Reform in SA must focus on providing a more business-friendly environment
The pace at which meaningful reform is being implemented in SA is woefully inadequate if the country is to address its debt challenge in time
SA’s economic recovery relies on structural economic reform, policy certainty, business-friendly regulation that eases the cost of doing business, labour market reform, and functioning and cost-effective infrastructure.
This all needs to be achieved against the backdrop of a rapidly deteriorating debt trajectory. The government’s fiscal position, despite higher-than-anticipated tax collection in 2020, remains vulnerable. Although total tax revenue for the 2020/2021 year is higher than the predicted shortfall announced in October, it remains R213bn less than what was anticipated in the February 2020 budget.
Debt, meanwhile, continues to grow at an unprecedented rate. Finance minister Tito Mboweni conceded during his 2021 budget announcement that high government debt levels increases the cost of borrowing across the economy, leading to high future taxation and uncertainty. Servicing this debt is an expensive exercise, he said, diverting funds away from capacity building initiatives, including infrastructure.
Herein lies the crux of the matter: an increasingly prevalent trend in SA has been the government’s tendency to redirect expenditure away from growth-enhancing initiatives such as public infrastructure, housing and schools, among others, towards consumption expenditure, including the public sector wage bill and social grants.
The challenge for SA is that much of the country’s infrastructure needs to be repaired or replaced after years of mismanagement and a failure to maintain assets sufficiently. As such the budget allocates R791.2bn to government’s infrastructure investment drive. The minister also announced that the country’s six busiest border posts — starting with Beitbridge — will be upgraded and expanded to improve access to African markets.
Given its constrained resources, the government is partnering with the private sector and other players to roll out infrastructure through initiatives such as the blended finance Infrastructure Fund.
There is no question that an investment into infrastructure has the potential to help revive an ailing economy that was further battered by the effect of the Covid-19 pandemic. However, even prior to the pandemic, infrastructure spend had been declining. What spend has occurred has been dogged by allegations of corruption and mismanagement. Unfortunately, government has a less than stellar record when it comes to infrastructure implementation, with projects typically running significantly over budget and completed late.
Although this latest planned investment into infrastructure is encouraging, it needs to be accompanied by more efficient implementation. Mboweni said Operation Vulindlela — a joint venture structure between the presidency and the Treasury to accelerate the implementation of structural reforms — has made meaningful progress. Evidence of this “meaningful progress” may perhaps in time become more evident.
While the minister said the intention was to lower the barriers to entry, raise productivity and lower the cost of doing business, the reality is that SA’s position in the global competitiveness ranking, compiled by the Swiss-based IMD, has followed a downward trajectory for nearly two decades. Whereas the country was ranked in 37th position in 2001, in 2020 it fell a further three notches to be ranked 59 out of 63 countries ranked by the IMD. The IMD has called for policy reform to enable a sustainable business environment.
The pace at which any meaningful degree of reform is being implemented in SA remains woefully inadequate if the country is to address its debt challenge in time. Consider, for example, the failure to provide policy certainty for the mining sector, or the delays in releasing additional spectrum, both of which are hindering investment and economic growth.
Reforms need to focus on providing a more business-friendly environment and encouraging investment. The agricultural sector, one of the few successful sectors in 2020, was given little respite in this latest budget. An increase in the fuel levy and a 15% increase in energy tariffs will do little to assist this sector while farmers in the alcohol and tobacco value chain are faced with an 8% increase in excise duties on alcohol and tobacco products, making their recovery from extended bans even more difficult.
Faced with the highest unemployment figures on record of 32.5%, according to Stats SA, the country has few options still available to it. Curbing public expenditure and implementing structural economic reforms to enable the economy to grow appears to now be a matter of urgency. We can only hope that government appreciates the gravity of the situation — and the consequences should the country instead fall over the fiscal cliff.
• Obermeyer is MD of SEW Eurodrive, a Germany-based engineering firm with offices in SA.
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