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Misdiagnosing the cause of the country’s economic woes

With displays of conspicuous differences in approaches from a team that is supposed to be aiming for the same thing.
Cutting public sector wages may not be the solution government is looking for. Image: Waldo Swiegers, Bloomberg

I’ve had time to mull over the country’s Economic Reconstruction and Recovery Plan, along with the Medium-Term Budget Policy Statement tabled by National Treasury on October 28.

The road to recovery is paved with good intentions – framed by the current administration as “unleashing the potential of our economy”* by betting on employment stimulus intervention that will somehow generate 800 000 job opportunities and R1 trillion infrastructure investment that will make the New Dawn possible.

These intentions were however immediately thwarted by the grim truth clearly presented in the mid-term budget. One implication is that the government is spending money it does not have, worsening its indebtedness to the point of implosion. Another, and one that is rarely spoken of, is the possibility of the country not being able to service the incurred debt.

These worries are worsened by the fact that, as our finance minister said in his medium-term budget speech: “Right now, government is borrowing at a rate of R2.1 billion per day.”

Contradictions

President Cyril Ramaphosa and Finance Minister Tito Mboweni have both alluded to drastic measures being required to revive the economy. However, I could not help but pick up on the contradictions.

For example, the president talking about scaling up and expanding public employment at provincial and city level juxtaposes with Mboweni’s call for pay reductions for senior public servants, including management positions in local government and across state-owned entities.

Furthermore, in his speech Mboweni emphasises the need to rehabilitate public finances by, among other things, bringing debt and spending under control.

These are but glimpses of conspicuous differences in approaches from a team that is supposed to be aiming for the same thing.

If you are reducing public spending to bring debt under control, how is it that you want to scale up traditional employment in public service and expand it in provinces?

Perhaps I am nit-picking a non-issue, but I think not.

The proposed wage reductions would affect ordinary men and women – nurses, police officers, teachers, municipal workers and other public servants providing essential services – more than the fat cats in management positions.

This leads me to the next point: Mboweni’s focus on public sector employee compensation – while rightly assessing the sustainability of the above-inflation wage demands – is misleading in how it creates the impression that the government’s fiscal constraints stem from there.

Read: State wage bill ‘a critical impediment to SA’s economic recovery’ – Busa

To me, the public sector wage bill is a misdiagnosed cause.

Decade of decadence

The real problems can be traced back to the actions over the past 10 years of those  who, through their political powers and pursuit of decadence, facilitated institutional decay that coincided with economic stagnation – or caused it.

This is a period characterised by the South African political system that has been worsened further by polarisation, increasing inequality and poverty. Too far gone, the root of government’s decadence runs deep, as is evident in the recent episodes at the Zondo Commission of Inquiry.

These past few weeks have revealed how South African bureaucracy has declined, is ineffective, and deems accountability inapplicable to it.

It may thus be argued that, as far as the state is concerned, it had long lost the ability to deal with any exogenous challenges such as the impact of the global economic crisis on South Africa, because of a hollowed-out bureaucracy that has largely been replaced by front people who can play-act radical, polarising and loud politics.

Their incompetence and the institutional sclerosis has brought us to this moment.

Regression

Policies have not responded to the amelioration of the little gains made on wages by many South Africans, who have had to spend more to buy food, use public transport, and access health and other services that government is meant to provide but has not.

Moreover, instead of progressing in serving the people, there is a regression in service delivery.

The real threat to South Africa’s economic, social and political wellbeing is internal: the continuing rise of the trade-off between the future of the ruling party that has become inward-looking, versus boldly putting forth policies that will enable economic recovery and income growth that could potentially lead to greater opportunities for many.

Just to be clear, I do not say the public sector wage bill is not a problem. It is, and it should be revised – especially when the country is being crushed by debt.

However, it is the political class that has definitely failed. The primacy of politics has always held up a whip hand over the economy by virtue of its power to destabilise perfectly functioning institutions to allow corrupt deeds and practices to flourish.

The pandemic has brought to the fore the longstanding problem with government’s deficient capacity to pull the economy (‘the people’, it can be said) out of the deep dark hole into the light.

South Africa is here, where it is forced to look to the International Monetary Fund for assistance, because of problems stemming from individuals who chose to fill their own pockets, weakening institutions, playing on our collective insecurities and letting economic and institutional sclerosis set in.

In order to pull off their greatest heist, bear in mind that many are still in government and singing a ‘new dawn’ tune.

No wonder the real causes of the problems are misdiagnosed.

* President Cyril Ramaphosa, in his address to the Joint Sitting of Parliament on October 15.

Busa CEO Cas Coovadia discusses the unsustainability of the public sector wage bill with Ryk van Niekerk:

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COMMENTS   16

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The IDC needs a total review of its role to create an opportunity for economical growth. It has lost its mission and is trying to be a finance house. My personal experience in the past 24 months was to gain financial assistance to exhibit in East Africa for a high tech engineering business in the healthcare industry.
To get past a red tape of ill trained people was an effort.
If your turnover is more Than R40 pa …no assistance ( regardless of the fact that we invested R30m in technology )
They only support BEE …SME companies . Off course ! They have invested R-millions to produce what ? Masks etc ?
Try and talk to someone with business sense ….you may get through to someone after 2 months as he or she is on study leave .
Clean it up…employ competent people and have a clear mission .

FAILING A QUANTUM LEAP CHANGE IT WILL REMAIN A FAILED SOE

The problem is that Govt spend will be compromised by poor policy and BEE, which means massive wastage and corruption and very little multiplier effect.

The only way to get ourselves out this is by dramatically reducing inequality and we fast. Getting a consumer base that actually has money to spend it the only natural or correct way capitalism can function properly.

Is that not what Zuma was trying to do, take and dish out money to people whom had not worked for it to make them more equal?

Seems as if there is a belief that inequality is seen as someone else’s cause. Instead of seeing that even nature has variety of results. Inequality is seen as abnormal, as if results of life is like having a cooky cutter that just makes us all equal.

The only way anybody can over the long term become more affluent and therefore move to a higher LSM bracket is through individual self responsibility and effort.

There is no economical paint brush that just makes everybody more equal.

Well articulated truth

For decades we in SA had the mindset that we are not actuallu on the African continent. Zuma proved us wrong.
The point of no return has been in the rear-view mirror for a number of years already. Big-man politics lie ahead, coupled with populism, bigger promises that will prove as empty as the previous ones, worsening leadership, ramping up the printing presses… Strap in folks.

First choice would be a party that can actually run a country.

For now though, the root cause of almost all of SA’s current woes is the policy of BEE.

You are correct the problem in the country is the total mismanagement and theft by the leadership. On symptom of this is a bloated and overpaid civil service. Hence the need for the intervention on the wage bill. Also normal employees are always the first to feel the pain caused by poor management.

Don’t forget the bloated cabinet which Cyril was supposed to trim but didn’t.

Government is the problem. They are only there to fill their bank accounts at our expense. Every SOE is viewed as a looting opportunity and nothing else. We are now at the point where we have a government that is a huge black hole of taxpayer funds for which we get very little or nothing in return.

You can’t even call it incompetence, because the massive criminality that has been revealed by Zondo and others shows it’s mostly deliberate. A position in government is seen as an opportunity to get rich by rigging the system and cooking the books.

The debacle of Yakhe Kwinana has shown us how it happens. Install some puppet CEO who will turn a blind eye or actively participate in blatant theft. The guy who was CEO of Denel during Zuma’s presidency admitted to Zondo that he would sign documents allocating millions of funds without even reading them.

How will a poor country like South Africa ever prevail when we have these parasites draining our blood at every opportunity?

Ms Molopyane, you are absolutely correct. It is exactly what Moneyweb commentators have been saying for years – just go read the comments. The problem is, obviously, that nobody seems to listen, so it is more of the same, ad infinitum. It is compounded by the voters, for 2 reasons: they don’t understand what our brand of populism/socialism is doing to the country and they don’t understand the power of their vote. It is also of concern that the caliber of politician we can vote for, is so poor. Our best chance of survival is to have educated voters, decent politicians and reasonable demands from the populace. And that is also why we won’t succeed.

Spot on Batman!

“Uneducated citizens will allow themselves to be lead by (similarly) poor and incompetent leadership”

Versus Scandinavian countries: “highly educated electorate, expect nothing less to whom they choose as their leadership”

Good Article – summary. Covid 19 was the tipper, however years of theft, neglect, bad management in all spheres of government left SA open and vulnerable to any adverse situation, so as the proverbial phrase goes; Chickens have come home ….
Sort out the theft etc and things will naturally turn for the better

A politician only thinks as far as the next election.

Brutal but excellent article! Top notch journalist

Handing out working and earning taxpayers’ money to the poor, sick, lame, lazy, unemployed, (unfortunately) uneducated and unemployable (not always their fault or responsibility) is hardly in the interests of reducing the issue of inequality of the country or resolving the country’s economic woes.

End of comments.

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