South Africans need to brace themselves for a challenging financial period due to the adverse effects of the COVID-19 pandemic.
This was the sentiment shared in the second and last of a pair of pre- and post-budget debates hosted by the University of Pretoria’s Alumni Relations Office, which saw a panel of experts evaluate the condition of South Africa’s economy. The two debates were part of an ongoing series called the LeadUP Alumni Thought Leadership discussions.
This discussion focused on the Special Adjustment Budget (the “emergency COVID-19 relief budget”) presented to Parliament by Minister of Finance Tito Mboweni on Wednesday 24 June.
Moderating the conversation was Dr Morris Mthombeni, Interim Dean Elect of UP’s Gordon Institute of Business Science (GIBS), who was joined on the panel by investor and entrepreneur Andile Khumalo; Duma Gqubule, Director at the Centre for Economic Development and Transformation; Dr Petrus De Kock, Brand South Africa’s General Manager for Research; Professor Adrian Saville, Senior Lecturer at GIBS; and economist Dr Thabi Leoka.
Khumalo remarked that one of the things he noted from the minister’s speech was how candid Mboweni was about the position the country finds itself in. He used the analogy of a family, impacted by debt and loss of income, having to alter their lives significantly in order to survive this financial crunch, to explain the position SA is in.
“The minister’s entire delivery on the day was of a leader who said, ‘Guys, I have tried, we have all tried, but we are in a big heap of trouble as a country.’ There was a time when this family was able to live beyond our means. Mom and Dad have had to take salary cuts, in fact one of them has lost a job, and there is no additional income coming anytime soon. The only way we are going to survive is by going to the bank or the neighbours and let them borrow us some money so that we have food on the table every day,” Khumalo said.
He added that the minister shared what was already known, that the country’s financial situation was dire.
Continuing with the family analogy, Professor Saville said the position the country has found itself in is due to poor decision-making.
“This was not done to us. There has been a lot of hand-wringing in reference to the ratings agencies and their very poor timing, downgrading us as we grappled with COVID-19. We’d been warned, cautioned, flagged, and we just kept pushing in. If we’re going to stay with the family analogy, this would be the equivalent to my mom and dad giving me lots of good advice, and me telling them that I know better. We have taken ourselves into a financial territory that is quite simply unsustainable, and it will take us into bankruptcy. We have to reimagine and think of new ways of doing this,” he said.
Dr Leoka expressed that she felt underwhelmed by the budget speech, and said she did not believe that the right tools were being used to start steering the country out of crisis.
“The President and the Finance Minister have described this pandemic as a war. After the supplementary budget, I am convinced that I would not want to go to war with the President and the minister as my war buddies, because I know that they will not bring the right ammunition to fight the enemy. I want to firstly take out the Reserve Bank from this conversation, because I believe it is sacrosanct; it is playing its role and doing its job quite well. Monetary policy does not lead fiscal policy, fiscal policy leads monetary policy. The Reserve Bank can cut interest rates to zero tomorrow, and that still won’t impact the man on the street, because South Africans are unemployed. That would benefit mainly those who are already leveraged, and not the majority,” she said.
Dr Leoka shared the view that the issue in this case is not necessarily the role played by the Reserve Bank, but the uncertainty surrounding the country’s fiscal policy. She added that even after reading the supplementary budget, she was uncertain where the country stood, because in some areas consolidation was taking place and expenditure being reduced, and in others increased.
“Typically, you would spend more money to get out of a crisis. You have to, however, spend in the right places. We are not spending in the right place. The budget has increased, but by very little, and as such it is not enough. Where I think they need to cut, for instance, is government wages. If you cut 15% of government wages you raise almost R180 billion. National Treasury told us that the biggest burden on the fiscus is the wage bill, but the correlation between wages and productivity is low. So why do we continue to throw money at a relatively unproductive sector in the budget whereas we can actually cut a part of it, and allocate it in an area where we can get that economic multiplier effect that will generate the necessary growth that we need during a recession. So I think that we do have a budget, but we’re not allocating it properly,” she said.
This discussion was made possible through the support of Brand SA.
To hear further recommendations from the panel about how SA can survive this crisis, watch the full discussion here.