The government will extend the social relief of distress grant until 2025. Photo: Pieter Bauermeister/AFP
There is no denying that Eskom’s shortcomings have and will probably continue to cost the economy, which, despite what the recent GDP figures imply, is still in a bad shape.
Giving the power utility the money it needs to keep going, even if it is a sputtering swan song, should be a priority. But budget tightening, which has garnered the treasury plaudits by a number of conservative commentators, can’t be undone at a whim.
Yes, Eskom’s decline is economic poison. So too is the government’s fiscal strategy, which ought to be roundly criticised — and not just when the lights go out.
Last week, when the country was once again plunged into the dreaded higher stages of load-shedding, Eskom explained that the depletion of its diesel budget had forced it to strictly conserve fuel for any extreme emergencies.
The diesel problem is a complicated one. The price of fuel, needed to run Eskom’s gas-fired turbines, has climbed dramatically over the course of this year amid Russian sanctions.
Meanwhile, Eskom plant breakdowns have hit highs in 2022 that have forced the utility to fire its turbines to full force to hold off the inevitable. Even if Eskom had all the diesel in the world, it wouldn’t be able to get it to its plants fast enough to prevent blackouts.
That said, in situations such as these, the government ought to be able to reach into its coffers. Doing so would at least soften the blow to the economy, which has struggled to gain momentum for the last decade or so.
It is telling that last week, despite a vastly better-than-expected GDP print, most economists were still pessimistic about South Africa’s longer-term growth prospects. The country’s stubborn energy
crisis was widely cited as the reason to be cynical.
Last month, when the South African Reserve Bank cut its growth forecast, its monetary policy committee noted that load-shedding could shave 0.6 percentage points off the country’s GDP in 2023.
In the context of chronically low growth and high levels of unemployment, load-shedding is a major threat to economic and social stability. Mind you, the current high levels of load-shedding have transpired painfully close to the ANC’s elective conference and while the governing party is in the throes of a presidential scandal that has inspired more deleterious uncertainty.
All this constitutes an emergency and ought to be treated as such.
But the government’s budget mechanisms, over which the treasury has maintained a tight hold during the last couple of years, aren’t exactly geared towards responding to emergencies.
Government bureaucrats also seem to lack the foresight needed to manage an economy that has found itself becoming increasingly precarious and thus vulnerable to even the most benign-seeming knocks.
Last week, in response to calls for it to intervene, the treasury noted: “The staggered nature of the budget process, which allows for the necessary legislative and executive oversight as well as for well-informed planning about how to allocate the country’s scarce financial resources, makes it difficult to consider and accommodate any ad hoc funding requests outside of this process, especially large requests that are made at short notice.”
In the context of fiscal prudence, the treasury’s position on the diesel dilemma makes a whole lot of sense. The budget is tightly managed and the government can’t easily reach into its coffers for something that has not been budgeted for.
But as the Bureau for Economic Research pointed out this week, not supplying the funding comes at an enormous cost — much more than the roughly R19 billion Eskom is asking for — to the economy.
That said, the treasury has consistently expressed that, in the era of tight public finances — when fiscal flexibility is constrained — there will always be trade-offs. Many of these trade-offs have already happened and, although it may be much easier to turn a blind eye to them, each of them have been harmful to the economy’s long-term health.
We witness the results of inadequate public spending every day. Although much of this can be attributed to corruption and financial mismanagement on the government’s part, the fact is that the enduring fiscal policy means there is less money going towards building and maintaining infrastructure that is vital to the economy.
Just last week, many of us watched as roads were swept away by the floods that tore through some of Johannesburg’s poorest suburbs. The government has been disastrously slow to build climate-resilient public infrastructure and we have already paid a high cost for this.
Network, water and electricity infrastructure is frayed, putting more and more pressure on the public and on businesses. Low levels of public sector investment suppress private sector investment and thus the economy’s potential to grow.
Then there is the issue of grants. We can argue at length about whether a basic income grant would stimulate economic growth or whether the current social grant system is good or bad for employment. But the fact is that millions of South Africans rely on income support.
When grants don’t grow at the same pace as inflation, the government puts their beneficiaries into an all the more precarious position, breeding discontent. Last year we got a taste of what happens when the government’s pockets are not as deep as the crisis its citizens are facing — and the economy suffered.
There are estimates out there of how much Eskom’s failure damages the economy. It is less easy to determine to what extent austerity has done the same. But you only have to look at the slow pace of the country’s economic growth over the years to get an idea.
The easy solution is to palm off the running of the state to the private sector. At least that is what the government and business would have us believe, even though there is no proof that diminishing the public sector’s share in the economy will bring about inclusive growth and help prevent our current crises from deepening.
South Africa’s fiscal policy needs to be more responsive to the reality we face. As long as this isn’t the case, the country’s economy will continue to flounder.
Sarah Smit is a Mail & Guardian business reporter.