BLSA CEO’s letter 22 February

POSTED ON: February 22, 2021 IN , , , , , by BLSA

By Busi Mavuso
The Budget this week is going to be a litmus test for government to assure South Africans that it is on top of its finances.

The budget this week is going to be important for everyone’s confidence that government is on top of its finances. Last year the clear message was that it was not: spending was far outpacing revenue, even before the Covid crisis, and we were not on the right path to turn that around. On the fiscal trajectory, a crisis was clearly ahead of us.

Finance Minister Tito Mboweni promised change, a slowing of the growth of spending. Now he will have an opportunity to demonstrate that government is sticking to that commitment. But in doing so, it is important that the minister demonstrate that government is also focused on the composition of spending – that it is not just about restraining it but spending it on the right things. We need to be investing in a state that can manage a growing economy and efficiently deliver public services to all South Africans. We should be cutting off wasteful spending that delivers poor value for money and focusing on investment in infrastructure and wider state capacity.

In part, Minister Mboweni has had some good luck. In the past few months, high commodity prices have led to a boom in mining exports and higher taxes collected. So there is a bit more money than expected in October. This gives a little breathing room but certainly doesn’t change the wider realities.

The problem the minister has is that there really is no sustainable solution to the problem other than economic growth. Only with growth can the revenue that government collects through taxes expand, enabling it to repair its balance sheet. So the other important objective for the minister is to talk about progress on the economic reform front. President Cyril Ramaphosa referred to the importance of economic reforms in his state-of-the-nation speech two weeks ago, particularly Operation Vulindlela consisting of a team from the presidency and National Treasury that is driving the economic reforms needed. The president said these covered electricity, water, telecommunications and transport, as well as reforms to the visa and immigration regime.

Minister Mboweni will need to pick up that baton and demonstrate how Treasury is focused on driving that reform agenda. It needs to include reforms to how infrastructure is procured. Investment in infrastructure has been rightly given a central role to play in kick starting the economy. The Economic Recovery Plan that was approved by cabinet last year talks of the need to amend the regulations for public procurement of infrastructure, including public-private partnerships, to improve the ease with which these can be created to allow the private sector to fund and build public infrastructure. However, we’ve heard little from Treasury about its plans to implement and drive these reforms.

Of course, the frustration is that reforms aren’t always optimal. The president’s reference to visa reform was followed days later by the release of the scarce skills list by the Department of Home Affairs. The list once again demonstrated that parts of government prefer micro tinkering instead of creating the environment in which business can thrive.

The list is out for public comment, but the whole concept of a scarce skills list is fundamentally flawed. Government cannot anticipate what skills business needs – no one can! Much has been made of the fact that the list includes chefs and caravan and camp site managers but says nothing about business executives capable of managing complex organisations. A competitive and innovative economy is constantly creating new competencies. Bureaucrats cannot predict what skills should be needed when – this kind of central planning is misguided. It also creates incentive for immigrants to retrain or manipulate their CVs to fit some or other arbitrary category.

Of course, local skills should be prioritised. Companies should also be incentivised to invest in developing local skills rather than importing them. But the lack of access to skills prevents companies from growing and employing more people anyway. By strangling access to international skills, you can easily damage local employment more than help it.

There are better ways. Many countries use points-based systems to define eligible employees, but my view is that immigration systems should be demand based: they should start with the companies’ own hiring decisions. Government can set minimum skill levels and impose costs on employers, including levies to fund domestic training. Let economics do the work – companies won’t hire foreigners if there are cheaper alternatives. But there is no way bureaucrats huddled in a room coming up with job titles is going to solve the problem.

Unfortunately, government’s approach to this shows a real lack of imagination. It has amounted only to partial reform of what skills appear on a list rather than a reform to the entire approach of using a list in the first place.

The test of economic reforms must be whether they actually change things. Do they make it easier and cheaper to do business? That must be the real test. And the visa example shows that “reforms” can fail that test. I hope the minister can present real reforms that will pass it, while also restoring our confidence that government is on top of its finances.

Some political players are resorting to conspiracy theories to pin the blame for the poor investment sentiment towards South Africa on investors, I noted in my Business Report column. Let’s be clear: it isn’t the investors or their sentiment that’s at fault, but the root cause of this sentiment is poor policymaking and policy uncertainty, widespread corruption with little visible accountability, the distressed nature of our state-owned enterprises and rising unemployment – among a wide range of other issues.

President Cyril Ramaphosa’s state-of-the-nation address was a step in the right direction with its focus on overcoming Covid-19, economic recovery, accelerating reforms and its fight against corruption, I wrote in my Business Day column. As business we stand ready to help with the rollout of vaccines and the infrastructure projects that will be central to rebuilding the economy.

This is a weekly newsletter from BLSA CEO Busi Mavuso.

BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. In 2017, BLSA signed a contract with South Africa, committing business to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.

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