What evidence do South Africans need to see?
Our current holders of office will not wake up and suddenly notice the misalignment brought on the economy and society by their politics. Those who believe the government or politicians can positively change society have a naïve view of politics.
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Those who are part of a collective at the helm of a government that wastes resources, is corrupt, and which undertakes absurd enterprises are not going to change for the good of society.
Under their government, two things have happened.
Spend, spend, spend
Firstly, the public sector has expanded to levels that have made it the biggest employer in the country, accounting for a significant share of government expenditure.
In the past two decades, the more the economy turned down, the greater the inexorable expansion of the public sector became. Successive governments pumped money into wages to meet the demands made by unions.
The sharper the economic downturn, the more determined these successive governments become to expand the public works programme.
This trend started slowly, but accelerated quickly. Today, the higher-than-budgeted cost of public service wages contributes to strained resources and is one of the financial risks to the country’s economic outlook.
On the one hand, the wage bill is an expenditure risk; on the other, the growing public debt is a macroeconomic risk.
As pointed out by National Treasury in its Medium-Term Budget Policy Statement (MTBPS) in October last year, from 2016/17 to 2021/22, government debt averaged R43.8 billion per year.
It is now expected to average R192.8 billion from 2022/23 to 2030/31. The distressing repercussions are that some of the debt will have matured and need to be refinanced, leading to rising borrowing costs while lowering the demand for government bonds and contributing to depreciation of the rand.
How did we reach the point where the country has a deteriorating fiscal outlook, escalating debt servicing costs, and debt that is growing faster than income?
We are here because of self-inflicted pain and external factors such as the deteriorating global economic environment. The former is due to a government led by politicians with views and knee-jerk solutions such as spending more on infrastructure projects. But infrastructure has been the theme of the past 12 years.
At the same time, billions have been pumped into education and health – and look where that has got us: poor education outcomes, declining health facilities, and output that has fallen while debt rises.
Seemingly good ideas – such as the National Development Plan 2030, a blueprint of policies, where each is meant to cure the ills and ‘revive growth, jump-starting the economy’ and lead to ‘economic recovery’ – are not working.
They are akin to pumping water into a tank at the one end while leaving the tap open at the other … with our leaders left puzzled as to why it does not fill up.
Hope, hope, hope
The near failure of most state-owned entities (SOEs) is another risk pushing the country closer to economic doomsday.
These entities have become a liability. Their debt redemption averages R33.1 billion annually, with 19% of this foreign debt.
And, like the government itself, poor revenue performance means higher-than-usual borrowing and debt servicing costs.
And our government, while struggling along trying to manage the debt situation, continues to extend guarantees to Eskom and South African Airways – the former accounts for 78% of the guarantees disbursed to SOEs.
We already see how the cycle of debt endures: a water tank with two pipes – a red one pouring its resources out into another tank, and a blue one taking from the attempts to fill itself as they come in.
In its March Country Statement, the International Monetary Fund (IMF) underlined SOEs as a burden on the budget, taking away resources from social expenditure and other priorities.
Read: Eskom to get a massive R254bn in debt relief [Feb 2023]
Despite my formal studies of economic development within the broader material and ideational understanding of the international political economy, I find myself more and more bewildered by the logic of SOEs in the South African context.
Take the management of resources as an example: time and again, government officials have shown us that they are inefficient at managing resources. The rationale of setting up SOEs that mimic corporate culture and practises, yet lack the institutional capacity often seen in private sector counterparts is one.
The lessons are there and can be seen in SOEs across all sectors.
If its SOEs were an attempt to replicate the success of East Asian industrialisation, South Africa erred on three fronts: it overlooked the role of laissez-faire economics; its choice of industrial policies; and its strategy of government intervention in the restructuring of the economy.
The government is yet to rationalise the continuation of SOEs and the liquidity support given to them, despite their accrued liabilities being part of the risk to public finance.
The economy is in turmoil, the country is marked by uncertainty, and current policies are ineffective at stopping rising public debt.
The longer decisive leadership remains missing in action, the longer the challenges will persist. South Africa’s economic recovery continues to falter, and will soon be even harder to achieve.
