Killing the economy through administration

AFUND manager recently described SA’s mining sector as a train wreck in slow motion. Much the same can be said about SA’s economy. caveat: there is a lot that is fundamentally okay about the economy. Our fiscal processes, whatever strategic and ideological issues one might have with them, and whatever concerns are emerging about how they are being eroded, remain enviable. Our social wage, notwithstanding the near pandemic leakages and fraud that are embedded in the system, still plays a strong role in alleviating abject poverty. Some industrial strategies are successful, although some might question the cost-benefit analysis.

Nevertheless, the global economic slowdown is masking a very worrying deterioration of the domestic economy. Yes, there are problems with the private sector, including collusion, lack of investment in training and skills development, poor investment in research and development and, as with the rest of the world, a focus on extraction and short-term earnings manipulation over longterm value creation. Still, the real crisis is in the public sector.

We are operating significantly below par and have been doing for so for some time — and only some of that can be attributed to the global economic context. The reality is that the structural capability of our output is being eroded. However, our crisis is being contextualised in and even blamed on the global

‘We are also increasingly doing the unimaginable: borrowing to pay increasingly inflated public-sector wages’

crisis, masking an unravelling of our productive capacity. We are killing the economy through administration and policy. There are three key problems. First, there is a virtual breakdown in investment in capacity, which is an inhibitor on output. Second is the deterioration of fiscal policy, along three lines: gross inefficiency (waste) in investment; growing patterns of deficits to fund consumption; and public sector wages and rent-seeking that have gone from opportunistic to policy-determining. Amid this, there is growing speculation about a credit downgrade. While it may be reckless even to speculate about it, the possibility of SA losing its investment-grade rating is a nightmare that deserves a front of centre position and conversation.

Third is that policy making is politically motivated with no sense of the economic effect, and it is increasing the cost of doing business, deterring investment decisions and delaying the execution of projects.

While the government continues to believe there is an investment strike by the private sector, it certainly does not help that those companies attempting to invest struggle with ever-growing regulatory and administrative complexity and delays. Projects are being delayed by up to two years because of administrative blockages such as the inability of municipalities to manage environmental impact assessments. Political obstinacy and denial are widening investment decisions and project time frames.

The water crisis that has now become manifest has been brewing for years but the relevant ministry has publicly and blatantly played down any notion of an infrastructure problem with water.

Then there is electricity infrastructure. Generation capacity has become the least of our worries. The real risk is that we are trying to justify a trillion-rand investment in generation on assumptions that are outdated while we are delaying investment in transmission and distribution infrastructure. It is not inconceivable that in five years, the reserve margin for electricity will begin to approach healthy levels but we will find distribution infrastructure collapsing. The challenge is that those responsible for repairing this infrastructure will have less technical capability and capacity than Eskom.

We are also increasingly doing the unimaginable: borrowing to pay increasingly inflated public-sector wages. The government talks investment but acts consumption. If nothing else, the implications of the erosion of fiscal discipline are cause for concern. The Treasury’s fiscal notoriety could be a thing of the past — with consequences even its detractors could come to rue. However, as worrying is the apparent indifference to the need to develop a long-term financial mobilisation and capital-investment framework, even as we glibly throw around projects running to hundreds of billions of rand.

Then there is that wonderful creature called legislation and policy. Sometimes it is hard not to be cynical and believe that (consumption aside) policy making and administration are the only things the government has the capacity and capability to do, though it does not seem that is supported by strategic competence. Our state churns out policy with more frequency than an American football coach calls time-outs, and then is surprised when the private sector says it has no policy certainty. The resultant dissonance within the economic sphere is preposterous.

Of course, perhaps more ridiculous than this dissonance are these columns. Especially as they are only partly fun.

Mahabane is head of Brunswick SA.