on fiscal policy
Job creation in South Africa remains a blot on the economic horizon, reports Madeleine Wackernagel
Economic growth last year was the best on record since 1988, despite setbacks in the agricultural and mining sectors and a slip in the fourth quarter owing to a decline in manufacturing output. But the doomsters are gaining voice, forecasting a levelling off in activity as the business cycle takes its course.
In a climate of falling inflation, growing investment and improved competitiveness, Finance Minister Chris Liebenberg is optimistic about our economic prospects. A gross domestic product (GDP) growth rate of 3,5 to 4% is expected for the current financial year, but there are some provisos: gross domestic saving fell to 18,5% of GDP last year, against an average of more than 25% in the 1970s and 1980s. South Africa cannot rely on foreign investment alone to achieve sustainable growth.
The government is doing its bit, keeping a tight rein on fiscal policy, thereby creating an investor-friendly climate. In fact, Liebenberg’s deficit target is now an even more ambitious 4% by 1998/99.
But if the world economy as a whole is indeed nearing the peak of the boom — as indicated by Liebenberg — then cutting the deficit so sharply would be counter-productive, says Dr Peter Hilsenrath of Syfrets.
“Slower world GDP growth implies a more difficult environment for South African exporters. And with slowing domestic private investment, as well as expected weaker private consumption growth, it is imperative that government investment kicks in to provide counter-cyclical stabilisation.” Foreign investment, both direct and portfolio, would be the loser, he adds.
Liebenberg may be acting in anticipation of a recession — cutting now while the going is still relatively good. Otherwise, the deficit could balloon to 10%, which would definitely not send the right signals to foreign and local investors, says Dennis Dykes, chief economist of Nedcor.
The other big blot on the economic horizon is unemployment — but a clear plan for job creation was conspicuous by its absence. Liebenberg reiterated government’s commitment to
500 000 new jobs a year by 1999, as outlined by Thabo Mbeki, the deputy president, last month, but gave no indication how this was to be realised.
If past performance is anything to go by, the private sector cannot be relied upon to step into the breach: only 55 000 jobs outside the agricultural industry were created in the first year of the upswing, to mid-1995. Liebenberg did, however, highlight the structural problems in the labour market and made a point of setting out the urgent need for more information on how the formal sector works.
“We need to understand the consequences of increased sub-contracting, self-employment and more flexible working arrangements,” he said. “Unless we do, government will not know the actual changes in income generating employment or the wage elasticity of employment.”
Similarly, he said, the links between formal sector employment and real income changes and the activities of the informal sector need to be better researched.
The fine print of the Budget book outlines some positive steps in addressing the structural problems besetting job creation, such as land reform, support for small farmers, industrial policy and export promotion, small business development and vocational training. Indeed, education is a top priority for government expenditure this year, with R5,5 billion of the total cake, against R4,3 billion last year.
Improved RDP delivery is expected to boost job creation but there was disappointment at the dearth of direct measures. Said Dannhauser van der Merwe, general secretary of the Federation of South African Labour Unions (Fedsal), “Only R100-million was allocated to public works programmes; much more could have been done, plus we have to make sure that the benefits are not undermined by huge job losses through privatisation and public sector restructuring.”
Liebenberg was at pains to emphasise the holistic nature of this year’s Budget; it was not merely a one-off financial exercise designed exclusively for1996/97. “Some of the measures taken this year should yield results in the short term, others would probably take a year or more, while some should facilitate changes envisaged for later years,” he said on Wednesday.
Commentators have been quick to criticise in the past, complaining of too much rhetoric and not enough action. The government is aware that it cannot afford to fiddle while Rome burns any longer — as long as growth stays on track, there is room for putting fiscal promises into practice.