tag:theconversation.com,2011:/global/topics/government-wage-bill-17274/articlesgovernment wage bill – The Conversation2016-02-24T17:12:07Ztag:theconversation.com,2011:article/553442016-02-24T17:12:07Z2016-02-24T17:12:07ZSouth Africa budget 2016: nifty political footwork may not be enough<figure><img src="https://images.theconversation.com/files/112772/original/image-20160224-16429-1yf4cgf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">An upbeat Pravin Gordhan, South Africa's finance minister (left) arrives to deliver his 2016 budget address to parliament in Cape Town.
</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p>One of the most politically important steps taken by Pravin Gordhan, South Africa’s finance minister, in his <a href="http://www.treasury.gov.za/documents/national%20budget/2016/speech/speech.pdf">2016 Budget</a> is also one of the most economically significant: cutting expenditure on the overcompensated, inefficient and <a href="https://theconversation.com/civil-service-pay-south-africa-has-some-harsh-choices-to-make-53389">bloated public service</a>.</p>
<p>The government has undertaken to reduce its expenditure ceiling by R10 billion in 2017/18 and R15 billion in 2018/19. The bulk of these savings will be achieved by reducing expenditure on the <a href="https://theconversation.com/civil-service-pay-south-africa-has-some-harsh-choices-to-make-53389">exorbitant salaries</a> of the public service by R7.2 billion. </p>
<p>The number of employees in the public service will also be reduced over the next three years. As the budget review notes:</p>
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<p>effective from 1 April 2016, appointments to non-critical vacant posts will be blocked on government’s payroll system.</p>
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<p>From an economic point of view, this move is critically important. But it is sure to prove extremely unpopular with the governing <a href="http://www.anc.org.za/">ANC’s</a> powerful public sector <a href="http://www.cosatu.org.za/">trade union allies</a>.</p>
<h2>Social grants remain intact</h2>
<p>The fact that government has avoided cuts to social assistance grants is a politically shrewd move. Gordhan noted early on in his speech that one of the things the government does well is “paying social grants.” The budget includes an overall expenditure increase on social assistance from R129 billion this year to R165 billion by 2018/19. </p>
<p>The old age, disability and care dependency grants will rise by R80 in April 2016 and by a further R10 in October. Child support grant payments will increase by R20 and the foster care grant by R30 in April.</p>
<p>With the local <a href="http://ewn.co.za/2016/01/09/Zuma-says-2016-local-elections-will-be-the-toughest">government elections</a> coming up, the fact that the government is able to maintain social assistance spending amid the move to general expenditure reductions is a noteworthy political achievement.</p>
<p>Along the same lines, the fact that the budget speech avoided any mention of the politically dreaded “p-word” (privatisation), as well as an increase in the Value Added Tax (VAT), is sure to sit well with the ANC’s labour allies. In a pre-budget <a href="http://www.fin24.com/Budget/cosatu-asks-gordhan-to-ban-e-tolls-keep-vat-steady-20160223">statement</a> released by the Congress of South African Trade Unions detailing its budget expectations, the labour federation implored the minister not to increase VAT and to</p>
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<p>forget about privatisation. </p>
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<p>In Gordhan’s speech, they got what they wanted.</p>
<p>But raising revenue through moderate tax increases possibly reflects a desire to postpone the introduction of more stringent rises until after the upcoming elections.</p>
<h2>Long on words, short on action</h2>
<p>Overall, Gordhan’s speech will probably prove too vague to provide ratings agencies and investors with enough confidence to stem the flow of negative sentiment around the South African economy. Ironically, despite his call that </p>
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<p>above all what we need is action, not words</p>
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<p>the minister’s speech fell short of detailing how the government’s moderately ambitious expenditure cuts and revenue targets will be achieved. Avoiding talk of privatisation, greater spending cuts and tax increases (including on VAT) is sure to placate the ANC’s political allies ahead of the local government <a href="http://www.elections.org.za/content/Elections/2016-Municipal-Elections/Home/">elections</a>. But it’s doubtful whether the speech included enough concrete steps to turn around the prevailing negative sentiment about the South African economy.</p><img src="https://counter.theconversation.com/content/55344/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Leon Schreiber is a volunteer for the DA Abroad.</span></em></p>Cutting the bloated public service wage bill, as the finance minister is doing, is critically important economically. But it is sure to be unpopular with the governing ANC’s powerful labour allies.Leon Schreiber, Research Specialist, Innovations for Successful Societies, Princeton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/544122016-02-09T13:40:34Z2016-02-09T13:40:34ZState of the Nation address: what Zuma needs to tell South Africa<figure><img src="https://images.theconversation.com/files/110786/original/image-20160209-12616-1vp3beb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Much is expected of South African President Jacob Zuma when he delivers his 2016 State of the Nation Address.</span> <span class="attribution"><span class="source">Reuters/Sumaya Hisham</span></span></figcaption></figure><p><em>South Africa’s President Jacob Zuma will give his 2016 State of the Nation Address on February 11 to outline key government business for the year ahead. The event will be keenly watched to establish what the president and the governing African National Congress consider to be the most important challenges facing the country, and how they plan to tackle them. Politics and society editor Thabo Leshilo asked three political scientists what to expect.</em></p>
<p><strong>What are the most important issues the president should be addressing?</strong></p>
<p><em>Andre Duvenhage</em>: The four most important issues are the economy and economic growth, social cohesion, land reform and preparing the terrain for the 2016 local government elections.</p>
<p>Economic growth is necessary to prevent international rating agencies downgrading South Africa’s sovereign rating to <a href="http://www.fin24.com/Economy/sa-heading-for-junk-status-unless-gdp-grows-20151208">junk status</a>, to create jobs and to attain all the government’s big strategic goals. </p>
<p>Social cohesion is directly related to the debate about <a href="http://www.timeslive.co.za/thetimes/2016/01/11/Number-of-complaints-to-HRC-suggest-South-Africa-is-becoming-more-racist">racism</a>. It also seems to be an important part of the ANC’s election campaign. It is critical for the ANC to perform well in the upcoming <a href="http://mg.co.za/article/2014-05-11-the-partys-over-anc-sees-decline-in-support">municipal election</a>. More radical social and economic transformation, with emphasis on <a href="http://www.biznews.com/undictated/2015/02/24/brilliant-analysis-zimbabwean-ruin-looms-large-as-sa-land-reform-kicks-into-gear/">land reform</a>, will be most critical.</p>
<p><em>Leon Schreiber</em>: There is no doubt that the general loss of faith in the economy is the most important issue Zuma must address. While global economic conditions are indeed unfavourable, they are no excuse for the sickly state of the South African economy.</p>
<p>A number of developments point to the government’s general mismanagement of the economy, as well as some own goals. These include: the firing of his finance minister, now known as <a href="https://theconversation.com/why-zumas-actions-point-to-shambolic-management-of-south-africas-economy-52174">#Nenegate</a>, the plummeting rand, rising food prices due to government’s failure to come to the aid of drought-stricken farmers, policy flux and soaring government debt.</p>
<p>All have put the country firmly on the path to recession and there is a strong possibility that South Africa’s sovereign rating will be downgraded to junk status. He needs to acknowledge these problems and announce concrete steps to begin to fix the ailing economy.</p>
<p>Related to this is the fact that government’s wage bill simply has to be trimmed. <a href="https://theconversation.com/civil-service-pay-south-africa-has-some-harsh-choices-to-make-53389">Civil servants’</a> salaries and benefits consume 35.5% of government’s total budget. This contributed to <a href="http://www.saiia.org.za/opinion-analysis/2015-budget-too-little-too-late-for-south-africas-public-debt">public debt ballooning</a> by 70% between 2009 and 2014 – from 26% of GDP to 44% by 2014. </p>
<p>The return on this investment has been almost non-existent as the civil service remains <a href="http://www.unisa.ac.za/news/index.php/2014/01/sa-labour-productivity-at-its-lowest-in-46-years/">unproductive</a> and service delivery <a href="https://theconversation.com/protests-soar-amid-unmet-expectations-in-south-africa-42013">protests</a> remain a fact of daily life. </p>
<p>And instead of reining in this expenditure, the public service was awarded a <a href="http://www.treasury.gov.za/documents/national%20budget/2015/ene/FullENE.pdf">10.1% salary increase</a> for 2015/2016, while an additional 300 000 civil servants were employed between 2008 and 2015, bringing the total to 1.6 million. </p>
<p>President Zuma must use the speech to signal his willingness to cut this inefficient spending.</p>
<p>It is also time he started to show leadership on the <a href="https://theconversation.com/africa/topics/university-fees">#FeesMustFall</a> matter. The speech provides him with a good opportunity to demonstrate to the country that he has listened to students’ concerns about unaffordable education, and that his administration is committed to finding sustainable solutions. Continuing the current dismissive approach to the issue would add further fuel to the protest fire.</p>
<p><em>Bheki Mngomezulu</em>: The state of the <a href="https://theconversation.com/south-africa-is-on-a-cliff-edge-just-as-it-was-in-1985-53094">country’s economy</a> has to be the top priority. While economic development is not a panacea for all the problems a country faces, South Africa cannot prosper under the current weak economic conditions. </p>
<p>The reasons for the current crisis, as well as possible solutions, will have to be addressed. This would have two positive effects. First, it would revive hope that the government has plans in place to remedy the situation. Secondly, it would give potential investors confidence. This would dispel the wrong perception that the president does not care about the country’s economy and that he makes reckless decisions.</p>
<p>The president also needs to address the situation at higher education institutions. The call for free education by students and their dissatisfaction with the way in which government has responded to their demands should feature significantly. This is important because, to meet the demand, either the country’s budget needs to be adjusted or taxes must be increased. Either way South Africans would have to dig deeper into their pockets. </p>
<p>And the president needs to address violence both within and between political parties. This is of serious concern. The issue is particularly important because of the forthcoming local elections. Unless political violence is curtailed now it will be difficult to contain - let alone end - around election time.</p>
<p><strong>Does the President have what it takes to deliver on these challenges?</strong></p>
<p><em>Andre Duvenhage</em>: President Zuma is playing the survival game and is not going to take bold decisions. Survival is about the succession battle within the ANC. He will make a lot of tactical moves but won’t take big strategic decisions to take the country forward during a time of crisis.</p>
<p><em>Leon Schreiber</em>: Unfortunately, it is very unlikely that Zuma will take bold action. He has generally proven to be a weak and compromised leader, preferring to avoid tough decisions as much as possible. Concrete actions on the economy and a commitment to cutting the wasteful civil service budget would be politically unpopular with the ANC and its alliance partners, while the pressures of the upcoming local government elections make it extremely unlikely that the president will take these necessary steps. Instead, South Africans can expect more of the same from Zuma: a poorly-delivered and uninspiring speech filled with selective anecdotes touting government’s supposed successes while denying the scale of the socio-economic crisis facing the country. </p>
<p><em>Bheki Mngomezulu</em>: The President will in all likelihood be very cautious. And with the local elections around the corner, the President would not want to give opposition political parties ammunition to ambush the ruling party. </p>
<p>While it is true that Zuma has over the years proved he has the ability to weather the storms, and laugh things off, this time around there is a lot at stake. Previous developments and an anticipation of things to come in the local election and the ANC elective conference in 2017 will influence how he articulates certain government positions. </p>
<p>Taking a bold decision calls for courage. It is also contingent on a confluence of factors. For example, he has to be certain that he has enough support so that even if a decision is challenged there would be people to support it. At the moment he has no such guarantee.</p><img src="https://counter.theconversation.com/content/54412/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Leon Schreiber is a volunteer for the DA Abroad.</span></em></p><p class="fine-print"><em><span>Andre Duvenhage and Bheki Mngomezulu do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The general loss of faith in the economy is the most important issue President Zuma must address. More radical social and economic transformation, with emphasis on land reform will be most critical.Andre Duvenhage, Research Director, North-West UniversityBheki Mngomezulu, Senior Lecturer and Academic Leader, International & Public Affairs, University of KwaZulu-NatalLeon Schreiber, Research Specialist, Innovations for Successful Societies, Princeton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/413812015-05-26T04:12:14Z2015-05-26T04:12:14ZAs the risk of sell-off by foreigners deepens, South Africa faces some tough decisions<figure><img src="https://images.theconversation.com/files/82853/original/image-20150525-32548-1q5s02t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">State-owned companies such as the power utility Eskom are a drain on the economy </span> <span class="attribution"><span class="source">REUTERS/Mike Hutchings </span></span></figcaption></figure><p>South Africa’s economy has become increasingly vulnerable to the sale in large numbers of government bonds and other financial investments by foreign investors whose ownership of these investments has grown substantially since 2009. Should the sale happen, the country could face a serious crunch. It faces tough decisions if it wants to avoid this scenario.</p>
<p>The South African Reserve Bank’s <a href="https://www.resbank.co.za/MonetaryPolicy/Monetary%20Policy%20Committee/Pages/default.aspx">Monetary Policy Committee</a> commented on this <a href="https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/6729/MPC%20statement%20May%202015.pdf">vulnerability </a> last year when announcing its decision on interest rates. </p>
<p>The MPC warned that past patterns suggested some more weakening of the rand and the rise in the cost of government debt as the start of increases in US interest rates became more certain. US investors <a href="http://www.imf.org/external/pubs/ft/scr/2014/cr14338.pdf">account for half </a> of all investments by foreigners in South Africa’s bond and equity markets, linking these markets to US financial conditions. </p>
<p>After a decade of narrowing fiscal deficits, South Africa’s finances have worsened since 2009 as government <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%207.pdf">borrowed heavily</a> to support to the economy. The growing debt pile exposes the country to the risk of external shocks, such a sell-off by foreign bond holders.</p>
<h2>Rise in civil servants’ pay fuels deficit</h2>
<p>But administering the bitter medicine South Africa needs to place its finances on a sustainable footing is proving difficult for the country’s political leaders. This is evident in the <a href="http://www.bloomberg.com/news/articles/2015-05-22/south-african-government-wage-deal-to-cost-extra-66-billion-rand">wage deal</a> government struck with public sector unions last year. </p>
<p>The increase was more than government can afford, with National Treasury warning that government’s ability to sustain high levels of investment in infrastructure depended largely on moderating <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%201.pdf">consumption expenditure</a>, the largest share of which is the public-sector wage bill.</p>
<p>Before the latest wage deal unit labour costs had increased over the past decade by more than 80% after adjustments for the effects of inflation. By <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%203.pdf">government’s own admission</a> these increases have been not been accompanied by improvements in services to the citizenry. Most government workers are already in the top 30% of <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%203.pdf">highest paid workers</a> in South Africa. </p>
<p>Civil service salaries now account for 40% of the budget (excluding interest payments). This growth in civil service pay accounts for a significant portion of the <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%201.pdf">structural fiscal deficit</a> - the persistent gap between what government spends and what it collects in revenue.</p>
<h2>Debt owed to the rest of the world</h2>
<p>South Africa’s increasing vulnerability stems from the growing debt the country owes to the rest of the world and the rising share of government bonds issued on the domestic market that are now <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%207.pdf">owned by foreigners</a>.</p>
<p>Vulnerability is measured by computing gross debt owed by government, state-owned companies and the private sector to the rest of the world as a percentage of the size of the South African economy. </p>
<p>On this basis, <a href="https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/6649/02Quarterly%20Economic%20Review.pdf">gross external debt</a> has risen from 29.3% of the economy in 2009 when the global financial crisis hit to 40% in 2014.</p>
<p>The other measure of vulnerability is the share of government bonds issued in the local currency, rands, that are now owned by foreign investors. Foreign ownership of these bonds has increased from 13.8% to 36% of the total <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%207.pdf">bonds issued by government</a> by the end of 2014.</p>
<h2>Double-edged sword of foreigners owning more government bonds</h2>
<p>Government borrows money both from domestic investors in rands and from foreign investors mostly in US dollars or Euros. Foreign investors can also buy, as they have done increasingly in recent years, government bonds denominated in rands.</p>
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<img alt="" src="https://images.theconversation.com/files/82856/original/image-20150525-32558-6tfwwe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82856/original/image-20150525-32558-6tfwwe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=373&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82856/original/image-20150525-32558-6tfwwe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=373&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82856/original/image-20150525-32558-6tfwwe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=373&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82856/original/image-20150525-32558-6tfwwe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=468&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82856/original/image-20150525-32558-6tfwwe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=468&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82856/original/image-20150525-32558-6tfwwe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=468&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Federal Reserve Chair Janet Yellen has already signalled the first rise in US interest rate later this year.</span>
<span class="attribution"><span class="source">REUTERS/Carlos Barria</span></span>
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<p>While the purchase of domestic bonds has helped keep government’s cost of borrowing low, there is the real risk that these inflows will reverse. This is expected to be triggered by the <a href="http://www.bloomberg.com/news/articles/2015-04-19/world-braces-for-taper-tantrum-ii-even-as-yellen-soothes-nerves">withdrawal</a> of the financial support the US Federal Reserve has been injecting into the US financial markets since 2009. </p>
<p>In response to the global financial crisis and the subsequent economic recession, the US central bank <a href="http://www.economist.com/blogs/economist-explains/2015/03/economist-explains-5">injected money into the US financial system </a>by buying assets held by banks and other investors. This <a href="https://theconversation.com/we-are-all-spillovers-now-g20-finance-meeting-explained-23301">drove interest rates low</a> in the US, sending investors elsewhere in the world, including South Africa, in search of higher interest rates. </p>
<p>A sudden and sharp reversal of these flows into South Africa could lead to the further weakening of the rand, which has already declined by 43% in the last three years. This in turn would mean an increase in the rand value of the debt South Africa owes to the rest of the world. </p>
<h2>Downgrades pose an additional threat</h2>
<p>South Africa’s fate is increasingly in the hands of the credit rating agencies. The country has faced a constant threat of <a href="http://www.bloomberg.com/news/articles/2015-03-24/fitch-says-south-africa-rating-will-stay-above-junk-if-it-cuts">downgrading</a>. This is likely to raise the cost of future borrowing by government.</p>
<h2>Some solutions</h2>
<p>South Africa has one of the lowest savings rates among developing economies, a negative household savings rate of -0.8% compared to India’s 25% and China’s 28%. </p>
<p>A short-term measure to counter South Africa’s vulnerability would be to increase tax incentives for long-term savings in the form of <a href="http://www.bloomberg.com/news/articles/2010-11-23/households-buy-most-tax-exempt-debt-since-2002-india-credit">infrastructure bonds</a>. </p>
<p>South Africa should also accumulate adequate foreign exchange reserves (foreign financial assets and gold held by a reserve bank) to soften the impact of a sale by foreign investors of South African assets (capital flight).</p>
<p>Government could also restructure its debt portfolio by moving more of its borrowings from short-term instruments (repayment due within five years) to those of a long-term duration (repayment due after five years or more). </p>
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<img alt="" src="https://images.theconversation.com/files/82855/original/image-20150525-32567-12qlj69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82855/original/image-20150525-32567-12qlj69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82855/original/image-20150525-32567-12qlj69.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82855/original/image-20150525-32567-12qlj69.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82855/original/image-20150525-32567-12qlj69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82855/original/image-20150525-32567-12qlj69.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82855/original/image-20150525-32567-12qlj69.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>Spreading out the <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%207.pdf">debt repayment profile</a> helps government avoid the risk of not being able to borrow enough money to repay debt.</p>
<p>Alternatively government may be forced to pay very high rates of interest when borrowing money it needs to repay old debt. Governments typically borrow to repay debt when its term comes to an end.</p>
<h2>A symptom of deeper economic malaise</h2>
<p>South Africa’s increasing vulnerability is largely a symptom of its <a href="https://www.moodys.com/research/Moodys-downgrades-South-Africa-to-Baa2-outlook-changed-to-stable--PR_312007">deteriorating economic performance</a>. Its growth rate is <a href="http://www.cfr.org/south-africa/south-africas-economic-fault-lines/p30727">among the lowest</a> in the class of developing countries. </p>
<p>Its <a href="http://www.bloomberg.com/news/articles/2015-05-26/south-africa-gdp-growth-slows-to-1-3-as-manufacturing-slumps">low growth</a> is attributed to the slowdown among its major <a href="http://www.treasury.gov.za/documents/national%20budget/2013/review/chapter%202.pdf">traditional trading partners </a> which has reduced demand for South African exports. </p>
<p>Reduced exports together with imports which have continued to grow despite slower domestic growth have resulted in a <a href="http://www.bloomberg.com/news/articles/2015-03-15/weak-rand-cheap-oil-fall-short-on-south-african-current-account">yawning trade deficit</a> paving the way for the depreciation of the rand.</p>
<p>A freely traded currency, as the rand is, acts as a <a href="http://www.bankofcanada.ca/wp-content/uploads/2010/01/sp00-7.pdf">shock-absorber</a>. When the value of the rand declines it makes it possible for South African firms for example to earn more rands for each unit of goods they sell overseas. This should enable them to hold their own against their global competitors. </p>
<p>Exports under this scenario should increase, enabling the country to have more inflows of foreign currency which should eventually restore the equilibrium exchange rates.</p>
<h2>Domestic factors are holding back growth</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/82854/original/image-20150525-32551-1mlbpno.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82854/original/image-20150525-32551-1mlbpno.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82854/original/image-20150525-32551-1mlbpno.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82854/original/image-20150525-32551-1mlbpno.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82854/original/image-20150525-32551-1mlbpno.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82854/original/image-20150525-32551-1mlbpno.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82854/original/image-20150525-32551-1mlbpno.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Militant and frequent strikes drain investor confidence.</span>
<span class="attribution"><span class="source">REUTERS/Skyler Reid</span></span>
</figcaption>
</figure>
<p>South Africa has not been able to take advantage of the weakening rand or <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%202.pdf">other impediments</a> to economic activity. These include the militancy and frequency of <a href="http://www.gsbbusinessreview.gsb.uct.ac.za/breaking-the-deadlock-tackling-the-south-african-labour-market-crisis/">labour strikes</a> and the <a href="http://www.stanlib.com/EconomicFocus/Pages/SAglobalcompetitivenessrankingdeclinedoneplaceto53rdoutof148counenessReport.aspx">inflexibility of labour laws</a> which are deterring investment.</p>
<p>The uncertainty in the supply and increased prices of <a href="http://www.ft.com/intl/cms/s/0/e853a048-bce7-11e4-9902-00144feab7de.html#axzz3alVJ4Lua">electricity</a> in the short to medium term also weigh against investment. </p>
<p>So government should implement <a href="http://www.econrsa.org/system/files/publications/policy_papers/pp14.pdf">long-term measures </a>to address issues that hinder faster economic growth. These include promoting sectors of the economy that have the potential to <a href="http://www.bdlive.co.za/economy/2015/05/26/sa-unemployment-rate-increases-slightly-in-first-quarter">hire more workers</a> and those technologies that make possible the use of more workers.</p>
<h2>State companies a drain on economy</h2>
<p>Government should also focus on measures that can reduce <a href="http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/02/03/000333037_20140203120030/Rendered/PDF/843690NWP0P13100SAEU50for0web0final.pdf">barriers to entry</a> for new firms. Such measures would over time help increase the competitiveness of the South African economy when measured against its global peers.</p>
<p>Government should also consider selling to the private sector parts or all of the state-owned entities that are currently a <a href="http://www.treasury.gov.za/documents/national%20budget/2015/review/chapter%208.pdf">drain on its resources</a>. This would help government raise cash in the short-run. It can also improve efficiency and sustainability in the long run.</p>
<p>Attracting foreign investment would be another way of financing the investment needs of the country. <a href="http://lexicon.ft.com/Term?term=foreign-direct-investment">Foreign direct investment</a> (FDI) flows in recent years are nowhere close to bridge the saving investment gap facing the country. This is what has forced further borrowing. Bit it’s also important that FDI isn’t viewed as a panacea to resolve all the country’s investment needs.</p><img src="https://counter.theconversation.com/content/41381/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Uma Kollamparambil does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>After a decade of narrowing fiscal deficits, South Africa has borrowed heavily since 2009 to support the economy. The debt pile exposes the country to the risk of a sell-off by foreign bond holdersUma Kollamparambil, Professor of Economics, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.