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29 June 2020 | Story Edward Kagiso Molefe and Dr Nico Keyser
Edward Kagiso Molefe, left, and Dr Nico Keyser.

The 2020 supplementary budget comes at a time when the ongoing COVID-19 pandemic is causing widespread disruption in the world’s economy and continues to affect it negatively. Even though the precise economic and social consequences of the pandemic still remain uncertain, there is prevalent agreement between economists and policy makers that it will leave the world overwrought with the uncertainties of the future. According to the International Monetary Fund, the world economy is expected to contract sharply by 5,2% this year, due to the huge lockdown to curtail the spread of the COVID-19 pandemic. The South African economy is also expected to contract by 7,2% in 2020, and according to the Minister of Finance, Tito Mboweni, this is the largest contraction in almost 90 years. Therefore, the South African government currently finds itself in an unfortunate and restricted fiscal position. Minister Mboweni does not have much room to move within his emergency budget and therefore calls for a pragmatic approach, the reprioritisation of expenditure, and the implementation of austerity measures within the public sector and its state-owned enterprises (SOE).

Zero-based budgeting
However, the country should be applauded for responding to this economic shock with a set of unmatched measures. The Minister further highlighted that, for the first time in history, all stakeholders – including the private sector, labour, communities, and the central bank – participated in responding to the storm that came without an early warning system. This has proven the validity of the long-sung gospel that by working together, we can do more. R500 billion of government’s COVID‐19 economic support package was directed straight at the problem. Against the background of ongoing measures to address the pandemic in South Africa, the Minister’s supplementary budget of 2020 stressed several key aspects:

The first burning issue addressed in the supplementary budget was the mounting debt-to-GDP ratio, which is envisaged to reach 80,5% in this fiscal year, as compared to a projection of 65,6% in February. Although the Minister has confirmed strategies to curtail the debt and widening deficit, no sign of stabilisation was presented. South Africa continues to experience contracting revenue and is relying extensively on loans from international sources, since savings is a non-starter. The Minister has also called for zero-based budgeting as one of the strategies in building a bridge to recover, and to close the mouth of the ‘hippopotamus’, which is eating our children’s inheritance. The zero-based budgeting is a big step in the right direction; it will make all role players in government understand the economic crisis we are facing. 

Prioritising infrastructure development
The other positive part of the supplementary budget was the prioritisation of infrastructure development. The South African government has already considered almost 177 infrastructure projects that will assist in boosting the economy and curtailing unemployment. The Sustainable Infrastructure Symposium, hosted by President Cyril Ramaphosa, announced 55 projects that are ready to be rolled out in due course. Government needs to further stimulate its partnership with the private sector to ensure more infrastructure development and job creation. Infrastructure development will also ensure jobs for the unskilled labour force, which makes up the largest part of our unemployment. 
In terms of job creation, an economic support package of R100 billion has been set aside for a multi-year, comprehensive response to our job emergency. Moreover, the President’s job creation and protection initiative will be rolled out over the medium term. This will include a repurposed public employment programme and a Presidential Youth Employment Intervention. The country is looking forward to further details regarding this presidential initiative, particularly with regard to the Presidential Youth Employment Intervention, as the youth is the future of this country.
Despite the envisaged revenue adjustment of R1,43 trillion to R1,12 trillion, the country is expected to continue spending. An additional R21 billion is allocated for COVID‐19‐related health-care spending. The supplementary budget has also proposed a R12,6 billion allocation to front-line services. An additional R11 billion is set aside towards improved water and sanitation, and an additional R6,1 billion for youth employment ensures that the most vulnerable are supported. However, the effectiveness of this allocation in the supplementary budget is sorely dependent on the ability of our government apparatus to spend the money.   

Opening the economy
The only worrying issue that the minister did not dwell on much, was the public sector wage bill, which still remains a challenge. According to the Minister, nearly half of the consolidated revenue will go towards the compensation of public service employees. The compensation of employees continues to put much pressure on service delivery and is pushing government in the direction of borrowing. On the other hand, the government of South Africa is still under pressure to implement the 2020 salary adjustments. However, the question still remains why the South African government is not considering the same process as the private sector or finding an alternative way of setting salaries at an appropriate, affordable, and fair level. This could save government money to focus on other areas that require financing, such as debt-service costs.

What remains evident and feasible is that South Africa should continue opening the economy to revive sectors hit hard by the great lockdown. Allowing trade to take place, doing business, and markets to function would provide the ultimate boost to a struggling economy. A reduced role by government could pave the way for the private sector to play a larger role in the economy. Moreover, structural reforms are required to create a favourable environment for growth and to restore South African fiscal credibility. 

Opinion article by Edward Kagiso Molefe, Lecturer: Department of Economics and Finance, and Dr Nico Keyser, Head of Department:  Economics and Finance

News Archive

UFS in forefront with ASGI-SA initiative
2006-05-10

At the conceptualisation colloquium and stakeholder dialogue were from the left Dr Aldo Stroebel (senior researcher at the UFS Research Development Directorate), Dr Edith Vries (acting Chief Executive Officer of the Independent Development Trust) and Prof Frans Swanepoel (Director: UFS Research Development Directorate).

UFS in forefront with ASGI-SA initiative

Two staff members of the University of the Free State (UFS) have been appointed as members of the advisory board of the national programme for the creation of small enterprises and jobs in the second economy.  This programme forms part of government’s Accelerated and Shared Growth Initiative of South Africa (ASGI-SA).

Prof Frans Swanepoel, Director of the UFS Research Development Directorate and Dr Aldo Stroebel, senior researcher at the UFS Research Development Directorate, are working with a team of experts from the UFS on a draft implementation strategy for the national programme.  Both Prof Swanepoel and Dr Stroebel are also associated to the UFS Centre for Sustainable Agriculture.
 
“The strategy is being developed in collaboration with institutions like the Independent Development Trust, the Department of Agriculture, the National Development Agency and the Department of Trade and Industry,” says Prof  Swanepoel.  

The other team members of the UFS are Prof Basie Wessels, Director of the  Mangaung-University Community Partnership Programme (MUCPP) and Mr  Benedict Mokoena, project manager at the MUCPP.

Dr Stroebel was also member of the organising committee of a conceptualisation colloquium and stakeholder dialogue that was recently presented in Johannesburg.  The conference was attended by more than 400 delegates from government departments, higher-education institutions and civil society, including Dr Kobus Laubscher, member of the UFS Council.

The conference was facilitated by Ms Vuyo Mahlati, previously from the WK Kellogg Foundation’s Africa programme and opened by Ms Thoko Didiza, Minister of Agriculture and Land Affairs.   

“The colloquium formed the basis of an induction workshop during which a group of 150 individuals (50 teams of three) from all nine provinces, identified to initiate the implementation of the national programme, was trained and orientated towards an induction manual in collaboration with Hand-in-Hand, an Indian counterpart,” says Prof Swanepoel.

Dr Stroebel and Mr Benedict Mokoena formed part of the team to conceptualise and finalise this training manual.  The induction training includes a case study of a successful community self-help partnership model, namely the MUCPP at the UFS. Prof Wessels and Mr Mokoena are both playing a leading role in the further development of subsequent training initiatives throughout South Africa, in partnership with the relevant provincial departments.

“The involvement of the UFS in the programme is a compliment to us.  It reflects the value government sees in the use of academics and experts in the management of the ASGI-SA initiative.  It is also an indication of one of the aims of the UFS to play a role in South Africa and Africa and in the transformation and change that is taking place in our country,” says Prof Swanepoel.  

Media release
Issued by: Lacea Loader
Media Representative
Tel:   (051) 401-2584
Cell:  083 645 2454
E-mail:  loaderl.stg@mail.uovs.ac.za
10 May 2006

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