'South African Economy Has Been on Brink of Recession Past Few Years' - Scholar

The South African rand has weakened by 1.5 percent against the dollar as the country's economy entered a recession. The main reasons behind the recession are said to be slowing the agriculture, transport and trade sectors.

Radio Sputnik discussed this with Professor Corné van Walbeek of the School of Economics at the University of Cape Town.

Corné van Walbeek: In South Africa we call it a "technical recession" because it's the second consecutive quarter that we've had negative economic growth, but if we look at South Africa's performance over the past 18 quarters or the last 4.5 years, unfortunately, the country has been experiencing negative growth in 6 of those 18 quarters. So, the economy has really not been doing all that well over the past 4 or 5 or so years.

The result of that is that if you do have two consecutive quarters of negative growth then, of course, it is classified as a recession. The economy has been sitting on the brink of recession for a number of years already.

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Sputnik: What are the key factors and influences in terms of negative growth?

Corné van Walbeek: If we look at the statistics, there're a number of sectors that have been doing slightly better; there have also been some sectors that have been doing worse. At the moment the agricultural sector is getting a lot of bad press. Agricultural output has decreased quite significantly, in fact, by nearly 30%. But there're a number of other sectors that have really been doing quite poorly over the past while. Specifically, in the mining and quarrying sector, we see that over the past 18 quarters, in 8 of them there has been negative growth.

If we have a look at manufacturing in the past 18 quarters, 11 of them have experienced negative growth for manufacturing. So, the primary and the secondary sectors of the economy have actually been doing quite badly over the past number of years. I think that the largest notion to do with that has to do with policy uncertainty. There's been a lot of policy uncertainty; the government has got a national development program in place but many people would argue that we have not been all that successful in implementing that particular policy.

Sputnik: All this is surrounding the agricultural sector in South Africa, which is, of course, a huge part of your economic strategy; what is the latest situation with regard to the agricultural sector and the expropriation?

Corné van Walbeek: At the moment there is a lot of uncertainty in South Africa with respect to that. The government is looking at the constitution to change a particular amendment that actually allows expropriation without compensation. At the moment it is not allowed by the constitution, but the government is considering changing the constitution to make that possible. It is true that there is this particular issue.

At the same time, if we just get back to the importance of agriculture, if we have a look at how important agriculture is to the economy in terms of GDP, the answer is that it's actually not that important.

The agricultural sector comprises approximately 2% of GDP output and so one can't say that South Africa is a country like the Netherlands where it comprises a much bigger proportion of the total output. It is very politicized, there're lots of thoughts being bandied about, but to be honest, we don't have an exact outcome yet because it is still very much being debated.

Sputnik: Do you expect the government to make any changes in light of the current negative figures of the last quarters that we've been talking about? How do the investment prospects for the country change considering the latest agreements with China and the UK, for example?

Corné van Walbeek: The ruling party, the ANC, came out with a statement basically asking for a stimulus package by the government to increase aggregate demand to kick-start the economy and make things go better.

At the same time, I think a different response from the private sector would be to give more policy certainty. We see that over the past 5 years, gross domestic investment has decreased quite significantly and we also saw that again in the second quarter of this year that there has been a decrease in gross fixed capital formation.

I think at the moment, the best thing that the government can do is to reduce the regulations, to provide more policy certainty and to get the economy to grow.

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Sputnik: What could South Africa's recession mean for the global economy and BRICS?

Corné van Walbeek: South Africa should be a prime country to invest in. The crucial thing is that we should just create the incentives and make these incentives right and correct the uncertainty so that people actually do want to come and be tourists in South Africa, relax the visa requirements so that businessmen can come and bring their money into South Africa.

All those things are possible and our president has been very active, scouring the world to bring investors into South Africa. We've had a degree of success both with China and the UK recently.

Views and opinions expressed in this article are those of Corné van Walbeek and do not necessarily reflect those of Sputnik.