If the saying “desperate times call for desperate measures” is true, it must also be true that tough times call for bold, courageous and creative measures — exactly what is needed from Wednesday’s medium-term budget policy statement.
The finance minister should address the poor economic outlook. Investment in emerging markets is about the balance between growth and risk. Without growth there is only risk. This is the real challenge SA faces, in which progrowth (political) rhetoric does not translate into substantive economic progress. Fortunately, it is one the minister has an opportunity to address.
The headwinds facing the global economic outlook are rising, a fact confirmed by the IMF, which has reduced its 2022 GDP growth forecast for SA to 2.1% from the 2.3% forecast in July. And for next year GDP growth is expected to slow to 1.1% from the July forecast of 1.4%. SA’s growth outlook is among the weakest of all emerging markets.
This weaker outlook reflects load-shedding, policy implementation inertia, slower trading partner growth, tighter financial and monetary conditions and a negative shift in the commodity terms of trade. SA’s structural unemployment is tragically a constant cause for concern, with the IMF expecting the unemployment rate to rise to 34.6% this year from 34.2% last year, and to rise to 35.6% next year.
If the government is serious about driving growth it should start thinking, and acting, outside its ideological boxes. Liberalisation, freeing of the labour market, embracing foreign and local talent, structural reform, embracing rather than blocking technological change, and a renewed push towards regional integration could catalyse growth. The market trust the Treasury already enjoys will underpin this.
President Cyril Ramaphosa’s energy plan, announced earlier this year, offered hope for a resolution of SA’s short- to medium-term energy supply challenges. The plan includes new agreements with neighbouring countries for the import of electricity and enlisting independent power producers to plug gaps in the grid. It also aims to encourage households to go solar and sell excess power to the grid. Little further detail on the plan has been made available, with even fewer details on its implementation. The budget policy statement is a good opportunity to spell out the intricacies of the plan.
Cost of living
Eskom’s debt is the biggest issue the minister must address. Publicly available information suggests the power utility’s debt servicing costs exceed its operating profit, a clearly unsustainable scenario. The government needs to address the matter in a way that frees cash flow for Eskom to address its immediate operational challenges.
The cost-of-living crisis is caused by rising energy, food and fuel prices, which come amid rising interest rates and less income for households, according to the Quarterly Employment Survey. Of the 3-million jobs that were lost due to the national Covid-19 lockdowns, only some have been recovered.
When the pandemic struck two years ago the government responded with a R500bn stimulus package, R70bn of which was in tax measures. A case can be made to again introduce tax measures to offer consumers relief. One of the ways to do this is to extend the social relief of distress (SRD) grant beyond March next year, with the view to making it permanent. The government’s own research shows that the fiscus can afford this. It would offer some relief in these tough times.
Recently described by one business leader as being “glacial” in pace, one of the most puzzling, frustrating and frankly disappointing aspects of SA’s economic performance has been the lack of adequate infrastructure spending. Despite launching the Sustainable Infrastructure Development Symposium and gazetting R320bn worth of infrastructure projects in July 2020, very little has happened by way of implementation, and therefore spending. Infrastructure spending has shielded the economy from the worst effects of previous economic crises and can again help carry SA through the current or pending downturn. However, actual spending, not just planning, is required for this to happen.
Just transition
It will be interesting to see how healthcare spending is being calibrated away from the response to the Covid-19 pandemic to responding to other health emergencies such as HIV/Aids and TB, as well as SA’s burden of disease, including trauma and lifestyle diseases. Implementation of the National Health Insurance (NHI), hastened by the pandemic, could also be important.
During November in Egypt, where much of the world will gather for the Conference of Parties (COP27), SA has to present a framework of how it intends to spend the $8.5bn aimed at achieving a just transition that was pledged at COP26. Though the work is carried out through the presidential climate finance task team and a framework recently approved by cabinet, the budget policy statement seems like a good opportunity to show the government’s thinking, considering that the transition must be just in an economy that was built on coal.
It is time for a proper recovery. Fourteen years ago this month former finance minister Trevor Manuel returned from the IMF to report a coming storm in the global economy. The market jitters that had been present since 2007 culminated in the collapse of Lehman Brothers in September 2008, sparking the global financial crisis. Manuel used the room created by SA’s healthy public finances and good banking regulation to maintain infrastructure spend, boost public confidence and shield the economy from the worst of the great recession.
SA never truly recovered from the crisis. That was until the pandemic struck, forcing the country into a debt-funded, low-growth recovery plan with much-needed economic reforms delayed. Much of what has passed for an attempt at recovery, including the latest Economic Reconstruction & Recovery Plan, has either been inadequate or improperly implemented.
It is now time for a proper and sustained recovery, and the medium-term budget policy statement is a good place to start.
• The authors are with Deloitte Africa.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.