The State of the Nation Address (SONA) by President Cyril Ramaphosa on the 11th of February 2021 which my colleague coined the State of Need Address, taking place upon a backdrop of an increasing unemployment rate, a widening fiscal deficit and a higher peak in public debt, inspired hope given the long and hard year 2020 was for many. The SONA wherein the President outlines priorities for the year, the state of the economy and achievements, amongst other points of discussion in his report, is always much anticipated. The President outlined four main priorities for 2021 of which I will briefly comment on the first two.
1. First, we must defeat the coronavirus pandemic.
We can all agree that we look forward to that day where we defeat the pandemic given it has taken lives, destroyed livelihoods and disrupted the way in which we relate with one another. I however hope we do not encounter another instance of wasteful expenditure and yes I am alluding to the AstraZeneca vaccine. It is possible that an order was made before the new variant of Covid was discovered but had adequate research been done before the vaccine arrived based on the new findings, government would have known that it is ineffective.
In 2020 the Auditor General, Kimi Makwetu reported that during the 3 year period under review, over R4 billion of government expenditure was fruitless and wasteful. If we are to accelerate economic recovery which was the President’s second priority, curbing wasteful expenditure is extremely pivotal. In as much as we need to use our existing capital effectively, there is a lot of capital spending required to grow the economy and attract investment therefore it is of utmost importance that we reduce wasteful expenditure and have stricter procurement processes through a proper systems control.
The Auditor General’s office should also be strengthened to facilitate action on audit recommendations and to pursue consequences for maladministration as stated by the public audit act (PAA). The President’s announcement of focusing on the appointment of properly qualified officials at a local level to ensure effective management and provision of services inspires confidence although we should bear in mind that performance management is one of the key areas of the new public management introduced post-apartheid so the plans are good but we need to see more implementation.
2. We must accelerate our economic recovery.
The president spoke about the Economic Reconstruction and Recovery Plan in which he mentioned the construction of smart cities and emphasised investment in infrastructure. In the presence of a friendly business environment, investment in civic amenities; including water, sewerage, electricity, internet and telephone infrastructure and also the ability to purchase land, growth is inevitable.
Cities bring together firms and entrepreneurs, connecting employers and employees thereby accelerating economic growth. This allows people to gain skills while moving from job to job making them productive. Cities also attract foreign investment with technological frontiers and international intellectual connections which result in economic growth. Ideas are multiplied through that urban interaction and we know ideas are what lead to technological progress which when applied accurately can boost the GDP.
Another key point was the President’s announcement that we will reduce the number of imports as many industries were under serious threat and his emphasis on increasing our manufacturing capacity will be a great advantage for South Africa in the African free trade continental area (AfCFTA). Commodities provide South Africa a stepping stone for economic growth but only if we use revenues for the structural transformation of the economy by moving capital and labor, from lower to higher productivity sectors. For example, platinum has 6 phases to the final product and only one phase which is extraction happens in South Africa, investment into more phases will create employment while introducing a new set of skills to the labor market. I am glad that we are surely moving from being mainly consumers to being producers.
On state owned enterprises (SOEs), the President said a centralised SOE model is being implemented this financial year, which will ensure a standardised governance, financial management and operational performance framework for all SOEs. I would like to suggest that we privatize failing SOEs like Eskom and South African Airways. In the short run, the unemployment rate will increase as these enterprises are bloated by unproductive labor, but then we would be able to redirect the billions spent in forever bailing out the failing SOEs into building new industries that are 4IR competitive and training the labor force to meet the market requirements of the future of work. It is unsustainable to keep bailing out SOEs as there will not be any real returns that will meet the investment made into the enterprises. The potential for debt financing these SOEs is of particular concern for me as young person as I am aware that debt is just delayed tax and it would be unfair for our generation to bear the burden of servicing those debts as there will be no economic future benefit for us.
Finally, while I commend the government for increasing the rollout of grants as a means of easing the burden of being unemployed and also high inequality, we should not fall into the trap of engaging only in consumption smoothing. As recommended by Black et al., welfare spending should focus on livelihood promotion for sustainable poverty reduction through promotion of higher living standards in the long term. How the future of the South African economy will look heavily depends on implementation now and that will require the consolidated national government, civil society and the private sector to put all hands on deck.
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Yours in Thoughtful Learning