SA continues to face a constrained economic and fiscal environment due to adverse economic conditions, with the deterioration in the first half of 2017 reflective of the outlook.
Increased political and institutional uncertainty, lower global commodity prices, drought conditions, uncertainty over the nuclear deal, rising debt-service costs, high unemployment rates and the sovereign credit rating downgrades all increase vulnerabilities within the economy.
In addition to SA’s economic woes, the inherent structural issues facing the economy include slow economic growth, low quality of education, labour market rigidity, high unemployment rates, infrastructure backlogs and crime and corruption.
Structural reforms needed to deal with these issues include relaxing labour law inflexibility, privatising state-owned enterprises, reducing the government wage bill, stopping corruption, creating policy certainty, increasing the savings rate and becoming export driven.
In a country where unemployment, specifically youth unemployment, is high, structural reform aimed at the relaxation of labour law inflexibility and the reduction of youth unemployment should be prioritised.
Corruption is also one of the economy’s largest obstacles because it leads to the inefficient allocation of resources, inhibits fair competition, often results in more expensive goods and services and reduces the country’s overall productivity.
Hence, growing the economy requires serious mechanisms to stop corruption.
Another structural issue requiring attention is the low savings rate. Increased saving and foreign direct investment are necessary to achieve higher inclusive and sustained growth.
An approach that focuses on export-led growth would also add much-needed impetus to the economy considering that nations such as the US, countries within the EU, China and the Asian Tiger economies used export-led growth to successfully aid their industrialisation and economic advancement.
The above-inflationary increases and the burgeoning wage bill of government employees is cited by National Treasury as one of the threats to fiscal sustainability, which places increasing pressure on the fiscus. In essence, if the government is spending more funds paying its personnel, it crowds out spending on goods, services and infrastructure that are also much needed for service delivery.
In the Western Cape, this issue is being tackled through careful consideration of which posts should be filled and placing upper limits on compensation of employees, which aims to increase productivity of staff employed in the public service.
Dr Ivan MeyerFinance MEC, Western Cape