it did a general uprising.”
While the advent of democracy in 1994 ended formal political exclusion, the ANC replicated a central attribute of apartheid by spurning job-intensive growth policies. Instead it raised wages and supported the poor through welfare. “While apartheid suppressed the majority, democracy has subsidised it, but both locked it out of the productive economy, and in doing so precluded durable development,” Baissac writes. “Rejection of labourintensive export-orientation as a cornerstone of development has been the foundational mistake of democratic South Africa.” Zuma administration The report finds that the administration of former president Jacob Zuma inherited a relatively sound economy only to face global recession. Indifferent to policy detail, opposed to fiscal prudence, Zuma seized the moment by focusing on expanding the role of the state. In so doing, he had the support of the ANC’s left “who hungered for the state-centrism it believed Mandela and Mbeki had abandoned”. The fragile foundations of growth were destroyed by worsened policy, fiscal recklessness, institutional capture and largescale corruption.
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Ramaphosa’s course Buttressed by a left remorseful of its support to Zuma on one side and nationalists on the other, Ramaphosa has sought a course in-between. “Adopting superficial pro-growth discourse, he has maintained the strategy and thus accelerated social, economic and political adversity.” Baissac explains that macroeconomic policy is in the hands of the right in the ANC. “They tend to be more orthodox and they really do believe that you can create economic growth through macroeconomic policy.” Microeconomic policy has been given to the left “and they are absolutely opposed to any of the macroeconomic policy approaches of the right, as well as any changes to the cost of doing business.” He believes that both approaches are flawed and could hasten the country’s downturn. The report states that South Africa’s shallow economy rests on a small working population that is burdened by high debt and taxes, while unemployment, poverty and inequality are at record levels. “Agriculture and mining, pillars of the economy, have been relentlessly targeted for transformation, Continued on page 3
