Increased consumer demand is unlikely to boost local manufacturing, in the view of economist Dawie Roodt. “South Africa is very good at consuming, but not that great at producing. We import everything,” he said. “When the economy turns up and demand increases we don’t increase manufacturing. No, we only import more.” “If we stimulate demand we will only be stimulating imports and the Chinese economy,” he said. According to Roodt fiscal policy remains South Africa’s Achilles heel. “State debt as a percentage of GDP at the start of this fiscal year was at an alltime high of close to 60%. That is without the huge state-owned enterprise (SOE) debt. It will require an extraordinary effort to address this.” Roodt said the reason why the state found itself in this death-defying spiral was because since 2009 state spending had increased relentlessly while tax collections had collapsed – mostly because of the faltering economy. “The only way to fix this is to dramatically reduce state spending which means firing tens of thousands of civil servants – including those at the SOEs.” Another option was to increase taxes, and a third to grow the economy by at least 6%. “It is not so much about what we must do, but rather what we must not do,” said Roodt. “If we do not change course the economy will not grow, unemployment and poverty will continue to increase, and South Africa will find itself in very deep economic trouble.”
