The conservative policies behind the government’s broad economic framework have propelled South Africa back on to the foreign investment community’s radar screens.
Minister of Finance Trevor Manuel has cut government spending and brought the budget deficit to below 3% of gross domestic product, inflation has hit a 30-year low, and interest rates are on a downward trend.
But what is good news for investors and business so far has meant little to those who fall outside the formal sector of the economy – the unemployed, the indigent, the aged, almost half of the population.
Nor has the middle class yet recovered from the crippling interest rates of the past few years. Interest rates have come down significantly in the past 12 months but they remain significantly higher than the core inflation rate.
It is a truism that the ability to create an environment of expanding employment opportunities will only come with the attraction of foreign investment. However, the government now appears equally mindful of the need to implement policies that are user-friendly to small business.
There has to be a clearer acknowledgement that the formal sector of the economy will not be able to absorb the millions of unemployed, that the high cost of money prevents those who do not have cash from gaining access to capital, and that the creative entrepreneurial potential of South Africa’s people needs to be nurtured and turned into a major boost to the economy.
The government appears also to be saying that it must create an environment where jobs are not reliant on the public sector, but on individuals’ capacity to create their own wealth.
Lowering interest rates and taxes, giving the business community and small entrepreneurs the incentives to grow and expand, will help achieve this outcome.
In the Medium-term Expenditure Framework that he presented to Parliament late last year, Manuel cited better than expected revenue collections and lower debt servicing costs as the reasons for the progress made in decreasing the budget deficit.
The latter has been an important achievement as a declining budget deficit means less borrowing to finance the operations of the government and a lower interest bill. It’s also no secret that the government is shrinking the public sector and is committed to cutting the wage bill.
A portion of this saving should allow more funds to be made available for the acceleration of social welfare projects and social services.
With nearly half of South Africa unemployed, job creation is the quickest and most sustainable form of poverty relief, but a determined programme of social welfare is an area that the government must also focus on. We are not suggesting that South Africa become a welfare state but that a system is put in place where the poor can have access to the basics of life.
A dole system – as suggested by Minister of Welfare and Population Development Zola Skweyiya – may not be entirely compatible with the macroeconomic policies the government is in favour of, but there must be a scheme where the poorest of the poor have an opportunity to uplift their lives and are not forever placed on the sidelines of an economy that does not recognise them.
These are people who can make a contribution to society and to the economy given the opportunity, even if it means digging a little deeper into our pockets.
If properly designed and affordable, such a welfare safety net can play an important role in facilitating the deep structural changes occurring in our economy. It can do so by easing the fear of change among the most vulnerable sectors of our society – whether employed or not.
The strongest resistance to this change comes, currently, from the ranks of the trade unions, particularly those of the left. Their suspicion of the changes under way and their fear of what they will mean for the welfare of their members is real and deserving of serious address. The cause of shopfloor peace – like those of increased productivity and prosperity – may be very well served by a credible welfare net.
The tripartite alliance led by the African National Congress may have a sclerotic effect on policy and debate, as some of its critics allege. But it has succeeded in holding together a wide range of interests in a national development effort in the five-and-a-half years since the ANC came to power.
As we take this development effort into a new phase, a decent welfare net may be able to play a similarly cohesive role – alongside the freeing-up of entrepreneurial energy and speedier progress to prosperity that lower interest rates should make possible.