Failed by his mates, Godongwana has to pull another trick

As has become custom, finance minister Enoch Godongwana will pull yet another little Dutch boy trick when he presents his annual budget on Wednesday. That is because’ raise SA s he economic has been capacity let down by his cabinet colleagues, who have failed to implement with urgency the energy and economic reforms required to and growth rate.

So, every year Godongwana has to stick another finger into a leaking dyke. The latest proposal involves plundering SA’s foreign exchange reserves —a Band-Aid on the country’s gaping, festering economic and fiscal wound — because the administration of President Cyril Ramaphosa has failed to do what is required to fix the economy.

But such little Dutch boy approaches to running government finances won’t work. That is because SA has had a decade of economic stagnation, and its economic crisis is long term and structural in nature. The current administration has been preaching structural reforms, but their implementation progress has been slow and patchy.

Michael Sachs laid this out in a presentation to last week’s public debt conference hosted by the Alternative Information and Development Centre. Sachs, who now leads the Public Economy Project at the Southern Centre for Inequality Studies at Wits University, is the former head of the Treasury’s budget office.

“The problem is not fiscal space as such but our capacity to envisage and commit to a sustainable path of transformation and growth out of the current stagnation,” Sachs said. He warned that liquidating SA’ s financial assets and raiding fiscal savings (buffers) can bring temporary financial relief, but “cannot resolve the underlying macro-fiscal crisis”.

The crisis is an outcome of “chronic stagnation of production and institutional failures in the public organisations responsible for infrastructure investment, which are acting as a fetter on capital accumulation ” , he said. If badly managed, the measures the Treasury is implementing or proposing could create more problems, including financial instability, adding to the government’s “long list [of] development headaches”.

Sachs pointed to Eskom and Transnet, warning of the risks involved. “For instance, if financial support (R254bn) to Eskom is not supported by durable improvements in the productivity and efficiency of SA’s electricity supply industry, the current problem is likely to recur and worsen. The same goes for Transnet and reforms to the trade infrastructure services industry.”

The required reforms are well known. The network through which goods move in and out of SA is in worse shape now than a decade ago. Then there’s the energy crisis. Industrialists recently raised the alarm — not for the first time — about the gas crisis that will hit SA soon. The municipal fabric is threadbare. Fewer passenger trains are running today than a decade ago. Public health facilities can’t cope with the rising demand. The list goes on.

These are all holding back the economy and raising the cost of living for South Africans, especially the poor. And slow economic growth means fewer rands and cents for government coffers, which in turn means borrowing more money. The debt burden has increased so much that Sachs says SA is in a “high interest rate trap”. Core spending per citizen has contracted since 2015, according to Sachs, who has previously explained how the expenditure cuts have disproportionately fallen on the poor and unemployed because they depend on public services.

Godongwana will, of course, talk about all these issues, as he has every year since he became finance minister. That is not his fault, but he must live with the consequences. It is his cabinet colleagues who have failed to remove obstacles to economic growth.

The Ramaphosa administration finds applying a Band-Aid to the gaping socioeconomic wound easier than attacking what stops the economy from growing faster and creating jobs. All countries provide social support for their citizens, but such measures are a floor below which decent societies do not allow each other to fall.

So, when more people require such assistance, it is a sign that a society socioeconomic system isn’t working. That’s not something to be celebrated. Yet, the ANC’s chest swells with pride when it tells the world that more than 26-million South Africans are on social support.

It’s that kind of failure that leaves Godongwana plugging multiple leaks. If the socioeconomic failure is not reversed urgently, he will run out of fingers.