Opinionista Terence Corrigan 29 October 2019

Medium-term budget policy statement: A harsh verdict on the way

If South Africa is serious about turning the economy around, it has to act on the rhetoric about changing course and doing things. This applies both to the smaller, measurable things and the larger, gear-shifting changes that the country needs.

South Africa’s medium-term budget policy statement (MTBPS) is a seminal moment in South Africa’s governance calendar. It is, as Finance Minister Tito Mboweni said in his address last October, “an opportunity to take stock of the strides we have taken in the year” – a verdict of sorts on whether the taxes collected from citizens are being prudently used, and on the efficacy of policy.

It is unlikely there will be any surprises, and the news is daunting. As the government itself admits, the country’s fiscal position – indeed, its whole economic direction – is perilous. Treasury’s proposed economic strategy baldly calls it “unsustainable”. Growth projections in the Monetary Policy Review this month projected growth for the next three years as falling below the meagre level of 2%. Unemployment sits at 29%, representing about 6.7-million people – or 10-million if those too dejected or discouraged to look for work are included.

For millions of South Africans, this is ameliorated (partly) by the 17.4-million social grants paid out monthly. Yet Treasury warned some years ago that this was sustainable only if the country could maintain a growth rate of some 3%. This is not remotely in sight.

Indeed, there are signs that the country’s revenue take is in trouble. As a recent analysis on the Moneyweb site noted, the money is coming in more haltingly. By the end of August, revenue brought in for the 2019/20 tax year stood at 37% of target – two percentage points below the level reached in the previous year. It added that there was an unhealthy dependence on a very small number of high-income individuals to contribute to maintaining the country’s fiscus, and that the loss of a proportion of these would have severe knock-on effects.

Indeed, it is not just the loss of revenue or skills that their departure would signal, but also potentially their entrepreneurial abilities, for without much-expanded entrepreneurship at all scales South Africa has no real hope of progress.

The government seems to understand this, at least conceptually. Hence, President Cyril Ramaphosa’s declared intention to enhance South Africa’s attraction as an investment destination, measured by raising the country’s standing in the World Bank’s Ease of Doing Business Index from 82nd position, where it stood last year (out of 190 measured), into the top 50 within three years.

It is also of interest that the just-published World Bank Doing Business 2020 report actually shows a decline in position. South Africa now sits at 84. True, its score on the index has shifted upwards a little, from 66.03 out of 100 in last year’s report to 67.0 in the latest. But the report demonstrates that reform is being taken more aggressively seriously in some peer (perhaps competitor?) economies than in South Africa. As a country in a globalised economy, South Africa is losing ground.

The index is also largely a reflection of issues that are consistent and quantitatively measurable across countries, often quite technical in nature. As such, it does not always engage with some of the specific overarching issues that might define the business environment in particular countries.

Thus, while the 2020 report found South Africa made it somewhat easier to enforce contracts through the creation of a specialised court for commercial cases, it did not engage with issues concerning employment equity or broad-based black economic empowerment (B-BBEE), even though these have a profound impact on investment decisions.

For example, demands to cede over a quarter of equity (more often than not to a politically acceptable partner) are crippling. Indeed, a study of European businesspeople last year found this was one of the most problematic areas for them in relation to the South African market, and one of the most significant disincentives.

Equally so, given widespread joblessness and the skills-constrained environment, it is counter-productive in the extreme to wrap employment and labour policy in racial straitjackets – and to promise, as the minister has said, to up the pressure on this in the near future.

All of this pretty much guarantees that the current malaise will continue. Ramaphosa has expressed concern about the exclusion of so many South Africans from participation in the economy and the denial of opportunities for mobility and fulfilment that would come with this. Yet, nothing so greatly contributes to this as policy that drives investment and business away.

If South Africa is serious about turning this around, it has to act on the rhetoric about changing course and doing things. This applies both to the smaller, measurable things and the larger, gear-shifting changes the country needs. On the former, perhaps a place to start is what the Ease of Doing Business Index describes as “trade across border”. Despite the president’s call to prioritise, expand and diversify exports, South Africa sits at a dismal 145, sandwiched between Mauritania at 144 and Guinea-Bissau at 146.

On the latter, one would struggle to better the words of Wits academic Lumkile Mondi: “Parliament approving another R59-billion bailout for Eskom without a competent minister, board or management in place means SA is throwing good money after bad. Competency needs to be accompanied by capability. In a country where racial identity trumps economics, we need capable individuals — fixers with experience, not just paper qualifications — irrespective of race or citizenship. We are in a crisis.”

A crisis indeed, and action is deferred at the country’s peril.

Mboweni has said of the public: “They are right to expect that their money is spent wisely and productively, and goes to meeting their basic needs.” To which we must add that the environment and policy mix must be suited to the expansion of economic opportunities and prosperity, now and into the future.

Otherwise, the verdict of this and future generations will be harsh. DM

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