Let’s bring spending into line with aspirations
The Trevor Manuel years of having a fiscal war chest started to fade post-2009 and completely disappeared in the 2014 administration.
This decline of the fiscus corresponds with the erosion of economic governance.
Now, development expenditure such as on health, education, agriculture and land reform – including investment in new sustainable infrastructure for transport, ICT and energy – is not increasing in line with the aspirations of the people.
SA’s economic governance is characterised by policy uncertainty, corruption, declining investment, lower productivity and disappointing growth.
Reports from global institutions like the World Bank and rating agencies emphasise that for SA to make a breakthrough against poverty, inequality and unemployment, the economy needs economic diversity, relevant skills (it currently has a low skills base) increased productivity and for the goods produced and services rendered to reach global markets.
The state needs to reverse poor management of the economy and restore trust among economic players. It needs to deepen the private sector role in the economy, improve global competitiveness and boost investment.
● Deepening the private sector role would bring SA closer to its developmental goals by growing the economy. But partnerships need to be strengthened and enhanced first. And for this the state needs to reduce the cost of doing business.
The strategic imperative is to enhance competition and address economic concentration.
It also needs to rectify skewed ownership, control and management of the industries in the South African economy.
The transport and energy industries – currently dominated by SOEs – need to be opened to the private sector. This would create more broadly based private sector participation in the economy and draw much needed private funds, human resources and technology, improving economic performance and the standard of living.
Another area for private and BBBEE participation is social infrastructure development.
The state should expand use of public private partnerships and private finance initiatives (PPP/PFI) based on concession agreements and other approaches to attract private funds and know-how.
● Boosting investment: the 2019 Budget Review indicated that investment, as a percentage of GDP, showed a sharp decline, reaching a 13-year low of 17.7% in the third quarter of 2018.
Policy certainty and policy interventions play a big role in influencing investment. As the macro-policy environment became more uncertain, investors hung back.
Talk of expropriation of land without compensation creates uncertainty. The property clause should operate as an economic instrument to woo investment and drive inclusive economic growth. It should give the guarantees companies need to invest in a country.
This does not mean the state must not accelerate its sustainable land reform initiative and uplift rural economies.
Further, poor performance by Eskom has a direct effect on business confidence. Concerns about fiscal sustainability remain a red flag. To whet the appetite for private investment there must be co-ordinated effort to strengthen business and consumer confidence.
● Cities have been long recognised as engines of economic growth and job creation. Towns – rural, mining and small towns – need co-ordinated infrastructure investments, both social and economic. Efficiency of infrastructure spending across the three spheres of government needs improvement.
Strategic and financial support should be solicited from national and provincial government as well as investments from private sector and development finance institutions.
● Boosting human resource capacity to improve global competitiveness: SA must be realistic and imaginative in this area. Building capacity from a low skills base remains a challenge, with vested interests in the labour market, and education and training sector.
The “big business-government-labour” model needs urgent review. It has excluded too many from the fruits of the 1994 political settlement.
With a surplus of unskilled labour and a shortage of skilled labour, the immediate intervention is to create jobs and skills in labour-intensive industries, create incentives for firms to absorb unskilled labour, and offer training opportunities.
Medium- to long-term, SA needs to improve education and skills development, starting with basic education, early childhood development, maths and science. The low skills base must be urgently addressed.
South Africa needs to adopt a ground-breaking immigration policy to attract skills that will boost economic performance.
It has been long recognised that skilled immigrants have contributed to the performance of many advanced economies.
SA needs a skills mobilisation drive, an “Open South Africa Initiative” to attract foreign skills which should cover university and technical skills.
Furthermore, in this era, black empowerment as a transformative programme should emphasise skills training and development of management skills across the economy.
The skills development fund should be managed in a different manner. This would need for the relevance, governance and delivery model of the Setas to be revisited.
Perhaps a reconfigured ministry on employment and skills could be established and the skills fund shifted from higher education and training, social engagement programmes and Setas to the new ministry.
South Africa urgently needs skills. Government, in partnership with the private sector and other crucial players in the economy, and across government agencies, should craft a clear strategy to address the skills gap in the economy in order to respond to equity policy considerations.
The economy is in desperate need of reform. To respond appropriately to the country’s economic agenda, the government need broader alliances to catalyse growth. It should know also that actual governing happens in provinces, cities, the business community, civil society and universities.
Actual governing happens in provinces, cities, the business community, civil society and universities