It is difficult not to be pessimistic about South Africa's economic prospects at the moment. Yesterday the South African Reserve Bank raised interest rates by 50 basis points. Those of us with home loans will now have to pay more interest. Governor Kganyago lowered the growth forecast from 2 to a dismal 1.7%. With an estimated population growth rate of 1.3%, that means that the average South African won't see their incomes increase by much this year. Unemployment and poverty are likely to remain frustratingly high.
Other economic indicators are moving in the wrong direction too. The JSE is down and inflation is up. Petrol prices are at an all-time high. So is unemployment. Loadshedding continues unabated. And because of war in Ukraine, food security is a major concern. The Economist's cover image this week is of three wheat stalks with the title 'The coming food catastrophe'. Zoom in, and you notice each grain is actually a tiny skeleton.
I am an economic historian. We have a difficult job: to provide a longer-term perspective when most people focused on just getting through the day, or month. When things go well – like when stock market or cryptocurrency prices were skyrocketing last year – it is our job to temper the enthusiasm. And when things go bad – as they do now – it is our job to highlight that, indeed, though things are bad, we live at a time when things are still much better than they were for our ancestors.
How do economic historians know this? We calculate historical estimates of income per person going back hundreds of years. Figure 1 shows one of these comparisons. There are two lessons to take away from this graph. First, our ancestors, wherever they were in the world, were poorer than we are today. Those of us living in Sub-Saharan Africa, the poorest region in the world today, are on average eight times better off than our ancestors only a century ago. Let's make that practical: whereas our ancestors could perhaps purchase one new shirt every year, we can buy eight. And it is not just that we can consume more. We live longer, healthier lives, thanks to advances in medical science, sanitation and nutrition.
The second lesson from the graph is that Africa's poverty is not a historical inevitability. By the 1950s, Asians were on average poorer than Africans. The divergence is the result of different policies in the second half of the twentieth century. That means a more prosperous future is in Africa's hands.
Many in South Africa, too, feel that poverty is inevitable. But that is not true either. Figure 2 shows the share of the population living in poverty in South Africa for various daily income thresholds. Again, there are two take-aways. First, the 1980s and early 1990s was a period of increasing poverty across all thresholds, but particularly for those earning less than $10 per day. The late 1990s and especially the 2000s was a period of remarkable reductions in poverty. Just after South Africa became a democracy in 1994, almost 35% of South Africans lived in extreme poverty – the World Bank definition of $1.90 per day. Fifteen years later, by 2009, that number had fallen to less than 20%. This was because, largely thanks to Thabo Mbeki, Trevor Manuel and Tito Mboweni, South Africa got the macroeconomic fundamentals right, reducing budget deficits, reeling in inflation, and opening up the economy to international trade and investment. Growth followed. This boosted the incomes of individuals and government, and more government revenue allowed greater social transfers to the very poor. It was indeed a better life for all.
But in 2009 the global financial crisis and the shift towards more populist policies within the ANC started what some now call South Africa's 'lost decade'. Economic growth slowed and poverty began to increase. The data ends before the Covid-19 pandemic which further deepened poverty.
South Africa in 1994 had many similarities to the South Africa of today. Economic growth was negative for most of the previous decade. Most kids were in schools that delivered poor outcomes. Many parts of the country suffered from violent protests. The new government still had to prove itself to international investors; confidence was low that the right policies could be implemented. And as Figure 2 shows, the poverty rate was higher than it is today.
And yet, with the right leadership and economic policy we managed to shift to a higher economic gear, strengthening our macroeconomic fundamentals. This allowed those at the bottom of the income distribution to see improvements in their lives: from higher incomes to access to housing and electricity and the internet. Had we continued along that path, it is very likely that extreme poverty would now be a thing of the past.
The bad news is that that is not how things played out. The good news is that, despite all the negativity in our current moment, the future is not inevitably bleak. It is up to us – and those we elect – to do the right thing. We have done so before.
* An edited version of this first appeared on News24. All data is supplied by Codera Analytics.
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