Sustainable growth and quickie quicksands

FNB Rex Column, by Cees Bruggermans

An economy that grows together stays together for the long haul. But an economy only expanding in some parts while reversing thrust in others does what airplanes usually do at 37000 feet when you try that kind of tomfooling. They somersault and nosedive, potentially breaking up in midair.

It isn’t as if we aren’t experienced in somersaulting and nosediving, but every expansion brings its own temptations, history easily forgotten when in a tearing hurry to deliver politically to the baying masses.

For those who haven’t quite figured this out yet, ideally demand expands uniformly and supply responds uniformly.


Indeed, some critical parts ideally should lead (such as export expansion and public infrastructure investment) so that employment can grow, households follow up with increased income and spending and private fixed investment can respond to the carrots so created.

There is a reason why our expansions are usually export-led and public infrastructure reinforced. It makes the whole thing more sustainable, as room is created on the balance of payments for more imports (hopefully foremost capital investment goods) while our domestic investment effort and job creation allows demand from consumption to be met.

But what if?

What if some of these bits aren’t there when you need them? What if exporters can’t expand successfully, because of regulatory issues, skilled labour scarcity, high input costs, overvalued currency?

These are mostly mining and manufacturing issues, but also transport, business services and agriculture.

What if public infrastructure efforts start to falter (again)? That kneecaps construction.

Between them these sectors may already hamstrung one-third of the economy on the supply-side before the going even starts to get good.

This is a crucial one-third.

For imbalances and bottlenecks will show up quickly, like an ambitious but overweight amateur embarking on a marathon discovering within 100 metres of starting that perhaps he isn’t cut out for this and should leave it to the skinny numbers effortlessly streaking by, leaving him to chew dust and consider his many sins.

Recognise yourself?

Instead of exporting ourselves into expansion, we tend to hope for rain (and commodity price increases) which will effortlessly create the space to import.

And if even this isn’t rich enough to fully accommodate our overeating economy and the imports it will suck in, we may want to rely on unlimited capital inflows to fund our import habit.

This certainly has happened in the past, and probably is happening on an unprecedented scale (for us) this past and coming decade. For mining volumes have hardly budged, though we have a very rich mining endowment.

Though commodity prices have and will be good, it is like nothing compared to the capital largesse the world insists on throwing at us.

So the first temptation is not to worry about exports or the balance of payments. Indeed, if we have a problem it is one of too much incoming capital and overvalued Rand.

Both pose problems. The hot Rand in the short-term, the poor export development longer term.

But even if a ‘sudden shock reversal’ were not to catch us soon, our inside story is still full of holes.

Public infrastructure expansion is again disappointing rather than continuously expanding, no longer creating steady jobs and temptation for private investment also to expand.

Instead, we find private investment shell-shocked from previous rudely interrupted marathons and heavily demoralized by infrastructure capacity limitations, skilled labour scarcity and slapstick politics inducing second thoughts of many kinds.

Also, government social spending is encountering reality checks from strained finances and tax burdens.

If export volumes (post the current repair, thinking longer term trend), public and private fixed investment and government social spending are not leading our next long growth expansion, what is?

What remains is the good old household consumer, overburdened by debt and decimated in the ranks by job losses. And it is not as if every consumer has the fullest confidence in our political future.

But in the end none of that really matters if you want growth. Point the consumption machine in the right direction, force some higher income down its throat, tempt it with attractive incentive (lowered interest rates), and predictably they will come and rise to the occasion, a habit difficult to kick.

But is it sustainable? Or is this simply the slow growth road as opposed to the high growth road of ideally configured demand and supply impulses pushing us along (as now in so many other emerging markets)?

Instead we act and look like the old American economy, before the fall, heavily consumption dependent.

They got the message, with export, saving and business investment leading and less emphasis on easy consumer credit.

Perhaps we should also focus less on quickie quicksands and more on sustainable composition. Or is it simply beyond us, besides the temptations created by easy foreign capital inflow and commodity price riches?

Let’s face it. We aren’t a marathon runner. Why would you if the golf cart is ready and willing? So by default we tend to take the easy consumption option, but it has its limitations.