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Above all, the Finance Minister must inspire confidence

JOHANNESBURG, South Africa, 3 November 2021. Finance Minister Enoch Godongwana will deliver his delayed maiden Medium-Term Budget Policy Statement (MTBPS) on 11 November 2021 at a time when the country’s cities and towns are in the process of installing political leadership following the local government elections. In addition, the nation will be anxious about a possible fourth wave of the COVID-19 pandemic and any further adjusted lockdown restrictions. What is needed is a clear plan and tangible action on some of the most pressing problems facing the country. 

Structural reform is arguably one of the biggest issues that we face as a country. Government will need to demonstrate how it will implement a dramatic reform agenda in South Africa. The current challenge involving the Independent Communication Authority of South Africa (ICASA) and telecommunication companies’ over-allocation of spectrum, as well as the delayed auctioning of the wider spectrum, is the latest example of how reforms are stalled by policy inertia.

South Africa has suffered a setback from not carrying out the bold reforms that the state-owned sector of our economy so desperately requires. This is not a cyclical crisis, but a structural one that has been worsened by stagnant growth. Three policy interventions are required:

The first, while considering the fiscal constraints that the country faces, is directing capital toward key implementable and economically enabling infrastructure programmes that will unlock economic growth and contribute to job creation. Much of this should focus on alleviating supply side constraints to exports, such as rail and port infrastructure.

Secondly, policy reform to allow for the participation and investment of private capital into (traditionally) state owned infrastructure will drive efficiency through enhanced competition.

The government currently has a target of spending R1 trillion of mostly private money over the next decade on infrastructure. South Africa’s infrastructure programme will only work if it crowds in private capital. The government needs to create a good balance between social infrastructure and economic infrastructure. Both must be aimed at improving job creation and stimulating economic growth. The formation of the R100 billion Infrastructure Fund located at the Development Bank of Southern Africa as well as the Sustainable Infrastructure Development Symposium (SIDS) located in the Presidency are the latest attempts to give fresh impetus to infrastructure delivery. The government now needs to move a higher proportion of infrastructure priorities from a ‘wish list’ to feasibility to make them bankable.

Thirdly, reform of government institutions and downsizing of state-owned enterprises will not just save the fiscus much needed money but will also enhance efficiency and contribute to what is being called for by the National Development Plan. True structural reform will not just remedy the obvious financial risk that we face but also inject the necessary confidence into domestic and foreign capital markets to invest for the long term in our economy.

Many major economies offer little to no yield for global money while negative rates persist. With some substantive efforts made toward structural reform, emerging markets will be handsomely rewarded. Robust growth in China and continued stimulus pending in the United States and Europe both provide a very enabling macro environment for emerging markets that recognise the necessity of reform to emerge from a crisis. Minister Godongwana needs to spell out which of the mooted economic reforms are for the short, medium, and long term.

The Minister of Finance needs to outline what government plans to do about Eskom’s R400 billion debt, as the utility faces a funding crunch since the world is turning away from coal. With the Department of Public Enterprises, government could look at measures that would address issues that have led to the current crisis. Recent discussions regarding the unbundling of Eskom have to be brought to finality to ascertain stability at the state-owned enterprise. The proposed role of Eskom in providing green energy needs to be accentuated and planning must quickly translate into action. Perhaps it is time for the government to take on a portion of Eskom’s debt and prepare Eskom for the long transition to cleaner energy.

The government is set to report a tax windfall estimated to be as high as R160 billion in this tax year thanks to record profits from mining companies during the commodity boom. The windfall has already been used to continue the Social Relief Distress Grant for COVID-19. It has also been used to placate public servants with a once-off payment that quells the noise of the civil service wage bill for another year. It may even be used to increase the child grant by a nominal R10 or R20, although this is still to be confirmed. This means grant recipients and public servants have benefited from the windfall, but private sector taxpayers have not. One way to spread the benefits would be a tax break for individuals to help cushion rising food inflation and fuel costs and give some much-needed festive cheer.

Understandably, the government’s response to the COVID-19 pandemic forced it to reprioritise spending from key areas or from the outer years of the Medium-Term Expenditure Framework to the current. In the case of healthcare, money was taken from healthcare infrastructure, which is critical for the rollout of the National Health Insurance (NHI) as well as HIV and TB treatment allocations.

Within this context, while NHI remains a key policy priority of the government, it will require a significant uptick in spending in the medium term to ensure it is successfully rolled out without damaging the quality of healthcare.

What we need to see in this MTBPS is a slowing of the flow of reprioritisations away from HIV and TB spending towards expanding support for the two conditions in Budget 2022. Government should also be looking to expand COVID-19 support measures and assist patients, especially those affected by the looting in July, through greater access to continued medication. Lastly, NHI funding should either be re-directed towards further COVID-19 support or towards building NHI capacity and readiness. 

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