SA has too many overpaid and underperforming public servants who are a burden on government finances and a risk to the economy. This is the scathing view of outgoing Goldman Sachs SA CEO Colin Coleman, who is leaving to take up a part-time academic post at Yale University in the US.
If the National Treasury is to succeed in achieving spending cuts of R50bn to R150bn, bold decisions have to be taken about reducing the public service headcount and wage bill, he said.
"We are in a world where we are employing massive amounts of public servants, who are underperforming in terms of bang for the buck; too expensive. Our fiscal position cannot afford it any more. But they are unionised, in alliance with the ANC, in such a manner that they are a block to reforms by the president and yet they don't deliver. Police services, education services, health services - the largest items on the budget other than debt."
To avoid a downgrade by Moody's Investors Service in February, the ANC and Cosatu have to reach a "political settlement" over which portion of the public sector wage bill - which is eating up 46% of revenue - to reduce.
Coleman quoted from the "Two Decades of Freedom" report, compiled by Goldman Sachs in 2013, which shows SA spends on par with or more than similar sized emerging countries on health and education - relative to GDP - but lags behind its peers in life expectancy, the quality of education and literacy.
The biggest catalyst for growth, as seen by the international investment community, is three things: Eskom, Eskom and Eskom
There's no accountability in the system to hold underperformers to account, he said.
"How do you fire a teacher who is not performing or coming to school drunk?"
Coleman also suggested that the government shift more than half of Eskom's R460bn debt off the power utility's balance sheet to reduce its debt load. He said the ideal amount would be shifting R250bn of the debt onto the state's balance sheet, leaving Eskom with outstanding debt at five times its ebitda, instead of 14 times its ebitda, which is currently the case.
To reduce headcount, the soon-to-be appointed CEO of Eskom has to introduce a restructuring model that moves enough of its 46,000-strong workforce off the system - not by laying them off but "repurposing them".
Coleman said this could involve putting about 16,000 workers into a special-purpose vehicle and migrating them onto the state payroll for three years while they undergo retraining. Thereafter, a precondition should be placed on successful bidders for new power plants to take over this workforce as part of their contract with Eskom.
"You incentivise the system to effectively redistribute these workers out of the Eskom system onto the private sector," he said.
According to Coleman, global investors are still bullish about SA being one of the best emerging markets to put money into, and are willing to give President Cyril Ramaphosa time to fix the economy.
"Growth is seen as disappointing. But the biggest catalyst for that growth, as seen by the international investment community, is three things: Eskom, Eskom and Eskom."
At Yale, Coleman, who has been at Goldman Sachs for nearly 20 years, will teach a graduate-level course entitled "Africa: Doing Business in the Last Frontier of Global Growth". He will divide his time between the US and SA.
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