“Running out of Road” is the pertinently titled report by the Centre for Development and Enterprise (CDE) report on our dreadful public finances.
When you actually drill down into the detail of our cratering revenues and blowout expenditure, “Headlong Into a Cul de Sac” or “Entering the Death Zone” might be even catchier.
The CDE advises that for every day of the year since 2015 and continuing until 2022, the government borrows R1bn just to keep afloat and to fund the bottomless SOE pits of dysfunctionality.
Recently, parliament’s skimpy bill to funnel an additional R47bn into Eskom was not for any capital expenditure, but simply to allow the utility to pay the interest on its loan book, which stands at more than R430bn.
The CDE correctly posits a menu of reform steps that would require root and branch change in the prevailing policy and execution stance of the government. These would include changes to the labour market model and “fixing the attitudes and regulations that hold business back”.
But the CDE wishlist (well, in SA terms it is almost improbable given the broken-backed government in charge right now) is a commonsense itemisation gleaned from high-growth, high-employment countries in the developing and mature market worlds.
The carte de jour of the CDE also lists a number of small-ticket items more digestible for a risk-averse government and likely to be easier to implement without an all-out war with the over-empowered and utterly change-resistant trades unions who hold the government almost entirely captive.
Interestingly, earlier last week, the entirely sane and sensible National Treasury, admittedly an island in a sea of punch-drunk ideologues who populate so many other government departments, published its own wish list for boosting growth.
Of course, economic growth is the essential precondition for every other aim by the government to bridge the ravaging divides in our society, including race to income and inequality.
Two cheers then for Tito Mboweni, the finance minister, who fronted the growth document. It would be three resounding cheers were the growth reforms that are itemised in the document actually cabinet-approved policy, rather than “a call for public comments”, as the document describes itself.
But maybe, in fact, two and a half cheers: it is perfectly plausible, that the president, Cyril Ramaphosa, who seems to move through indirection like a crab, rather than in a straight line, approved its publication. So it’s likely that both president and finance minister are on the same page.
Still, the document, which echoes the micro-items on the CDE list – such as fast-tracking skilled immigrants, widening energy access and options, auctioning high-value broadband and localisation of public transport and ports – have mostly, in one iteration or another, been part of a package of reforms already announced by Ramaphosa. Delay and dither and indecision have to date crippled their introduction.
The reactionaries have already struck against the National Treasury paper. The SA Communist Party, for example, expressed late last week that “it had serious concern” over the sudden release of the document. One wonders how long the communists wanted the Treasury to wait: until the government went cap-in-hand to the IMF for a bailout? Or until the last capitalists had fled these southern shores?
In a similar vein, Cosatu demanded the withdrawal of the document, smearing it a product of the extreme right.
In actual fact, the timing of the report’s release can be traced to another statement from the National Treasury, which both preempted it and which is likely to have motivated its publication.
That was the circular it sent to government departments requiring R300bn of expenditure cuts simply to avoid an unsustainable debt trap where repayments crowd out all other government activity and objectives. Just how close we are to this moment is a matter of some debate. But what is beyond dispute is that 63% of the increase in government expenditure over the last decade has been to fund the exploding public sector wage bill, according to the IMF. Just behind that, at 23%, were the debt-servicing costs. In other words, we borrow money mostly from foreigners through our bonds to pay the beyond-inflation salary hikes demanded and won by the unions.
Given that Ramaphosa in 2018 promised “no retrenchments”, you do not need to imagine that the R300bn cuts will be coming from a cutback in the civil servants’ numbers nor their high wages (about 30% higher than their private-sector colleagues).
Professors Estian Calitz and Philippe Burger summarised this madcap economics as “an increase in government expenditure on all the wrong things”.
Or, as DA finance spokesperson Geordin Hill-Lewis points out, the R300bn in cuts will come from the one section of the budget that actually can boost – and not retard – desperately needed growth: capital or infrastructure spending. “Capex doesn’t have a trade union, but the public servants do,” in Hill-Lewis’s pithy view. The fact that four of our big-employment national construction companies have gone insolvent or are in the stage of business rescue simply underlines this depressing conclusion.
Because between its debt-repayment costs and the ever-escalating payrolls of the public servants, where, pray, is the growth and investment to come from?
The obvious source is our battered, but still standing, private sector. Here the CDE reminder of the urgency of “fixing attitudes and regulations that hold business back” chimes with the grim reality of these times.
Yet far from changing attitudes, business is still seen by many of Ramaphosa and Mboweni’s cabinet colleagues as the enemy, at best a necessary evil to tax to exhaustion and at worst an archfoe of the transformation project near and dear to the ANC.
On the very same day last week when Mboweni, who knows a thing or three about business and job creation, his cabinet colleague, employment and labour minister Thulas Nxesi, who has no such pretensions or track record, brought out the big bazooka.
He thundered that the government would make it compulsory for companies to produce a compliance certificate proving they had achieved employment equity targets set for them by the state. This is due to the paucity of black South Africans promoted into senior management positions by private firms.
There are at least three very obvious rejoinders to the big stick now wielded by a man who has never spent a day in the private sector, nor produced one new job within its disciplines.
First, instead of threatening on the demand side, perhaps he would do well to investigate the supply side, namely our disastrous and failed education system.
Second, skills and management are not immediately transferrable but are learnt on the job through application, a point made with crystalline clarity by Harvard economist Ricardo Hausmann for example.
He stated: “Know-how can be quickly hired, but it can’t be quickly transferred from one person to another. It certainly can’t be confiscated; know-how cannot be extracted, like teeth, from the brains that possess it.”
Because Nxesi and his fellow travellers think the government can simply command results heedless of this warning, he might mind the third rebuttal, also offered by Hausmann, who originates from Venezuela – a country whose ruinous current regime is a place of fond allegiance for the ANC.
“Know-how can, however, be gotten rid of, or fired. This happened in Venezuela in 2013 when President Hugo Chavez fired people who had collectively accumulated 300,000 years of experience from the oil industry. The result? The industry’s output has halved, and the national oil company is drowning in debt.”
But the skilled and the displaced always have options. They emigrate along with their skills and their tax revenues.
Let’s see which approach wins out: Mboweni or Nxesi’s? The growth promoter versus the job crusher. Watch this space.
Leon, a former leader of the opposition, now chairs Resolve Communications.
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