The 2021 Medium term budget policy statement came in the aftermath of the July unrest, which not only reversed the progress that had been made on growth, adding pressure on the government as many became unemployed, but also left us to question the real motivations of what I would like to call an outcry. Is it that people were furious that the former president Jacob Zuma was to be incarcerated or they were hungry and used this as an opportunity to fend for their survival?
We can all agree that Covid-19 exacerbated the deterioration in the standard of living of many South Africas. Many socialists have seen government response as inadequate, calling for more stringent policy implementation, mostly in the form of social payments. In his MTBPS address in November, finance minister Godongwana noted the many challenges South Africa currently faces and affirmed that time for politicians to exploit the poor and unemployed by appealing to their needs without actioning on promises was up.
At the beginning of 2021, the global economy was projected to grow at 5.9% but only grew at 5.5%, with the World bank expecting this growth to decelerate to 4.1% and 3.3% in 2022 and 2023 respectively. We are entering a phase of fiscal and monetary support withdrawal, with most central banks all over the world starting to tighten policy by increasing interest rates. For emerging economies like South Africa, it is expected that recovery will be much slower while advanced economies return to their pre-pandemic levels. Growth outlook in South Africa sees economic growth at 2.1% for 2022, after growing at an estimated 5.2% the previous year. As a matter of urgency, South Africa needs more accelerated growth in order to create the necessary jobs that will absorb the surplus unemployed population. However, inflation poses downside risks on economic recovery and if it persists, may curb any potential gains.
About 46% of the South African population receive payouts from government since the Covid-19 outbreak. This is about 28 million South Africans, with 19 million accounting for standard social grants. With the youth and children accounting for about 63% of the population, there is no doubt that these two groups make the largest number of the 46%.
Government has also noted that there are people who applied and receive the pandemic social relief grant unduly. Going into the budget, the current social relief grant of R350 is not enough neither is it sustainable. But how does an economy increase spending if the expenditure will not deliver growth? Theory tells us that during a crisis, an economy can implement counter-cyclical policies which will aid growth. What we saw in 2021 is that, even though the economy saw some recovery, this did not translate into an increase in employment. Perhaps for South Africa, growth has a lagged effect on employment, a matter to investigate. By simply increasing the amount the government pays to the poor will not solve the problem. Efforts should go towards reducing that number of young people who depend on government through development and training, making them active economic participants. For children, this can be achieved through the provision of quality education.
What stands on the way however is a battle of priorities. We can do a lot of things but not everything can be done at the same time. National treasury is to prioritise growth projects that will deliver growth in the medium to long term while increasing operational efficiency of SOE’s through consolidation and restructuring and bringing down debt. In addition, South Africa’s political climate needs to give reassurance to investors that South Africa is a great market for investments, which often times, conflicts with the urgent social responsibility that hangs. Channelling funds towards growth projects might crowd out other expenditure pockets such as health, police services and social services among others. It is no question that the trade offs exist.
State Owned Enterprises
The fixing of SOE’s more especially Eskom is a matter of importance as this is a strategic arm of productivity. In the 2021 MTBPS, government made a commitment to creating a competitive energy market in order to strip off the economy’s dependency on Eskom. We have discussed why this was important at lengths in our embedded generation article. But we recognise that this cannot be achieved, at least to the levels we desire, in the short term and in the long term, we hope that this does not create another public-private service issue where those who get their power supply from Eskom, though at a cheaper rate, have to suffer bad service delivery.
A lot is going to be tabled at this year’s budget and the outlook seems positive. To reiterate, we are entering a period of less monetary policy accommodation with limited revenue collection by the government while the demands at hand put upside pressure on expenditure.
The president has finally admitted that government cannot create jobs, something we pointed out in our very first commentary called mind the Gap. Government should use start-ups as strategic partners for growth. Instead of channelling billions towards the presidential teaching assistant programme, where no real skills are transferred and no plan on the absorption of those placed after the crisis subsides, a placement in tech start-ups or any small business can be catalytic and deliver the desired long-term results. Of course we do not expect government to announce such a pivot from the existing programmes as this would have been highlighted at the SONA 2022. We do hope however, that there are funds that are set aside to be channelled towards such partnerships. For a number of reasons, now is the time where government should consider small business as fitting candidates for private-public partnerships:
These are much closer to the people than large corporations are.
The businesses are still between their forming and norming stages, meaning that the learning is exponential.
No pre-educational hangups - meaning the those without higher education may also find placements.
Such partnerships can also increase the probability of success of small business, as they will be subsidised on hiring and training - business funds could be channeled towards growth projects.
This solution is sustainable - when the partnership ends, there are more chances for the trained to find jobs or create.
Finally, this can help ensure the economy’s digital integration and migration, more especially for placements in tech start-ups.
In conclusion, there is a need for collective responsibility that each citizen needs to assume - the South African economic turnaround is a task we all should commit to; even in the smallest of ways. If you are able to create 1 Job and a million other people do the same, that is a million jobs created. Of course you are thinking, this is easier said than done, but the message is that we should never discount our individual efforts towards our shared prosperity.