By Megan Bybee, Research Analyst for KR
The country waited eagerly in anticipation for finance minister Pravin Gordhan’s 2016 Budget Speech, held on Wednesday in Cape Town. This was a pivotal moment for the country as it readied itself for government’s response to what will perhaps be one of the most trying years for the South African Government: With meagre economic growth forecasts; looming investment downgrades; continued unrest across most of the country’s universities with the Fees Must Fall Movement; a devastating drought; and persistently high levels of unemployment and inequality.
Throughout 2015, and peaking in December last year, South Africa’s economy has suffered severe blows with spill-over effects from the global economic downturn and the global fall in volatile commodity prices. These external pressures have been compounded by domestic bulwarks that stand in the way of economic growth, including: Electricity supply constraints; an imminent investment downgrade with regulatory barriers to investment; unstable industrial relations; not to mention policy uncertainty as reflected in the shocking dismissal of former finance minister Nonhlanhla Nene in early December which saw the Rand plummet in its aftermath. With economic growth predicted to be a mere 0.9% in 2016 by the South African Treasury (and an even worse 0.5% by Moody’s Ratings Agency) it comes as no surprise that South Africa’s concerning economic outlook was one of the core focus areas in the 2016 Budget Speech.
Crucially Minister Gordhan emphasised the importance of inclusive growth, specifically through supporting small business development; promotion of agriculture and rural development; investing in skills development; broadening economic participation; and creating job opportunities for all, especially the youth. The finance minister also highlighted a key point raised in President Zuma’s 2016 SONA address, held two weeks prior, asserting that driving economic growth is of utmost importance for creating jobs and reducing South Africa’s rampant inequality and poverty.
Minister Gordhan also highlighted the importance of enhancing the country’s competitiveness, opening up trade, and improving the ease of doing business and investing in South Africa. Some efforts highlighted included lowering the administrative costs of doing business in major cities across the country, and lowering the regulatory barriers to trade and investment. A strong theme throughout the Budget Speech was the importance of creating strong partnerships with private sector to boost economic growth and turn South Africa’s economy around. In addition, Minister Gordhan discussed the proposal to implement a national minimum wage to improve industrial relations.
This is of particular concern with regards to the proposal to implement a national minimum wage, which has created mixed opinions among South Africa’s civil society. Proponents of the implementation of a national minimum wage believe that it has the potential to raise incomes of the poor, reduce inequality, and boost domestic spending, consumption, output and growth, without significantly affecting employment, as other country case studies have highlighted.
However, some analysts believe that there is the risk that a national minimum wage, especially during an already fragile and challenging economic climate, could result in increased job losses, further worsening the country’s high unemployment rates and further perpetuating the rampant inequality that exists in the country. In essence benefits for some could come at the price of job losses for others. Government needs to be cognizant of these risks and ensure that implementing a minimum wage will not perpetuate unemployment and inequality.
Like the SONA address, Minister Gordhan’s budget speech also made reference to the country’s higher education system and the recent turbulence it has experienced with regards to the increase in fees. An addition R16.3 billion has been allocated to higher education in the next three years in order to ensure that the zero percent fee increase can be supported and sustained without undermining the quality of education received. In light of the growing unrest around South African universities at present, this is a crucial issue to address, specifically as it allows a greater proportion of the population access to tertiary education which will not only help to boost human capital levels in the country, but help stimulate economic growth and reduce inequality in the country.
Unlike the SONA address which failed to address the country’s poor basic education system, for which President Zuma was criticized by DA opposition leader Musi Maimane, the Budget Speech highlighted that improving the quality of education is the bedrock for “broad-based growth, productivity improvement and sustainable growth”. In identifying the importance of upskilling South Africa’s population with quality education, Minister Gordhan has committed to increasing expenditure on basic education from R204 billion in 2016 to R254 billion 2018/2019. This is in addition to rebuilding 510 schools that are unsafe and inappropriate, supply 1,120 schools with water and 916 schools with electricity. Ensuring that our population receives quality education with well-trained teachers and sufficient resources across all levels is critical to investing in the future human capital potential of our country. Whilst committing to improving basic education in South Africa, more can and must be done as education is not a privilege but an essential basic human right. Private sector can help boost government’s efforts through corporate social responsibility initiatives to enrich skills development in areas where it is most needed in South Africa.
Another important issue highlighted in the Budget Speech, specifically with regards to improving South Africa’s human capital levels, is revitalising healthcare in South Africa; and ensuring that the budget for social grants increases in line with the growing cost of living (set to increase by 27.9% to R165 billion in 2018/2019). Healthcare system reforms along with a medium-term budget of R4.5 billion have been set to upgrade healthcare facilities in eleven NHI pilot districts. Importantly another R740 million has been allocated to strengthen TB programmes to encourage early detection and treatment. This is essential as the socio-economic burden of TB in South Africa is grave, and funding, especially for the research and development of new vaccines, needs to be prioritised as the number of cases of drug resistant is huge, totally over half a million cases in 2014. R1 billion has also been allocated for the expansion of the antiretroviral treatment programme.
Like the SONA address, the newly re-appointed finance minister’s Budget Speech, highlighted the most pressing challenges facing the country and sought to provide sound solutions to address them. There was a degree of criticism however that Minister Gordhan did not voice concrete means of driving economic growth or cutting budget expenditure – resulting in scepticism among analysts that further investment downgrades can be avoided – as was highlighted in the weakening of the Rand during and after the Budget Speech. Only time and effective leadership will tell, however, whether the recommendations made will be able to lift the South African economy out of its current rut, or whether the recent government addresses are merely “political noise” with local elections looming.
In the meantime, companies doing business in South Africa can help to shape the policy environment by offering their expertise to assist government in sound decision-making. In addition, and as was seen after the dismissal of Nene, private sector businesses and companies can also exert their influence to steer government in the direction towards the creation and implementation of policies which will drive economic growth, boost investment, and foster macroeconomic and political stability. The finance minister’s message in this regard was clear, “Let us unite as a team, sharing our skills and resources, building social solidarity, defending the institutions of our democracy and developing our economy inclusively.” While some may be criticising this rhetoric, he makes a valid and crucial point that together development and change can be achieved.
There is no doubt that South Africa is in for a very difficult year ahead and possible even a few turbulent years to come as well. However, it is important that as a society we do not forget that that amongst great challenges lies opportunity. As minister Gordhan asserted, “We are strong enough, resilient enough and creative enough to manage and overcome our economic challenges. We know how to tur adversity into opportunity”. Taking these words to heart, corporate South Africa should aim to shift their focus to becoming learning organisations, fostering flexible and agile employees that are able to learn quickly and in doing so help organisations to adapt to the changes and challenges that lie ahead. Thinking creatively about ways to enhance doing business in South Africa can help to further boost the resilience of organisations in South Africa, in turn driving investment back into the country.
South Africa is at a critical juncture in its young democratic history. It has made incredible strides since 1994 and has the potential, with good governance and effective leadership, to continue its positive narrative. Civil society and corporate South Africa play a very important role in this regard. Strong civic activism and awareness, as many analysts suggest, could make a huge difference in determining the course of South Africa’s future. It is thus imperative that as a nation we strive to enact the change we wish to see in our society and aim to influence the creation of sound policies that will drive investment and economic growth, boost productivity, and upskill our country’s greatest asset.
Megan Bybee is a research analyst for KR and does research on human capital and labour trends in various African countries. To learn more about the Human Capital Research Portal – click here.