News and Politics

6 things to look out for from the SONA

The failure of the SA economy to grow fast enough, the lack of job creation as well as the country’s investment woes are likely to be key factors in 2019. Here are 6 things to look out for in this year’s State of the Nation Address and Budget 2019 that will dictate the future of the economy.

Current economic policy 

What will be said about the current economic policy and the way forward? Will it still be as vague? South Africa needs fundamental and tough policy changes in addition to policy certainty to lay the foundation for growth and wider prosperity for its citizens.

For Finance Minister Tito Mboweni to admit that “the quality of spending on social and economic services is in many areas unacceptably poor, undermining service delivery”, is not enough. And how is “poor governance – reflected in inefficiency, corruption and financial mismanagement – (which) reduces the impact of spending and increases pressure on the budget,” going to change?

How is the land issue going to be tackled and what about property rights, proper land use and winning the trust of investors? How will the interests of the productive part of the economy (business sector) be reconciled and balanced with social needs?

The tax burden

The government struggles to balance its income from tax with huge demands on public spending from state owned companies (SOC’s), social and infrastructure needs and general growth stimulation. Tax will probably be hiked in one form or the other.

Wasteful spending 

When Mboweni invited people through Twitter to give “Tips for Tito” for last October’s medium term budget statement, many tips related to the cutting of waste, perks for politicians and austerity in general. There seems to be a general feeling among the public that the state is spending too much on too little – South Africans are not getting value for their money as far as service delivery is concerned.

One of the biggest spending problems is the ballooning state salary bill. It sucks up more than one third of the total budget of about R1.7-trillion. This bill amounted to R395-billion in 2014/15 but was approaching R590-billion in 2018. 

State-owned enterprises

How will government handle failing SOC’s? The right noises have been made – even talk about private participation and partnerships. But the rhetoric and the reality (of huge bailouts to Eskom, the SAA and other state-owned companies) do not always match. The fate of employees at these public entities are also a sensitive issue.

Economic growth

Should the state or the private sector be the main driver of economic growth? There is wide recognition (because it has been proved over and over in countries all over the world) that the state is limited in this regard.

Mboweni seems to have come out favouring a greater role for private business. But then again the political sentiments and skepticism towards big business, as seen in the national discourse and practical realities, mostly deny the importance that private capital and initiative play in economic welfare.   

The manufacturing sector struggles and job numbers have declined from 1.44 million in 2005 to 1.18 million today (partly because of bargaining council agreements). According to Daily Maverick 13 000 manufacturing jobs were shed from March to June 2018 alone.

Promoting, assisting and making things easier for all local emerging, small and medium enterprises to be key drivers of job creation, have also been talked about for a long time without real practical results.

SA needs more investment-led growth and not more consumer driven growth that has been dominant since almost the turn of the century. The latter’s dominance and the vulnerability and unsustainability of growth that comes with it, arises from excessive resources going to the public sector for job creation, big salaries, doubtful payments for third party facilitators and contracts, etc. 

The technical side of the Budget

The overall fiscal position, budget and tax collecting shortages, debt position, expenditure and economic forecasts not only affect service delivery in the long run. It is also the indicators International grading agencies and investors who use this to judge the overall health of the country’s finances and economy.

Mboweni will, like finance ministers before him, bring to the table a personal touch and thoughts on state finances and economic matters. He can either bring more policy certainty or confusion, revealing an underlying political or ideological stance.

Sources: Fin24