President Cyril Ramaphosa will present his fourth state of the nation address (Sona) next week. The basic income grant (BIG) issue has been hogging the headlines since the leak of a pre-Sona briefing note from his economic advisers warning of the danger that a large and permanent increase in social grant payments would limit the economy’s growth and job creation potential.
A healthy debate on grants versus growth seems to be going on among the advisers, as we now know after the leak of yet another dissenting note.
What’s received little if any attention is the rest of the pre-Sona note, which urges the president to use the address to articulate a vision for economic growth and employment. The overriding economic policy message, write the advisers, should be that the government intends boosting employment growth through a range of concrete interventions.
They also urge the government to pivot its employment creation policies towards boosting activity and investment among firms.
The note doesn’t really spell out what that vision might look like, staying close to the economics of those concrete interventions, as it probably should. But it feels like the president’s Sonas have become ever more crushingly dull and concrete — and ever less clear about what kind of economy we are trying to achieve and how we are going to create the jobs of the future. They take stock of the government’s long-promised programme of growth-boosting reforms — and this year will be able to point to at least some slow progress — but don’t really spell out the end state.
If we were to implement those reforms and take them through to their logical conclusion, what would the economy look like? Would it be creating new jobs in competitive and productive sectors, led by a dynamic private sector? Would we be seeing the emergence of new jobs in new sectors, some of which we might not even have thought of yet? Or would the government still be set on protecting existing jobs in old sectors, and combating unemployment and inequality with more grants and more state-led employment initiatives?
One employment booster the advisory council recommends is that the government should expand SA’s existing wage subsidy mechanism, the employment tax incentive, which aims to make it worthwhile for private companies to hire and retain low-paid workers by using the tax system to subsidise companies to pay them. That could appear in the speech, along with the president’s pet employment stimulus project, which has provided temporary public sector jobs for more than half a million young people. In a sense both are Band-Aids, rather than solutions to SA’s inability to create growth and jobs.
What markets really want to hear next week is what plans there are for the biggest potential Band-Aid, the BIG. A year ago the president used the Sona to announce that the R350 special Covid grant had been extended. It is now certain to be extended again, beyond its end-March expiry date.
The big question is whether it is the beachhead to a more permanent and expanded BIG. Chances are the president will talk about the urgent need for income support but avoid the specifics, leaving it to the finance minister to kick the can down the road — as the fierce debate among the advisers suggests it will be.
Strikingly though, the debate tends to be couched purely as a response to SA’s high levels of poverty. Globally, debates about BIGs now are as much about the changing nature of work and the prospect that growth in future may not create employment to the extent or in the way it did in the past. Here, the BIG’s advocates argue SA isn’t going to grow fast enough to create the jobs needed to address poverty. Even its opponents tend to frame it as a trade-off, in which SA couldn’t afford the grants without a degree of fiscal strain that would undermine growth.
Either is a bleak prospect. The advisers’ pre-Sona note urges that the president’s key messages should focus on the usual growth-enhancing reforms in sectors such as electricity, telecom, rail water and infrastructure, and particularly on issues such as energy security — and on securing economic infrastructure.
Next week’s address can be expected to take stock of the four “priority interventions” the president identified in his economic recovery and reconstruction plan 16 months ago, as well as the priority areas of reform that Operation Vulindlela is working on, which focus mainly on the network industries of electricity, rail, broadband and water.
There will be a laundry list of projects delivered and pieces of legislation drafted. And we will no doubt hear again about big investment pledges and infrastructure pipelines, despite the fact that in real terms investment spending is still 12% below its pre-pandemic level, which was itself well below what SA needed to lift its growth and job creation rate.
The president will be able to point to meaningful progress in electricity, especially the lifting of the licensing exemption to 100MW for independent generators, as well as in ports and water and potentially in the auction of broadband spectrum. But those regulatory breakthroughs and announcements still have to be translated into action to bring in new private investors by a bureaucracy, and a political leadership, that is supportive.
The president needs to detail where we are on the road to reform, and what still needs to be done — and be honest about what the resistance is and what he plans to do about it. He needs to set out a vision, and he needs to be clear about how and whether such reforms would get us to the end state of a competitive economy that creates jobs at scale, without necessarily needing endless “interventions” by the state other than the kind of regulatory frameworks that keep markets working.
SA is so far from being the kind of thriving, efficient, dynamic economy that creates new jobs in new businesses and new sectors that many can no longer imagine such a scenario, least of all how we could get there. The Sona could give it a try.
• Joffe is editor at large.
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