This is the season when the government presents its plans for the year ahead and beyond. President Cyril Ramaphosa will deliver his annual State of the Nation Address (SONA) tomorrow, and about two weeks later the Minister of Finance, Enoch Godongwana, will present the national Budget.
Ideally this should be a time to address the country’s two overriding problems of low economic growth and high unemployment. But instead, the past few SONAs have been full of promises of structural reform. These fall well short of any strict definition of the term “structural reform” and lack what is required for any economic turnaround. And the government even has problems in carrying out these limited reforms. More than anything, SONA and the Budget show up the limits of the ANC.
It is highly unlikely that a Basic Income Grant will be introduced, as planning and implementing this will be a massive task, and besides it would blow the Budget.
But SONA will show the limits of the ANC. The ANC operates under the constraints imposed by its own ideology, its COSATU and Communist Party allies, and its internal politics. These all rule out real reform. Ramaphosa can’t go too far in pushing for what would be turnaround reforms, as he would have little chance of re-election as head of the party come November. The measures needed for an economic turnaround of the country are at odds with his own re-election as party leader. It is not politically possible for the ANC, as presently configured, to achieve a turnaround.
Therefore, both SONA and the budget will be much as they have been in past years. A combination of pretence about reform and attempts at working around what really has to be done to address problems.
Announcing a programme of privatisation and liquidations of state-owned enterprises would end Ramaphosa’s chances of re-election. Selling off state-owned assets is the best way to ensure these state-owned failures are no longer an economic burden. Yet turning around the energy, water, and transport industries, in which state-owned enterprises play a key role, is one of the government’s aims. Even with independents being permitted to produce up to 100MW of power and Eskom about to be split up, we are still going to have load-shedding for some time. The real problem is that the ANC just cannot let go of Eskom and other state-owned enterprises, as the party is so embedded in 1970’s socialist thinking and these entities remains sources of patronage.
So far, the reform record is pitiful, with independent producers allowed to feed 100MW into the grid and broadband spectrum to be auctioned in the near future. The government has listed this among its reform priorities in SONA for the past few years. Additional spectrum is something that could lead to better quality and lower-cost broadband.
Freeing up the labour laws to allow wage deals to be negotiated at plant level has a good chance of giving rise to more market-related settlements under which many more would be employed. Yet it is impossible for the ANC to carry these measures out, as they would immensely undermine the role of COSATU.
So in SONA, attempts at workarounds are made to deal with the big problems. These attempts are all about the government spending money, when the private sector acting in its own interest could find solutions to turning around entities now in the hands of the state and creating sustainable jobs.
According to Business Day, one of the initiatives to be announced on Thursday will be a further expansion in government employment schemes or the provision of subsidies to the private sector for jobs for unemployed youth. This is a nod at our unemployment rate of 50 percent (and growing). It is also an example of another workaround, allowing the ANC to say they are dealing with the problems, but without coming up with a durable solution that allows the private sector to employ many more.
This year there will also be a bow to populism by introducing job reservation for South African citizens. With possible challengers in November and the Economic Freedom Fighters’ campaign against foreigners working in the country, the President will have to give a big bow to populist pressures. That’s why Ramaphosa may speak of barring foreigners working in some sectors of the economy. That is a pretty draconian measure and could lead to labour and skills shortages in various industries.
Business Day also reports that instead of looking to improving the business climate by reducing impediments to investment, the President is set to announce plans for state financing of pharmaceutical and green energy projects. Last year there were announcements on plans for state involvement in electric vehicles and green energy. The ANC just cannot accept that given its past record of failures, this is not a good idea. Also expected in the SONA agenda are announcements of plans for greater “localisation” – the scheme under which some key goods will have to be produced locally. The ANC is intent on the scheme despite the warnings that it will drive up the local price of manufactured goods.
This year the government has slightly more scope than anticipated in its budget as the country is presently on a lucky streak, which takes off much of the urgency for any reforms. The windfall of tax receipts from mining companies due to buoyant commodity prices could mean revenue might be as much as R200bn higher. That amounts to more than 13 percent above what was expected in the budget forecast last year. And if Russia does invade Ukraine, Western sanctions against Moscow will mean South African exports of palladium, platinum, and gold will rise and the prices of these metals will also rise. That could mean a long-term windfall, which will decrease the pressures for reform.
It would be best for the windfall to be used to pay debt, rather than for greater spending. Even with this windfall, there is no room for a Basic Income Grant, which the government is coming under growing pressure to introduce. The best the government can do in this budget round will be to continue with the special monthly Covid grant of R350.
But with inadequate growth and rising unemployment, the clamour for new social grants will be incessant and increasingly unaffordable.
The views of the writer are not necessarily those of the Daily Friend or IRR.