South Africa is facing a fiscal crisis. The governments’ total debt now stands at R2.2 trillion. The debt to GDP ratio was 23% in 2009 and is now at 50,7%. The total debt service cost has risen from a R147 Billion in 2016/2017 to a R162 Billion this year. State guarantees to state owned enterprises are standing at R477 Billion.
The fiscal expansionary policies of the current government are placing the future economic stability of South Africa in jeopardy. For every Rand collected in tax, 13 cents must be diverted to service debt. This fiscal expansionary approach has been further been impacted upon by our downgrading to junk status.
The cost of borrowing will now increase as a result of the ratings downgrade as government will have to pay more for debt costs. Besides paying more interest towards existing debt, borrowing costs will increase, which means there will be less funds for infrastructure spending. The downgrading to junk status has impacted negatively on our countries’ economy.
South Africa experienced a growth rate of 1,3% in 2015 and 0,3% in 2016. In 2017 the growth rate was expected to be 1,3%; 2.% in 2018 and 2,2% in 2019. With a projected revenue shortfall of R149 Billion or 3,1% of GDP.
Since the announcement of the ratings downgrade to sub-investment or junk status by Fitch and Standard and Poors in April 2017, economists have revised the forecast. It is now estimated that GDP growth will be 0,2% in 2017; 0,7% in 2018 and 1% in 2019. This has devastating consequences for every South African.
The reason for our downgrading to junk status can be squarely laid on the door of the reckless decision to remove the previous national Minister of Finance, Pravin Gordhan. This was stated by one of the rating agencies.
Let us not pretend that the political divisions that exist within the governing party do not impact negatively on our economic well-being. The politics of division and policy uncertainty are a contributing factor to our poor economic growth.
Phrases such as “Radical Economic Transformation” and “White Monopoly Capital” which I believe were invented by a foreign public relations firm to counter to the state capture narrative, are symptoms of the problem, rather than a solution that South Africa currently faces. Populism cannot shield South Africa from the economic mess that the government has landed it in. Fancy catch phrases are not going to create jobs.
All of this in turn impacts on the economy of the Eastern Cape which is not isolated from national trends.
Another key aspect which directly impacts on the economy of the province is the payment of suppliers within the 30 day period. No business can survive if it is not paid for its services. In a province where our projected growth rate for 2017 is a poor 0,7% prior to the ratings downgrade.
Non-payment by government is unacceptable. These actions could lead to staff lay offs and businesses going under.
When I last asked a question on this matter, the provincial government failed to pay 6478 suppliers to whom it owed money in excess of 90 days as of the 31st of December 2016.
Linked to this is the over commitment of the department of human settlements which stopped playing some suppliers in September 2016. This resulted in these suppliers having to lay off hundreds of workers and sub-contractors due to funds drying up in some of the poorest parts of the province.
In the current economic climate it is imperative that businesses are paid on time. This was highlighted in the budget and policy speeches and strong action needs to be taken. We need the political will to ensure that the economy of this province moves forward instead of being strangled by non-payment. We need radical economic payment.
Then there is the huge cost of public entities in our province. This has been raised on numerous occasions over an extended period of time by the MEC for Finance. The high cost of these public entities needs to be reduced and a plan needs to be put forward on the table as to how it is going to happen.
This province cannot afford to have bloated public entities that cost what they currently do, particularly, the high cost of personnel in that regard in a province which is slowly being starved of funding for development. It is important to note that there has been a R10 Billion drop in equitable share since 2013. This is largely as a result of the negative migration between 2011 and 2016 of 489 000 people moving to other provinces.
We cannot afford to lose this number of people to other provinces and need to ensure that we create the right environment in this province to retain our people.
Another issue that concerns one is the fact that the price index for low volume, high expenditure items has not yet been implemented. Why does this province pay more than any other province for infrastructure, such as roads and schools?
We must ask the question, is there radical economic looting taking place in this province when it comes to the cost of infrastructure? Have the procurement processes in this province been captured? This is the conclusion one draws on when one gets informed that we are paying up to R23 and R25 Million to tar a kilometre of road by provincial treasury. It is a matter of extreme urgency that something is done to deal with this matter. What we need is innovation and new ideas such as those articulated by Hon Knoetze in the house yesterday when it comes to the construction of roads.
Another issue that concerns the Democratic Alliance is that the new consolidated municipalities are receiving less funding than when they were stand-alone municipalities. This is as a result of the base amount of grants being reduced because there is now a single municipality as opposed to three.
This places some of our municipalities in financial jeopardy and there needs to be transitional grants to assist them overcome these problems.
Funding paid to municipalities for electricity needs to be ring fenced so it is paid over to Eskom. One cannot take money from one service and then not pay the service provider.
South Africa is in an extremely precarious position as a result of the downgrading, there is a fiscal risk that SARS will miss its revenue target in March 2018. The worst case scenario is by R53 billion. SARS is planning in this financial year to increase its revenue by 10.5% compared to a 7% increase in the previous financial year.
It seems very unlikely that it will meet its target in the current financial climate as it was set before the downgrading to junk status. This will have devastating consequences to the economy in terms of making good of that short fall. This means the province has to pull out all stops to avoid non-core expenditure, deal decisively with the PILIR cases (incapacity, leave, ill-health and retirement), improve revenue collection, put real plans on the table to contain COE and ensure we don’t fall into the accrual trap which can destabilize the whole provinces finances.
The province has a window of opportunity to deal decisively with some of the key issues particularly, the issue of the COE before we go over the fast approaching fiscal cliff. If you don’t use the political capital that you have now, you might to be forced to do so by the IMF and the World Bank before they will grant South Africa any monetary assistance. You all know well what their demands will be, privatisation of parastatals, labour market reform, possible pay freezes for civil servants and cutting back on our bloated bureaucracy.
According to the Global Competitive report of the World Economic Forum of 2016, some of the most problematic factor of doing business in South Africa were inefficient government bureaucracy at 17,7%; restrictive labour regulations at 17,5%; inadequate educated workforce at 12,9%; political instability at 12,8%; corruption at12,3% and also crime and theft at 6,9%.
These are factors that we can to some extent control. We need to abandon failed economic policies and embrace structural economic reform that will put this country on the high road to growth.
This province must embrace innovation, become forward thinking in its focus and become a beacon of hope that will reverse the migration trends and attract the investment and people that we need. Everything rises and falls on leadership. — DA Leader of the Official Opposition in the Eastern Cape Provincial Legislature, Bobby Stevenson