/Herman Mashaba: Silence in the face of our looming economic disaster

Herman Mashaba: Silence in the face of our looming economic disaster

2020-04-07 17:41

In the past few weeks, we have witnessed a series of events that point to a certainty of hard economic times to come.

I covered some of the challenges and the interventions necessary in last week’s opinion piece, titled “What kind of South Africa will arise from our current crises?”

I strongly believe we need to put our economy on top of our agenda, along with healthcare, during this period.

The crippling effects of lockdown on our economy are most obvious. However necessary from a health perspective, the lockdown is already having a severe impact on businesses, both big and small.

Last Friday, we received the news that South Africa had been downgraded to junk status by Moody’s, the last of the ratings agencies to place South Africa at investment grade level. This was soon followed by Fitch’s further downgrade of South Africa to junk scale with a negative outlook.

These downgrades have been a long time coming. The Moody’s downgrade came with the following explanation:

“Unreliable electricity supply, persistent weak business confidence and investment, and long-standing structural labour market rigidities continue to constrain South Africa’s economic growth.

“As a result, South Africa is entering a period of much lower global growth in an economically vulnerable position. The government’s own capacity to limit the economic deterioration, in the current shock and more durably is constrained.”

Whichever way you look at it, our economy is in deep trouble.  Yet, we do not see the same level of decisiveness emerging from our government in response to our economic crisis as we have seen in their decisive response to the health crisis. Why?

Analysts are predicting the impact of our economic outlook to last for years, even if the most immediate action is taken. Going into this lockdown, South Africa sat with 39% unemployment in a technical recession, with economic growth at 0.2%.

If we are going to emerge from this crisis, we have to take the most immediate action to protect our economy, our businesses and those who face the sting of unemployment. But this can only be done if we embark on immediate and significant financial and economic reform.

Financial reform has to be focused on correcting our debt to GDP ratios, especially given that the cost of servicing our debt is now roughly equal to our budget for education or policing.

We have to start with our bloated structures of government.

As a mayor of Johannesburg, I was puzzled about the role of provincial government. It absorbs hundreds of billions of rands across our country, sucking in resources to administer bloated structures of administration. And yet, its only distinguishable responsibilities, constitutionally speaking, are education and healthcare – even the latter is somewhat delegated to municipalities.

Empowering municipalities to absorb these functions, and professionalising the civil service in local government, would free up enormous sums of money to reform our fiscus. South Africa can ill afford to have these expensive structures without much to show for it. 

The size of our Cabinet at national government level is absurd. It has become a place where patronage is doled out to manage the factional issues within the ruling party, at our expense.

With a Cabinet of 64, each of them entitled to VIP protection, housing, business class travel for themselves and loved ones, luxury vehicles, staff offices and the list goes on.

A painful example of this Cabinet structure is the two dismally failing education departments. Our Cabinet is four times larger than the US, the population of which is six times larger than ours.

Our public sector wage bill stood at R518 billion in 2018/19, employing over 1.2 million people and constituting 35% of our national spend.

It has gotten to the point where one in four employed South Africans work for government – because of cadre deployment.

Under our current economic pressures, this cannot continue.

Our public sector wage bill needs to be urgently cut. Structures need to be rationalised, salaries need to be reduced, and a professional civil service needs to emerge which is lean, mean and capable.

This alone would free up the greatest amount of public funding to be redirected at our financial and economic crisis. But will it be done by a government proven to be in the pocket of trade unions for support in elections?

I have my doubts, but our new-found dependency on institutions like the International Monetary Fund promises to place the kind of pressure on our government that has never existed before.

Ailing State-Owned Enterprises (SOEs) need to be sold off or privatised, as soon as possible. Whether you believe in the value of a state-owned airline or not – and I do not – you cannot doubt it is now unaffordable after nine years of bailouts amounting to more than R20 billion.

SOEs need to provide critical services, while making profits to add to our fiscus. If they cannot fulfil this agenda, there can be no place for them in the South Africa that emerges from this lockdown.

What does have to be the focus of our spending going forward is investment into areas that will generate economic growth and job creation: not unlike the new deal that emerged from the great depression in 1929.

We need a massive infrastructure programme that puts South Africans to work. We need to relax labour laws to make it easier for businesses, big or small, to hire more South Africans and to prevent the jobs blood bath that is certain to follow this lockdown.

We need massive investment in our education system and an end to the mafia-style powers of the SA Democratic Teachers Union (Sadtu). Young people emerging into a growing economy, trained and ready to seize advantages to support their families, have to take priority over the ruling party’s allegiance to its own tripartite alliance.

This investment needs to see vocational training facilities, teachers and nursing colleges, new universities (based on new technological advancements) and small business centres sprouting up around our country.

There can be no denying that we face a crisis, the likes of which only those old enough to remember events like Black Friday and World War II can relate to. However, having succeeded as an entrepreneur in the darkest days of our country, I believe in the duality of crisis and opportunity.

Just as we have never faced a crisis of this magnitude before, we have never had the opportunity we have now to reform our economy and fiscus.

What we need is the kind of leadership that is lacking in our political establishment in South Africa – willing to break a few eggs to make the proverbial omelette.

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