In her weekly newsletter, Business Leadership South Africa (BLSA) CEO Busi Mavuso has called on Finance Minister Tito Mboweni to demonstrate that government is focused on the composition of spending; not just about restraining it, but spending it on the right things.
The message delivered in the 2020 Budget Speech was clear: spending was far outpacing revenue, even before the Covid-19 crisis, and South Africa was not on the right path to turn that around, Mavuso pointed out on February 22.
Mboweni has an opportunity to demonstrate that government is sticking to its commitment to slow the growth of spending, she said.
"We need to be investing in a State that can manage a growing economy and efficiently deliver public services to all South Africans. We should be cutting off wasteful spending that delivers poor value for money and focusing on investment in infrastructure and wider State capacity," she emphasised.
High commodity prices over the past few months have led to a boom in mining exports and higher taxes collected; there is a bit more money than expected, which means some breathing room, but this does not change the wider realities, Mavuso warned.
The other important objective is progress on the economic reform front. President Cyril Ramaphosa referred to the importance of economic reforms in his State of the Nation speech, particularly Operation Vulindlela consisting of a team from the Presidency and the National Treasury that is driving the economic reforms needed. The President said these reforms covered electricity, water, telecommunications and transport, as well as reforms to the visa and immigration regime.
"Mboweni will need to demonstrate how Treasury is focused on driving that reform agenda. It needs to include reforms to how infrastructure is procured. Investment in infrastructure has been rightly given a central role in kick-starting the economy."
The Economic Reconstruction and Recovery Plan, approved by Cabinet late last year, highlighted the need to amend the regulations for public procurement of infrastructure, including public-private partnerships, to improve the ease with which these can be created to allow the private sector to fund and build public infrastructure. However, there has been little subsequent information from Treasury about its plans to implement and drive these reforms.
"The problem the Minister has is that there really is no sustainable solution to the problem other than economic growth. Only with growth can the revenue that government collects through taxes expand and enable it to repair its balance sheet."
POLICY APPROACH PROBLEM
An additional frustration is that reforms are not always optimal. The President’s reference to visa reform was followed days later by the release of the scarce skills list by the Department of Home Affairs. The list once again demonstrated that parts of government prefer micro-tinkering instead of creating the environment in which business can thrive, Mavuso averred.
"The concept of a scarce skills list is fundamentally flawed; neither government nor business can anticipate what skills business needs. The list includes chefs and caravan and camp site managers, but does not include business executives capable of managing complex organisations.
"A competitive and innovative economy is constantly creating new competencies. Bureaucrats cannot predict what skills should be needed when. This kind of central planning is misguided, and creates incentive for immigrants to retrain or manipulate their curricula vitae to fit some or other arbitrary category," she explained.
Local skills must be prioritised. Companies should also be incentivised to invest in developing local skills rather than importing them.
"The lack of access to skills prevents companies from growing and employing more people. By strangling access to international skills, you can easily damage local employment more than help it. There are better ways."
Many countries use points-based systems to specify eligible foreign employees, however, Mavuso proposed that immigration systems be demand-based, and start with companies’ hiring decisions.
"Government can set minimum skill-levels and impose costs on employers, including levies to fund domestic training. Let economics do the work. Companies will not hire foreigners if there are cheaper alternatives," she said.
Government’s approach to this has amounted only to partial reform of what skills appear on a list rather than a reform to the entire approach of using a list in the first place. The test of economic reforms must be whether they actually change things, Mavuso stated.
"The visa example shows that reforms can fail that test. I hope the Minister can present real reforms that will pass it, while also restoring our confidence that government is on top of its finances," she added.
Meanwhile, poor investment sentiment towards South Africa must not be blamed on investors. It is not the investors nor their sentiments that are at fault. The root cause of this sentiment is poor policy-making and policy uncertainty, widespread corruption with little visible accountability, the distressed nature of our State-owned enterprises and rising unemployment – among a wide range of other issues, she concluded.