WHEN Finance Minister Nhlanhla Nene steps onto the National Assembly’s podium to deliver the medium-term budget policy statement on Wednesday, investors will look to him to demonstrate whether the government is willing to act to address SA’s precarious position. He cannot afford to dither.
By all measures the country’s economy and fiscal position have deteriorated significantly over the last five years. Some of this has been due to external factors such as poor growth and a slowing in SA’s main trading partners, the eurozone and China, but most of it has been due to the actions and inaction of the government. Despite promises to do better, billions of rand disappeared into a black hole of indecision, misuse, wasteful spending and corruption in the public sector.
Combined, the public sector wage bill and social grants now account for more than 56% of national income, which is a patently unsustainable position when revenue forecasts are declining, deficits widening and the overall economic outlook is poor. Nene’s speech needs to demonstrate that he has the political backing of his boss, President Jacob Zuma, and the ANC to administer the bitter pill the government has avoided taking for so long.
Instead of bitterly complaining about a private sector "investment strike", the government needs to move towards more public-private partnerships which leverage private sector balance sheets to grow infrastructure.
The first step is to halt the relentless inflation of the civil service, including Minister in the Presidency Jeff Radebe’s reported plans to employ a further 700 people in the Presidency. Furthermore, the government needs to embark on a right-sizing and rationalisation exercise that will cut the fat from all spheres of government. There are no more funds to throw at problems that can be resolved with available resources if the right systems and expertise are put in place.
We also need a significant reorientation of the ANC and the government’s position on state-owned enterprises. It is simply irrational to continue referring to needless, dysfunctional state enterprises such as South African Airways as "strategic" when they drain the fiscus and offer no discernible strategic value. With government guarantees standing at more than R466bn, and equity injections showing no sign of coming down, the cost of ideological dogma and strategic indecision is devastating.
Though a sell-off of some state enterprises is being considered due to a parlous fiscal position and will be welcomed by markets, what is needed is an urgent review of all state enterprises, with the intention of disposing of some to relieve the national purse of the needless pressure.
Instead of bitterly complaining about a private sector "investment strike", the government needs to move towards more public-private partnerships which leverage private sector balance sheets to grow infrastructure. The government is not in a position to undertake the infrastructure programme on its own and should not have tried to do so in the first place. If concessions can be made for roads, they can be made for electricity and water infrastructure, among others.
Five years ago a finance minister could have afforded to obfuscate and offer platitudes. That space is now gone. Nene needs to set the bar high, administer tough love and demonstrate SA’s resilience in the face of increasing challenges.