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Competent leaders needed to pump out SA’s fiscal ooze

05 October 2023 Gareth Stokes

The 2023 Money Summit was a content curator’s nightmare, featuring a monstrous line-up of early morning until late afternoon presentations across nine meeting rooms. It was also a noisy affair, making it quite difficult to follow the panellists and speakers as they shared knowledge on a range of complex economic, insurance and investment themes. Lucky for you, dear reader, this writer persevered. He headed straight to room six where participants set about explaining South Africa’s fiscal crisis and proposing ways to fix the domestic economy.

An expenditure versus income mismatch

“South Africa is in a deep economic and fiscal crisis,” said Oliver Dickson, a radio broadcaster at SAFM, as the panel discussion on ‘how to fix an economy in decline’ kicked-off. He invited three panellists to offer their thoughts under headings like crime and corruption; the economy; and the so-called social compact. As the November 2023 Medium Term Budget Policy Statement (MTBPS) draws near, it has become clear that South Africa faces a budget deficit of as much as R80 billion. “Treasury is telling us that we need to reduce expenditure and increase revenue to fix the economy; but how do we do that and where do we even begin,” he asked. 

Government faces a bit of a catch-22. Tax revenue for the 2023-24 year has been constrained by lower commodity prices and lacklustre economic growth. And cutting social expenditure is near-impossible in the context of the country’s 2024 National Elections. “We are in a poly-crisis situation; the lack of infrastructure development and maintenance has caused the current energy crisis, with the resulting loadshedding sending business and consumer sentiment to new lows,” said Zama Khanyile, Divisional Executive: Venture Capital and Corporate Finance at the National Empowerment Fund. “People are unemployed, and those who are in business are struggling because of the reduced budgets available and projects being stalled”. 

Rebuilding trust between business and government

Khanyile said that a concerted effort was needed to achieve South Africa’s promise. She suggested a consolidation of the many master plans for economic recovery, or at the very least some kind of a central monitoring of progress towards the various developmental objectives contained therein. “We cannot rely on backward-looking audits to guide us as to where to go; we need real-time information that diagnoses the problem and then allows us to pivot and make better-informed decisions about where and how to deploy resources,” she said, calling on closer collaboration between the private and public sectors, and rebuilding trust between business and government. 

Dickson then steered the conversation to unemployment and social grants. He asked how government could continue paying temporary relief grants in the context of an expanding debt-to-GDP ratio. Gilad Isaacs, Co-director at the Institute for Economic Justice said that the issues that South Africa faced went “beyond questions of the fiscus”. He opined that the estimated revenue shortfall for 2023-24, likely nearer R67 billion than the aforementioned R80 billion, was tiny in comparison to the country’s R1.5 trillion budget. “This does not represent some form of catastrophic fiscal crisis,” he said. “The rhetoric of crisis is very useful for Treasury, who wants to ram through budget cuts they have advanced over the last five years”. 

Three doors to choose from

There are three possible responses to the looming fiscal crunch: increase revenue; reduce expenditure; or reallocate expenditure. “There are very real consequences to the fiscal choices that Treasury is calling for,” Isaacs said, adding that a shift in the country’s debt-to-GDP ratio from 71% to 72% was manageable. 

The problem, countered Dickson, was that government was trying to borrow its way out of poverty, diverting monies from infrastructure to public sector wages and state welfare. “State spending makes up about 32% of the country’s GDP; reducing that amount will have real economic consequences,” warned Isaacs. His argument was that the country’s GDP would be dragged even lower were the state to aggressively reduce its expenditure. 

Isaah Mhlanga, Chief Economist at Rand Merchant Bank, was in no mood for idle banter. “We are in a deep crisis,” he said, raising a handful of red flags. “We have borrowed roughly a trillion rand without much benefit in terms of economic growth; and we have been growing at around 1.7% per annum since 2019 compared to 3.7% per annum among our emerging market peers”. The real issue is that South Africa has a borrowing requirement of R366 billion for 2023-24 despite debt servicing costs already ranking second highest on the annual state expenditure list. “Interest on debt is [close to] the largest expenditure item in the budget … this money is not available for social spending,” he lamented. 

The economist stated that South Africa’s fiscal crisis is fact, not assumption, and that the long-term failure of government to address the twin legacies of poor education and poor spatial planning could not be denied either. As for social spending, Mhlanga stated that he was “not aware of any country that had eliminated poverty on the basis of a social security system that makes unconditional cash transfers to its citizens”. Case in point, Brazil requires children to attend schools, and citizens to get vaccinated in return for certain social subsidies. “We cannot reduce the unemployment rate without addressing the skills challenge that we face; and we cannot reduce poverty through grants without talking about increasing economic growth,” he said. “The answer lies in increasing the skills level [to encourage] increased productivity [and thereby] generate more tax revenues”. 

Heterodoxic versus what now?

The back-and-forth between Isaacs and Mhlanga prompted Dickson to light-heartedly comment on the tensions between heterodoxic and orthodoxic economics. Wait, what now? This writer, who has long-since-forgotten his economics theory, turned to Google for help. Thanks for the following explainer: “Heterodoxic economics is any economic thought or theory that contrasts with orthodox schools of economic thought, or that may be beyond neoclassical economics. It includes institutional, evolutionary, feminist, social, post-Keynesian, ecological, Austrian, complexity, Marxian, socialist and anarchist economics”. 

Khanyile closed by calling on the country’s various business associations to aggregate their efforts and do more to achieve real-time monitoring of the initiatives they were involved in. Isaacs concluded with five ‘shifts’ that could deliver the economic growth that the country so desperately needs. These include a shift away from monopolies towards competitive sectors; a shift away from a short-term and speculatively focused financial sector to one making deep investments in the real economy; a shift away from services towards manufacturing / production; a shift away from a capital- to a labour-intensive economy; and a shift away from commodity extraction to deep and lasting value chains. 

Forget the fiscus, this is a crisis of leadership

Mhlanga’s parting shot was aimed at both business and government: “We have a crisis of leadership, both in the private and public sectors”. He was scathing about the multi-year inaction around Eskom; port and rail infrastructure; and public transport systems despite issues in these areas being clearly evident. “We have diagnosed these problems and there are solutions sitting in papers in offices everywhere,” he said. “But leaders in both the private and public sector, have not made the decisions to implement”. 

The reason for such inaction is likely that many decision makers are conflicted rent seekers. “We can sit and theorise about the problems and solutions; what we need is the right leadership to make the tough choices and implement them,” he concluded. 

Writer’s thoughts:

Regardless your economic or political viewpoints, it is becoming increasingly difficult to argue that South Africa Inc is living up to its potential. Do you agree that the country’s economic and fiscal woes are rooted in poor leadership, in both the private and public spheres? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts


Added by Ernest, 07 Oct 2023
I do not think it is poor leadership that is causing all this poor delivery.For me very little is being done to train this leaders.Without any proper training people find themselves on top position because they are black.This government and the private sector must prioritise training.Start by training the trainers.
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Added by Gareth Stokes, 05 Oct 2023
I agree with you @Simon. One need only look at the decisions our citizens make when tested to confirm cultural decay. Case in point, the recent story of a truck being 'cleaned out' while the driver lay dead alongside... And this repeats in SA, daily.
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Added by Cynical Simon, 05 Oct 2023
Incompetent and reckless leadership is not the cause it is the symptom of an incompetent and criminally corrupt culture and all who work in it.
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