The Conversation/Owen Skae: Efforts to get South Africa’s economy moving are no more than a patch up job

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Efforts to get South Africa’s economy moving are no more than a patch up job
February 22, 2018 1.25pm SAST
Author

    Owen Skae

    Associate Professor and Director of Rhodes Business School, Rhodes University

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Owen Skae does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
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The Conversation is funded by Barclays Africa and seven universities, including the Cape Peninsula University of Technology, Rhodes University and the Universities of Cape Town, Johannesburg, Kwa-Zulu Natal, Pretoria, and South Africa. It is hosted by the Universities of the Witwatersrand and Western Cape, the African Population and Health Research Centre and the Nigerian Academy of Science. The Bill & Melinda Gates Foundation is a Strategic Partner. more
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South African finance minister Malusi Gigaba could have done better in his 2018 budget speech. Reuters/Mike Hutchings

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Its obvious that the South African government approached the 2018 budget from an extremely tight spot and with limited options. The country has been staring at the perfect storm of low economic growth and widening fiscal deficits set against huge expectations and needs. These include fee-free higher education for poor students, troubled state-owned enterprises and a growing base of the unemployed.

The saving grace may have been the recent change in presidency from the disastrous Jacob Zuma to the promising Cyril Ramaphosa. The new president has triggered a wave of optimism and there are signs that the economy is picking up. This will be needed if Treasury is to find a way of closing a revenue gap of R48.2bn.

The focus by Malusi Gigaba, the minister of finance, on free education, developing industrialists and small to medium sized enterprises are to be welcomed. But one gets the sense that without the right policies in place, this is just more of the same.

Assuming that government is able to achieve the expenditure reduction of R85 billion, fund the R57 billion earmarked for higher education via increased Value Added Tax (VAT) and marginal adjustments to personal income tax, the question remains; has it addressed the real reasons why the country has been limping along. It all sounds like a patch up job to me.

The increase in VAT from 14% to 15% is bad news, despite the promised offsets through social grants. VAT is generally known to be a regressive tax which means it tends to hit the poor people the hardest.

On top of this, the budget just didn’t go far enough. Perhaps the finance minister was caught up in the euphoria of Ramaphosa’s widely welcomed state of the nation address. Gigaba’s speech didn’t do enough to highlight the consequences of not doing what needs to be done. He had a great opportunity to set the path, but there wasn’t an integrated outline as to what is needed, and how the changes proposed will be implemented in a way that makes sure they complement each other.

He had the chance to set the vision, but didn’t.
Thin on detail

The budget is very thin on detail. The power utility Eskom is clearly a great concern as reference to this was highlighted quite early on in the budget speech. The minister said:

    we have demonstrated our resolve by strengthening Eskom’s board and management with highly capable, ethical and credible leadership.

Other than a brief mention of South African Airways (SAA), Gigaba made no reference to other stressed state owned enterprises such Passenger Rail Agency of South Africa and Denel. I was expecting more detail on how government plans to sort out the state owned enterprises mess.

The debt situation is frightening. The debt-service cost projections have gone up from R163.155 million in 2017/18 to R213.859 million in 2020/21. Even though he acknowledged that government debt is on an unsustainable path, he didn’t provide a clear outline about how the stabilisation of gross debt-to-GDP at 56.2% of GDP in 2022/23 will be achieved. This is just a case of kicking the can down the road.
The fate of state owned enterprises

Gigaba made a bold statement when he said:

    State-owned enterprises are expected to fund their own operations.

The only clue as to how this will be achieved is that government would help them develop robust turnaround plans.

Gigaba also mentioned that non-core assets could be sold, strategic equity partners brought in or possible injections of direct capital.

This is all well and good. But the minster wasn’t clear about the time frame, who will drive the process or how it will be done. The lack of detail doesn’t inspire confidence that there is real political will to address the dire situation of state owned enterprises.

Gigaba did touch on the systemic issues like the unacceptably high levels of corruption. But he did not do so credibly enough. He didn’t demonstrate loudly and clearly that the government wouldn’t tolerate any more transgressions in the running of public funds.

The fact that he has a cloud hanging over his head does not help the situation. One can’t help but wonder if his proposals can be taken seriously.

What people want to see is the minster drawing a line in the sand and making it abundantly clear that it can no longer be crossed. As the person who controls the public purse, this message should have been loud and clear.
Next steps

Ramaphosa has the opportunity to assemble the most respected cabinet this country has ever known. The various summits that he is calling for – such as the one on jobs – and the social compact he’s intent on securing are absolutely essential to kick start South Africa on a growth path that is able to realise inclusive economy and socioeconomic transformation.

    Tax
    Economy
    Education
    Debt
    Corruption
    State owned enterprises
    Growth
    South Africa
    VAT
    Eskom
    Cyril Ramaphosa
    Malusi Gigaba
    SAA

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