The state is broken, and the country cannot move forward unless the state is fixed and bold, tough decisions are made.
This is the opinion of panellists who took part in the University of the Free State’s (UFS) second
Thought-Leader Webinar on Wednesday (23 September), which focused on the economy. This webinar is part of a series with the theme ‘Post-COVID-19, Post-Crisis.’
Dr Trevor Manuel, Chairperson: Old Mutual Limited and former minister of finance,
Ms Ann Bernstein, Executive Director: Centre for Development and Enterprise (CDE), and
Mr Mondli Makhanya, Editor-in-Chief: City Press, were the panellists. Dr Max du Preez, Editor: Vrye Weekblad, was the facilitator.
Country needs reform
Both Bernstein and Makhanya said that the state is broken, with Bernstein saying that the state is corrupt, and government decision-making bandwidth is much weaker than it used to be.
“The country is in a very serious situation and cannot do more of the same. We have to reflect honestly on what got us into this terrible situation, and then COVID exacerbated all our problems. What got us into it and what we have done previously has to change.”
“The country needs reform and it is my view that we will not move forward unless government’s credibility as a reformer is establish, and two and a half years of promises and very little action of any significance has undermined that credibility. I think you have to start from that,” says Bernstein.
According to her, bold choices must be made if we are to save what growth we have, if we are to expand growth, to expand more labour intensively.
“South Africa has all the potential to be a great African economy, with all sorts of strengths that we could build on. But we keep disappointing.”
Building a capable state
Makhanya said going forward, a good starting point is to fix and build a capable state. “The fundamental thing of the NDP (National Development Plan) – a plan that can take us forward – was the part about a capable state.”
“The state is very broken, and there is no way we can move forward while the state is as broken as it is now. This is what we saw during lockdown, when it was so easy for certain elements to steal from very essential funds that were meant to save lives. It was a classic example of a broken state.”
Another thing we absolutely need to do, is to have one message and one conversation.
“Tough decisions should be taken. It was frustrating again to find us as a country talking about where to find R10,5 billion to fund our ailing airline. Why is this a priority? We know what our priorities are. We know Eskom is a priority, we know food security is a priority, unemployment is a priority. Why is it necessary for us as a country to have this hectic debate about having a national airline?”
“Decisions need to be taken around the health of the fiscus, decisions around the public wage bill, around issues of freeing up enterprise, and about reforms. The decisions will take a long time to make and some of them will be unpopular, but they need to be taken,” says Makhanya.
According to him, President Cyril Ramaphosa needs to take these decisions. He also needs to tell himself that he would be happy to serve one term, and that he does not need friends to vote him back as leader of the ANC and as President of the country in 2024. President Ramaphosa needs to do things now, knowing that he will leave a legacy of having fixed a country, and importantly, having fixed the economy.
Announcement of hard lockdown saw the economy hurtling down a cliff
Dr Manuel said the hard lockdown announced at the end of March saw the economy hurtling down a cliff. This happened after three successive quarters of contraction. “We find ourselves at the base of this ravine, having tumbled down. How do we extricate the South African economy from where we are given the geography of where we are?”
According to him, the country has fewer options than we would like to imagine.
“I think the 51% contraction in the second quarter must introduce a sense of urgency and focus the mind. We are not alone. But we need to be rigorously honest about where we are. And we need to also ask ourselves tough questions of whether we have the wherewithal to reconstruct the economy,” says Dr Manuel.
According to him, the $3,4 billion borrowed from the IMF is unlikely to be sufficient, and there is a growing consensus that the full-on standby facility from the IMF will probably be needed.
He says while the RFID has no obvious conditions, it is important to pay attention to the fine print. “In the letter of intent, which was jointly signed by the Governor of the Reserve Bank and the Minister of Finance, we committed to take action to revoke the upward trajectory of the debt-to-GDP ratio, and also a commitment to remove the structural impediments to growth. So, it is quite important to understand what we committed to and against what we will be measured.”
“The IMF, in accepting those commitments, also warned about the urgency and the sequencing of the series of policy measures to prevent – in their words – the risk of social unrest. They also raised a series of red flags that are important in the context. The first is the growth of the public sector wage bill, something that is in the public domain and about which NEHAWU is threatening to strike. The second issue is the scale of transfers to state-owned enterprises. Thirdly, the risk of the curtailment of infrastructures.”
There has also been a flurry of policy writing and discussions. The National Treasury, Business for South Africa, and the ANC have written their own papers on reconstruction, growth, and building an inclusive economy. According to Dr Manuel, however, the question is how to get things done.
“The concern I have about these papers is that there is inadequate attention to public finance, which sets a frame for all economic development that needs to take place. And it is basically an equation – what you have to spend is the sum of what to tax and what you can borrow.”
What the country needs right now is clarity on the trade-offs, and not even the social partners paper deals with trade-off clearly enough. If you put money into an airline, it has to come from somewhere else. Your ability to govern and exercise choices is therefore severely limited.