South Africa faces difficult times, but disaster is not inevitable

South Africa’s Finance Minister, Pravin Gordhan, left, chats with Lesetja Kganyago, Governor of the Reserve Bank of South Africa. Reuters/Siphiwe Sibeko

Finance minister Pravin Gordhan’s budget speech has generally been well received. Nevertheless, many people still fear that South Africa is on the verge of disaster. They cite recent events such as the firing of Nhlanhla Nene as finance minister, President Jacob Zuma’s admissions about Nkandla and demonstrations on university campuses.

Many South Africans worry that the country is about to be condemned to “junk” status by the ratings agencies. There are also concerns that the economy is about to fall into a recession. They also feel that the government is corrupt and ineffective, and the rainbow nation is breaking apart.

The situation is also being exacerbated by a terrible drought, the most difficult domestic economic situation since the advent of democracy and the most unpredictable international circumstances in many years.

Are these pessimists correct?

The following five points should be considered in answering this question.

Robust institutions

First, the current situation must be kept in perspective. Despite all its problems, South Africa today is a much better place than it was in 1990. The country is more peaceful and people’s rights are better respected and protected.

More people have access to water, social grants, electricity and education. South Africa, which was once an isolated country, is now engaged economically, culturally and socially with the continent and the world.

Recent developments have demonstrated the robustness of the country’s constitution and key institutions such as the judiciary, the Reserve Bank and the Public Protector.

Nevertheless, South Africa is not doing as well as it could or should. The country still faces massive unemployment, profound inequalities and poverty, racial prejudice, growing corruption and exclusionary business practices. The government has stated in the state of the nation address and budget speech that it intends dealing with these challenges. However, it is unclear if it fully appreciates that this requires limiting government plans to what it can both afford and implement.

Energy and economic priorities

The sad story of Medupi , the new mega-power station under construction, shows the risks that arise when government over-estimates its capacity to implement. Medupi is already significantly more expensive than planned. Even though not yet operational it is contributing to the ever rising cost of electricity – and the country’s energy problems are not yet solved.

If the government had chosen to build a smaller and technically less ambitious facility, it would be operational by now. Also, power utility Eskom would have been more financially secure and would have been better placed to provide electricity to all South Africans.

Second, the constrained fiscal environment inevitably requires the government to establish policy priorities. In his state of the nation address the President enumerated many plans. But he failed to either weave them into a coherent strategy or to prioritise them.

The budget gave some indications. But since many of the cost cutting actions will only be implemented over three years it is hard to be sure exactly what will be prioritised over the next 12 months.

In one sense this is understandable - this is an election year with upcoming local government elections. The projections for the domestic and global economies are both uncertain and pessimistic. But delay risks exacerbating the situation and making future policy choices harder and their consequences more painful.

For example, the government has acknowledged that it has an obligation to respect and promote the right of access to university education for all who qualify. It has taken actions to meet this obligation.

Government has also recognised that it must provide quality education and educational facilities to school learners.

Given the current fiscal environment and skills shortage, it is unlikely that it has the financial, human and institutional resources to meet all these equally valid demands. But it creates uncertainty by not explaining how it plans to balance competing obligations and address the inevitable consequences of its policy choices.

Inclusive growth and global factors

Third, the government is to be applauded for underscoring the importance of inclusive growth and for stressing that this requires it to engage with all stakeholders in its economic planning. Government and business have made an impressive start. The fruits of their interactions were evident in both the state of the nation address and the budget.

Unfortunately, consultations with other stakeholders — labour and civil society - are less advanced. Given that business is not a disinterested participant, its favoured initial position is problematic.

Fourth, the government’s contention that current economic challenges are partially caused by global factors that are outside its control is undeniable. But South Africans are not mere hostages of fortune. Government can mitigate the risks created by the international economy by doing more to support South African businesses and promote their exports of goods and services.

Two examples: by simplifying visa procedures and by encouraging the country’s embassies to get involved, government can help universities increase their numbers of foreign students, particularly from across the continent. These students pay full fees, thereby contributing to the financial strength of universities.

In addition, the government could improve the capacity of existing institutions such as the Export Credit Insurance Corporation to help small and medium sized enterprises open new export markets and attract new investors.

Fifth, last year the international community launched the Sustainable Development Goals and concluded a climate change agreement. South Africa was an active participant in both, yet neither was mentioned in the state of the nation address or budget speech.

This is surprising because these initiatives are relevant to the government’s goals of promoting inclusive sustainable growth, employment and the end of inequality and poverty. This would have been a good time to inform the country about what it is doing to meet its commitments.

Based on the above it is clear that the pessimists are not yet correct. While the country faces difficult times, disaster is not inevitable. South Africans need to act together. And above all, the government has to lead with a sense of transparency, realism and commitment. If this happens, the country can avoid disaster and slowly place itself onto a path towards sustainable and inclusive growth.