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Same policy, different outcome (not): Mass public sector employment not the answer to South Africa’s economic malaise

23 October 2020 Gareth Stokes

The 15 October 2020 ‘Economic Reconstruction and Recovery Plan’ was littered with contradictions. A prime example was the promise to rein in government expenditure while, in the same instant, finding billions of rand to reverse pandemic-related job losses and part-fund hundreds of infrastructure projects. President Cyril Ramaphosa told the Joint Sitting of Parliament that “extraordinary measures were needed to restore the economy to inclusive [and transformative] growth” before outlining myriad interventions under five broad objectives. We offer our reflections on his presentation under each objective.

 

First: To create jobs

We cannot remember a National Growth Plan, and there have been many, or State of the Nation Address, that has not made job creation its central theme. And there was nothing in this address to suggest that the post-pandemic job creation promises will be any different to those made in the past. “We must get our people back into the jobs they lost in the pandemic … and create more employment opportunities for those who were unemployed before,” said Ramaphosa. We commend the sentiment; but to find meaningful employment for the three million plus individuals who will have been axed by the end of 2020 could prove difficult. 

We poured over the President’s speech for clues on how four million odd jobs might be created. At a macrolevel it appears that jobs will be conjured up “primarily through a major infrastructure programme and large-scale employment stimulus, coupled with an intensive localisation drive and industrial expansion”. Not convinced? Neither were we… But the following statement left a hollow feeling in the pit of the writer’s stomach. Ramaphosa said that “large-scale job interventions driven by the state and social partners have proven effective in many countries that have faced devastation from wars and other crises”. It would appear that the State, perhaps through an initiative similar the oft-touted expanded public works programme, will be adding to the public sector workforce. 

Rather than creating more jobs in an overstaffed and underutilised public sector, government should list reducing its headcount among the major structural reforms to reinvigorate the economy. It beggars belief that government proposes creating 800 000 additional public sector employment opportunities at a time when the public sector wage bill is forecast to eat through 60% of the country’s total tax revenue. There is already a major disconnect between private sector and public sector jobs, exacerbated through pandemic. Employees in the former suffered pay- and benefit-cuts through pandemic while, those in the latter thanked their employer for paying them through lockdown by going out on strike to demand higher wages. 

Some jobs will be created in the private sector as government seeks investment backing for some 4 trillion in ‘big ticket’ digital, energy, housing, road and water infrastructure projects. Government has made significant progress in identifying infrastructure opportunities, with a 30 June 2020 shortlist of 276 projects with an investment value of R2.3 trillion. Although we applaud the fast-tracking of 50 strategic integrated projects and 12 special projects, we must ask whether playing ‘fast and loose’ with investors’ funds is the best idea in a country afflicted by endemic corruption and blighted by state capture. 

Second: To reindustrialise the economy

We found it rather ironic that government wishes to rekindle a segment of the economy that they, with their labour partners, systematically destroyed over the past 20 years. Labour intensive manufacturing has failed because South Africa was unable to compete on the international stage on metrics such as labour costs and labour productivity. What rational investor will recapitalise a business that was unable to make ends meet pre-2020 without significant labour concessions or financial incentives? And how will South Africa live up to the President’s plea to make exports competitive again when, in the same breath, business is forced to uphold local content rules. 

The President made a commitment to implementing reforms and remove regulatory barriers; but the proposal made mention of dozens more rules and regulations. So, instead of freeing up the economy to participate on a global stage we face additional red tape such as requiring businesses to publish their local procurement in their annual statements. The proposal to “enforce government policies to ensure that all public infrastructure projects use locally-made materials, including steel products, cement, bricks and other components” will achieve little but to add another fee on top of political tithes and the cost inflation that goes with public sector tenders. So, while we laud the enthusiasm for bringing manufacturing ‘in-house’ and ‘buying local’ we would prefer that purchasing decisions be based on price and quality competitiveness rather than government’s say-so. 

Third: To accelerate economic reforms

The writer has long lamented that private business and government have divergent views on the economic reforms needed to create sustainable growth. Case in point, government offers “transformative and inclusive” as adjectives to define the proposed reforms without mentioning the need for concessions from its labour partners. We found no information about larger structural reforms; but can list promises such as reducing the cost of doing business, which contradicts the myriad new reporting requirements and local purchasing rules; lowering the barrier to entry for business; cutting, but only by half, the timeframes for certain environmental licenses; enacting the Petroleum Resources Development Bill; and implementing an efficient e-visa system to bolster tourism. We hope the new e-visa undoes the craziness introduced under its previous iteration. 

Fourth: To fight crime and corruption

“Our recovery will be supported by an efficient state that is committed to clean governance,” said Ramaphosa. There have been some promising ‘first steps’ in reining in corruption, and we hope that state prosecutors will go after every name ‘dropped’ during the ongoing Zondo Commission. They should have no end of potential accused. The President also promised, during his address, to tackle issues such as the soliciting of protection money from construction businesses and the violent disruptions at construction sites. He added that law enforcement agencies would receive adequate resources “to enable the identification and swift prosecution of corruption and fraud”. 

A turnaround at the South African Revenue Services (SARS) is also underway. South Africa’s ever-shrinking taxpayer base will face greater scrutiny as all aspects of tax evasion and tax fraud come under the spotlight. Tax authorities will also clamp down on the illegal economy, illicit financial flows and other illegal schemes. This seems like an opportune moment to bring up the irrational lockdown bans on alcohol and tobacco sales, which set back the war on illegal enterprise by decades; but we will refrain. 

Fifth: To improve the capability of the state

It was not clear what was meant under this objective. The report made mention of numerous laws and regulations that would be fast-tracked, and we can only assume that this enabling environment will improve the capability of the state. One clue lies in the apparent centralisation of command and control structures to allow for “greater coordination and integration between national, provincial and local government”. And we are certain to have a few more highly paid, deployed cadres to fill additional dedicated capacity in the Presidency and various other ‘command councils’ set up to oversee the recovery. 

Is this as yet unnamed plan going to succeed? The ongoing battle against coronavirus promises to constrain the President’s fightback. “The pandemic continues to cause severe damage to the global economy, affecting trade, investment, production, international travel and global supply and demand,” he said. He acknowledged that no country had been spared and no economy unaffected. South Africa has already allocated R500 billion or 10% of GDP, to Africa’s largest COVID-19 relief initiative. Unfortunately, the destination of much of this relief funding draws attention to our shortcomings. A staggering R40 billion went the way of special COVID-19 grants and the top-up of an already oversized social grants bill. Ramaphosa’s boast that “support has been provided directly to more than 17 million people from poor households” is alarming, given the shrinking taxpayer base. 

Are we about to witness a sell-off of SOEs?

The SOE crisis was largely glossed over. Nothing was said about SAA’s R10 billion business rescue stipend nor the small matter of Eskom’s R480 billion debt. The only good news, and we do hope the President has informed the labour unions, was the promise to reduce the reliance of SOEs on the fiscus. We will him luck with this proposal. 

In closing, we reflect on the strangest one-liner contained in the address: “In reducing government expenditure, we are ensuring that funds are reprioritised towards poverty alleviation, infrastructure investment, support for economic development and fighting crime and corruption”. We found no suggestion of reducing government’s wage bill. And despite the carnage caused by pandemic… despite the country’s debt-to-GDP ratio threatening to blow through the 80% level and charge towards triple digits… and despite promises to rein in government expenditure, un-costed behemoths such as National Health Insurance remain firmly on the table. 

We felt sorry for Finance Minister Tito Mboweni, who was only granted a one week extension to make his Medium Term Budget Policy Statement work under Rama-reality. He will have to find billions more to pay for 800 000 jobs and pay government’s share of infrastructure projects, without increasing expenditure.

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