South Africa’s economy is failing most of its citizens. And for as long as we remain trapped in this complex of low employment, underdeveloped human resources, insufficient savings, and consumption-led growth, the country will never achieve its developmental targets, let alone within the required time frames. Our economy is in need of a profound reorientation, which will require ‘an extraordinary national effort’, to quote Finance Minister, Pravin Gordhan, from his 2011 Medium-Term Budget Statement (MTBS) speech.
When he presented the MTBS in October, Gordhan was concerned about declining revenues and the impact that the increased cost of financing deficits will have on the government’s developmental agenda. What troubled the Minister even more was the fact that such borrowing primarily served to sustain government consumption in a disproportionate relationship to its investment in infrastructure. His message contained a simple warning: our spending behavior of today is starting to encroach on our wellbeing ‘tomorrow. “Long-term sustainability,” said Gordhan “depend[ed] also on shifting the composition of government spending from consumption to investment.”
Mr Gordhan’s concerns have clearly struck a chord in cabinet. Infrastructure development became the dominant theme of President Zuma’s State of the Nation Address (SoN) last week in Parliament. With the announcement of several multibillion rand projects, aimed at fast-tracking growth in years to come, Zuma’s address offered a strong rejoinder to his critics who have described his leadership style as pedantic and lacking vision.
The obvious question is how the presidential shopping list will be funded? We will have to defer back to Gordhan next week when he presents government’s 2012/13 budget to parliament. The ministers concerns in 2011 would not have dissipated overnight. While there have been flickers of hope, most notably in higher fourth quarter employment growth, a rise in credit extension, and increased new vehicle sales, it hardly suggests a major shift in fortunes.
The global economy, driven by fears of recession in the European Union, our largest trading partner, looks fragile. In the US some observers have remarked in the past week that its economy may have turned a corner, but we have also heard this before. Right now there is still too much volatility. Such uncertainty affects us and, combined with their unease about the content of recent internal ANC economic policy debates, ratings agencies, such as Moody’s, Fitch, and Standard and Poor, have downgraded their economic outlook for South Africa. These have not yet translated into a downgrade of the country’s credit rating, but the threat of increased borrowing costs will not be a pleasing thought to the minister. The social development bill, aimed at alleviating the plight of the poor during a period of vulnerable growth, will not shrink, and of course, Cosatu will ensure that the issue of public service wages does not disappear from the negotiation table.
How does our government intend to pay for new infrastructure, sustain social spending, and at the same time, bring down the budget deficit to the MTBS’ predicted 5.2% for 2012/13? Ultimately, this represents the conundrum that makes the present configuration of our economy so unsustainable. Fiscal policy, regardless how prudent or progressive, has its limits when it is not supported by an economic model that generates high- and sustained levels of growth. And without the likelihood of this happening soon, we need to know what our long-term strategy will be to escape the cycle. What What will the ‘extraordinary effort’ entail that Min Gordhan asked for in the MTBS? This is where Zuma’s address may have fallen short of expectation. We saw the wish list, but not the plan that supports it?
True, the president did make reference to the New Growth Path (NGP) Framework, but did so only in passing, without unpacking the strategy and clarifying how the announced interventions find bearing in it. Of the NGP’s six target sectors, three (tourism, the green economy, and agriculture) were not mentioned once. He talked, for example, in great length about freight rail connecting coal mines to ports, but gave little indication of how we will transition to a greener economy, or how a ramshackle passenger rail system will be improved to get workers to work. Land reform was mentioned, but not its alignment to the growth in the agricultural sector. Critical dots were not connected.
Policy certainty is critical, as Min. Trevor Manuel underscored in relation nationalization in the mining sector at the annual Mining Indaba. While it was important for Manuel to do so in the presence of big investors in the mining sector, it is also important for ordinary citizens and other stakeholders in business and labour to be clear on the course that we are taking as a nation. How else can a nation be asked to forfeit short-term gain if they lack the encompassing longer-term vision? An extraordinary national effort is indeed required, but to mobilize South Africans energies, the bigger picture needs to be clarified.
Hofmeyr heads the Policy and Analysis Unit of the Institute for Justice and Reconciliation. This op-ed article appeared in the Cape Times of 15 February 2012