The ratcheting up of racial tensions in SA is so tragically predictable that it’s sometimes easy to miss the obvious point. There is a widely held view, often expressed in the letters sections of this newspaper, that policies around affirmative action (employment equity) and the redistribution of wealth (broad-based BEE) are an unfair form of reverse discrimination.
The irony is that white and black South Africans are having the same conversation and share the same reservations from different viewpoints, and it’s about economic exclusion. The simple truth is that if there were more jobs available, there would be far less class or race conflict in SA. However, in a low-growth, low-trust nation politics can swiftly become zero-sum. That makes reconciliation tough.
While there is legitimate debate to be had around sunsetting broad-based BEE, the terms of the debate must be grounded in fact and nuance. No company is required to simply give away equity for free. These deals make use of clever corporate finance structures, typically vendor financing where the selling company funds the deal, often with dividends used to repay the debt, to balance transformation with financial sustainability. But equity is never simply given away for free as some, such as Elon Musk, have been claiming, erroneously and sensationally, on social media.
The more nuanced debate to be had around BEE is about incentives and the policy’s effect on levels of entrepreneurship in SA. As I’ve written before, if I was a young, talented black professional offered an opportunity to participate in a lucrative empowerment transaction, versus taking the far harder route of building my own start-up, I’m pretty sure nine times out of 10 I’d take the deal and run.
If recent history is any guide, the only thing we can expect with certainty is another masterclass in doing just enough to delay the inevitable.
The bottom line though is that we need to see tangible evidence of rising economic growth and opportunity to defuse the economic exclusion time bomb on all sides. We’ve been circling the drain of economic mediocrity for years, yet our political class continues to tinker at the edges, hoping wishful thinking can replace actual reform.
Tomorrow’s revised budget is another chance for finance minister Enoch Godongwana to break the cycle. But don’t hold your breath. If past performance is anything to go by, expect another soporific performance, full of grand rhetoric and empty promises, with a few last-minute fiscal plasters. Until the next crisis.
The latest World Bank report says it all: public spending has failed to deliver growth, let alone poverty alleviation. Debt has exploded from 24% of GDP in 2008 to nearly 75% by 2023, yet the quality of infrastructure and service delivery has deteriorated. The fiscal multiplier — a measure of how much economic activity government spending generates — has turned negative. This means we are now spending more for increasingly worse results.
A serious government would roll out a budget that actually ignites growth.
That means a tax system that doesn’t penalise success, and an end to the endless subsidisation of failure. Yet word is that Godongwana is doubling down, with a half percentage point VAT hike and more to follow over the next two years. He insists he has no choice but to raise taxes to fund the so-called Covid grant, now morphing into a permanent basic income grant.
If the government insists on making the Covid grant permanent at the very least it should be designed to return value to taxpayers. A pro-growth budget should ensure that recipients of the grant are part of an economic activation strategy, not just passive beneficiaries.
Make the grant conditional on skills development and job training. Beneficiaries should be required to enrol in vocational programmes, digital skills courses or entrepreneurship training. This would align with the World Bank’s recommendation that public spending be tied to employment outcomes.
We should implement a “workfare” model instead of pure welfare. Grant recipients should contribute through community service, part-time work or public infrastructure projects. This would provide value in return for social spending and provide an avenue for the recipients to acquire workplace skills.
We should also reduce fiscal waste by consolidating ineffective social programmes. SA has more than 100 active labour market programmes across 20 government departments. A single, well-managed grant tied to economic participation could replace redundant programmes and reduce overall social spending inefficiencies.
We could also fund it without raising VAT. Instead of squeezing consumers the grant should be funded through smarter revenue sources, such as a digital services tax on foreign tech giants, unleashing the cannabis industry and taxing it, or monetising underutilised state assets.
This is how a responsible government would handle social spending — by ensuring that it drives long-term growth rather than deepening dependence. The World Bank report spells it out: SA does not need more taxes, it needs better spending.
The state’s budget allocations are wildly misaligned. While high-growth economies such as Malaysia, Thailand and Singapore dedicate 20% or more of their budgets to economic development, SA spends just 11%. Instead of investing in the infrastructure and industries that create jobs, the government prioritises a bloated public sector wage bill, clocking in at 12% of GDP, far above the Organisation for Economic Co-operation & Development average.
Tomorrow Godongwana has a chance to dispense reforms that are key to unshackling the private sector and serve up targeted servings of infrastructure spending while removing as much pork barrel fat as possible. But if recent history is any guide, the only thing we can expect with certainty is another masterclass in doing just enough to delay the inevitable.
• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at Badger@businesslive.co.za.
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