Inherent Structural Issues Are Hampering Economic Growth
Statement by Minister Ivan Meyer:
South Africa continues to face a constrained economic and fiscal environment due to adverse economic conditions with the deterioration in the first half of 2017 reflective of the weak economic outlook.
Increased political and institutional uncertainty, lower global commodity prices, current drought conditions, uncertainty over the nuclear deal, rising debt-service costs, high unemployment rates, and the sovereign credit rating downgrades all increase the vulnerabilities within the economy. In addition to South Africa’s current economic woes, the inherent structural issues facing South African economy include: slow economic growth, low quality of education, labour market rigidity, high unemployment rates, infrastructure backlogs and crime and corruption.
Structural reforms needed to deal with these issues include relaxing labour law inflexibility, privatising State owned enterprises, reducing the government wage bill, stopping corruption, creating policy certainty, increasing the savings rate and becoming export driven.
In a country where unemployment, specifically youth unemployment is high, structural reform aimed at the relaxation of labour law inflexibility and the reduction of youth unemployment should be prioritised.
Labour market rigidities also contribute towards the significant financial losses of State Owned Enterprises which need to be continually bailed out by the National Government, such as the recent bailout of SAA. These bailouts divert funds away from spending on socio-economic needs of the citizens and increase the need to borrow money which in turn increases the debt servicing costs of the country. Given the current fiscal constraints, South Africa cannot afford the unproductive allocation of resources, spending should rather be on initiatives such as investing in key infrastructure developments. The privatisation of SOE’s, and reducing government debt levels can also result in a more efficient and effective allocation of resources in favour of inclusive economic growth.
Corruption, is also one of the largest obstacles to the South African economy. Corruption leads to inefficient allocation of resources. It inhibits fair competition, often results in more expensive goods and services and hampers the country’s productivity levels. Hence, growing the economy requires serious mechanisms to stop corruption.
Another structural issue requiring attention is the low savings rate. Increased saving and foreign direct investment are necessary requirements needed to achieve higher inclusive and sustained growth. An approach focusing on export-led growth will also add much needed impetus to the economy considering that nations such as the US, nations within the EU, China and the Asian Tiger economies used export-led growth to aid in their industrialisation and economic advancement.
The above inflationary increases and the burgeoning wage bill of government employees is cited by National Treasury as one of the threats to fiscal sustainability place with increasing pressure on the fiscus. In essence, if government is spending more funds paying its personnel it crowds out spending on goods, services and infrastructure that are also much needed for service delivery. In the Western Cape this issue is being addressed through careful consideration of which posts should be filled, upper limits on compensation of employees which also aims to increase productivity of staff employed in the public service.
The Western Cape Government continues to remain committed to building a capable state and developing the tools, structures and processes that support and improve Good Financial Governance. Good governance supports service delivery through ensuring that taxpayers’ money is spent in an effective, efficient and transparent manner. To further ensure policy certainty, the Western Cape Government also remains committed to a fiscal strategy that includes effective and efficient revenue and expenditure practices and accompanied by policies geared towards stimulating inclusive growth and fostering socio-economic development.
Dr Ivan Meyer
MEC of Finance
Western Cape Government