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Economist Mike Schüssler has published a graph of South Africa’s per capita gross domestic product (GDP) that presents a pitiful picture of the country’s financial situation.
In 1990, South Africa’s per capita GDP was 107% of the world average. Fast forward thirty years and this figure is down to 74%.
In simple terms, it means that South Africans are getting poorer compared to their global counterparts.
Changing the situation will require drastic government action, Schüssler said.
“To return to the world average, South Africa would have to improve its GDP by 35.1%. To do so over a decade, the country would have to grow its economy by 55.5%, taking into account population growth, ”she said.
This level of growth was last observed in 1974, which means it is unlikely to occur.
Schüssler said that unless the government stops fighting businesses and cuts public spending, we may not return to the 1990 level in our lifetime.
“If South Africa doesn’t fix things like electricity, water, roads and railways, the downward trend will continue,” he said.
The graph below shows South Africa’s gross domestic product (GDP) per capita compared to the world average.
Big drop in GDP due to COVID-19 lockdown
Schüssler’s data only records GDP per capita through 2019, and South Africa’s relative position is likely to deteriorate further due to this year’s huge economic decline.
South Africa’s gross domestic product (GDP) fell by 51% in the second quarter of the year, reflecting the immense damage caused to the economy by the COVID-19 lockdown.
This pushes South Africa into a deeper recession after GDP growth for 1Q20 reached -2%, after declines of 0.6% in 3Q19 and 1.4% in 4Q19.
It was the fourth consecutive drop in quarterly GDP since the second quarter of 2019, Stats SA said.
Finance Minister Tito Mboweni said South Africa’s second-quarter GDP contraction was larger than expected by both the National Treasury and the Reserve Bank.
This, he said, increases the risk that the GDP outcome for 2020 will be worse than previously thought.
Mboweni said the coronavirus pandemic has left the government’s finances “dangerously overburdened” while rising debt threatens the country’s future economic prospects.
The minister said the economy is likely to contract more than the 7% previously forecast by the Treasury.
The Organization for Economic Cooperation and Development (OECD), for example, expects South Africa’s economy to contract by 11.5% in 2020.
Tax revenue is also expected to fall at a greater rate than the contraction in GDP, although this is by design.
“Businesses pay taxes only on profits, and as wages fall, effective income tax rates are reduced. The tax system is inherently countercyclical, ”he said.
The expected fiscal deficit of more than R300 billion, around 6.2% of GDP, means that the country will have to borrow more money.
“Not containing our huge debt and debt service costs, and reducing the budget deficit, will hurt the long-term economic outlook,” he said.
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