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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

Power shortage: Measures to be implemented immediately
2008-01-31

1. In order to avoid the further implementation of power sharing, electricity companies countrywide are requiring, in addition to measures announced for domestic consumers, that major power consumers save a certain percentage of power.

2. Die UFS is one of the 100 largest clients of Centlec, the local electricity distribution company. During a meeting last Thursday evening with the 100 largest clients, it was indicated that the UFS had to deliver a saving of 10%. The details are as follows:

  • Provision is made to a certain extent for an increase in electricity consumption. The calculation is done as follows: maximum consumption for 2007+6%-10%.
  • This entails a saving during peak times, as well as a saving regarding the total number of units consumed.
  • The saving is calculated on a monthly basis.
  • Saving measures must be implemented immediately (from 7 March). If electricity-saving goals are not attained, power sharing will be resumed from 10 March.

3. The UFS has been controlling its peak demand by means of an energy control system for many years. The geysers of residences and certain central air-conditioning systems were linked to the control system in order to shift energy consumption to non-peak times.

4. In order to attain the goal of 10%, it is necessary to implement further energy control systems and additional measures – which requires time and money. Attention will have to be given, inter alia, to the following:

  • The 1000+ portable air-conditioning units on the campus (huge power guzzlers) must be connected to energy control appliances and systems.
  • All the filament bulbs must be replaced.

7. The UFS will be conducting high-level talks with Centlec later this week with a view to:

  • conveying the unique needs of the UFS in detail;
  • stating the impact of building and refurbishing projects that are currently in the implementation and planning phases;
  • requesting understanding for the fact that the UFS does not have the capacity to immediately deliver the 10% saving.
     

It is evident from discussions thus far that Centlec is sympathetic and wants to help, but also that immediate action and co-operation are expected from the UFS. During the meeting, the UFS must also report back on steps already taken (since 7 March) in this regard.

8. The installation of the emergency power units for the large lecture-hall complexes and a few other critical areas, which has already been approved, is continuing. About R3m is being spent on this. Additional emergency power needs reported to Physical Resources via line managers are currently being investigated with a view to obtaining a cost estimate and subsequently determining priorities in consultation with line managers.

It is recommended that:

a) All line managers, staff members and students be requested to give their full co-operation with regard to saving electricity in every possible way, and that current operational arrangements be amended if possible with a view to promoting power saving. 

Staff, students and other users of campus facilities be requested to see to it that lights and air conditioning (individual units) in unused areas are switched off.

b) The following measures drawn up in co-operation with electrical engineers come into effect immediately:

Arrangements to be made by Physical Resources staff:
(Additional capacity to be able to complete everything within a reasonable period of time will have to be found and funded. This aspect will be taken up with the line managers concerned):

  • The geysers of all office buildings will be switched off at the distribution board. Staff are requested to use a kettle for washing dishes, and are warned not to switch appliances on again themselves.
  • In all office buildings where 12V and 15W downlighters and uplighters remain switched on for decorative purposes and do not serve as primary illumination, the light switches will be disconnected.
  • Lighting in cloakrooms will be checked, and illumination levels will be reduced if possible.
  • All light armatures must be replaced by CFL types.
  • All lights on the grounds will be checked to ensure minimum power consumption.
  • The upper limit of all central cooling systems currently regulated via the energy control system must be set to 24 degrees.

Arrangements to be made by Kovsie Sport:

  • Sport activities requiring sports field illumination must be scheduled after 20:00 in the evening (the lights may not be on between 18:00 and 20:00.)
  • Sports field illumination must be managed so that such lights are not switched on unnecessarily.
     

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