SA's medium-term budget: the sum of our inequality
As South Africans do more with less, how can Finance Minister Nhlanhla Nene address deeper structural issues in the economy?
South African President Jacob Zuma made a right royal hash at the recent African National Congress (ANC) National General Council meeting, when he seemed unable to articulate the ANC membership numbers. But we can be quite certain that Finance Minister Nhlanhla Nene will not be fumbling the numbers when he delivers his second medium-term budget policy statement in Parliament today.
The affable Nene took over the reins of finance last year in a tough political and economic climate. Today, he again has to survey the scene, tell us where our spending habits are leading us, what forecasts there are for growth and generally what the state of the economy is.
Over the years, the statement has rightly come to be seen as a credible and significant articulation of government’s medium-term economic outlook. Given its economic projections, the medium-term budget policy statement presents fiscal policy parameters and an indication of the division of revenue, as well as of broad shifts in spending priorities, for the coming three years. It has enhanced the transparency and predictability of South African economic policy.
The ‘mini budget’ has enhanced the transparency and predictability of South African economic policy
Whichever way Nene coats the pill today, we know we are in trouble, and that inequality is biting even when we thought we could keep it at bay with a social protection network and better ‘service delivery’.
Something was always going to give, and social stability is becoming all the more tenuous as workers strike, the mining sector plummets into depression and students demand free education in a context where money is tight yet corruption has soared.
Last year, the medium-term budget policy statement provided a stark, honest assessment of the risks still facing the South African economy and budget, and of the continued inability of government to achieve even close to an optimal value for money in using funds. Nene’s maiden speech in 2014 took place against a rather gloomy international and domestic outlook, and not much has changed in 2015.
In fact, some might argue that things are looking far bleaker. In June this year, ratings agency Fitch cut its growth forecast for South Africa, even though we managed to survive a downgrade. The country’s budget and current account deficits were likewise red-flagged by Fitch.
SA's finance minister will again have to do a careful balancing act
It is crucial that Nene shows that we are willing to stay the course and implement economic plans specifically related to the ongoing power crisis. Medupi coming on-stream might help somewhat. Of course, the fact that the National Development Plan still remains largely contested is problematic.
This affects the implementation of government policy choices, as it is so often referred to yet not quite brought to life. This can be seen in the contradictions surrounding energy policy and expensive choices regarding for the planned massive spend on nuclear power, to name but one example. We can once more expect Nene to talk sternly about ‘trimming the fat’ and cutting back on wasteful expenditure and corruption. Last year’s language was of a ‘collective cabinet commitment’; probably a way of Nene trying to ensure that his fellow ministers adhere to budgets and that there is less waste.
How can we ‘do more with less’? It is likely that Nene will again have to do a careful balancing act between expenditure and revenue. To meet the goals of the NDP, the economy would have needed to grow by 5% at least, indicating quite how far we are from these goals. Last week, Kuben Naidoo of the Reserve Bank estimated that the economy would grow by 1.5% this year; a real problem in the context of South Africa’s stubbornly high unemployment levels.
Investment-led growth can be achieved if SA is able to mobilise the public and private sectors
Even in the current context, where value for money and departmental savings receive a great deal of attention, there is significant under-spending in some national and provincial departments. In particular, the tendency of provinces to under-spend on functions other than health, education or social development is an additional cause for concern. Evidence already suggests that many government departments struggle to find the skilled personnel they need, and as a result, service delivery fails across all three spheres of government.
What should therefore be restrained are increases in wages, particularly at senior levels. Middle and higher management salaries in the South African public sector may well be too high, relative to their productivity, and salaries that are equivalent to private sector rates are not appropriate for a developing country marked by inequality such as South Africa.
Government has committed to infrastructure spend, however, events in the past few years have demonstrated the precariousness of partnerships and business-labour relations in key sectors of the economy. This does not bode well for job creation, which requires much more effective co-operation between sectors.
The vision of investment-led growth can be achieved if South Africa is able to mobilise the public and private sectors to work together more effectively. Government has opened the way for a range of increased private sector investment initiatives, such as special economic zones, independent power projects, cogeneration power projects and renewable energy projects. Yet, one has to ask whether this is enough, considering the immediate needs relating to poverty and unemployment are so pressing, and an increasingly impatient populace is champing at the bit for the promised ‘better life’.
No one will envy Nene today because whatever he says, his words and his actions are only a part of the story. He will need the backing of his boss and colleagues to get South Africa out of the economic quagmire it is in, and he will need to convince the private sector that it bears some responsibility for the economic challenges we face.
Nene’s budget statement is as much about numbers as it is about creating a society that is fundamentally less skewed. But only if we join the dots between structural constraints, poverty and unemployment, waste and corruption as well as our inability to forge an elusive social compact based on trust, will be able to start forging a more equal future.
Judith February, Consultant, Governance, Crime and Justice Division, ISS Pretoria
A longer version of this article was originally published by Daily Maverick
