INSIGHT
RUNNING OUT OF ROAD
Edited by Leon Louw
South Africa’s growth over the past decade has been exceptionally disappointing, according to a
new report.
S
outh Africa’s slow growth over
the past 10 years has been
accompanied by an astonishing
build-up of public sector debt. This is
the key conclusion of a new report titled
Running out of Road: SA’s public finances
and what is to be done, released by the
Centre for Development and Enterprise.
Ann Bernstein, executive director
of the CDE says that South Africa is in
a profound and deepening economic
crisis. “The country’s public finances are
increasingly precarious, its macroeconomic
fundamentals increasingly unsound,
and the path we are on is increasingly
unsustainable,” Bernstein says.
Unless South Africa deals with its fiscal
crisis, growth will not accelerate. But the
opposite is also true: unless South Africa
gets growth going it will not resolve its
fiscal crisis, according to the conclusion in
the report.
“It does not appear that government
and the ruling party fully grasp the depth
of the changes required, or how much
leadership it will take from the president to
get this done,” states the report.
South Africa’s government and
State Owned Companies (SOCs) have
outstanding debts of over R3-trillion, that is
almost four times higher that it was in 2008
and 15 times higher than in 1992. As a
percentage of GDP, debt now exceeds 60%
- as high as it was at the end of Apartheid.
CDE’s analysis shows that the main
reason for the debt explosion is that in
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NOVEMBER 2019
the aftermath of the global financial crisis
in 2008, a large gap opened up between
government spending and its revenues,
and that gap has not closed in the
intervening years.
“Spending plans have been woefully
slow to adjust to slower growth, and the
result is large, persistent deficits, leading to
vast borrowings. State capture, widespread
corruption, poor governance, incapable
leadership, and ill-designed procurement
policies all mean that much, even most, of
the borrowed money has been wasted,”
says Bernstein.
“We have spent hundreds of millions
of rands on power stations that do not
produce power and scores of billions on
trains that never arrive – PRASA, in spite
of spending billions on modernisation, is
transporting 60% fewer people than it did a
decade ago,” Bernstein adds.
“South Africa’s current approach is
pointing towards an explosive debt path.
Government actions thus far are not halting
this very worrying trajectory.”
This year’s budget estimated that
between 2015/16 and 2021/22, government
and the major SOCs would borrow almost
R2.2-trillion – or R1-billion a day, every day
for seven years. “We cannot afford what
we already do. There is no room to increase
the list whether for new smart cities, NHI
or substantial numbers of police officers,”
says Bernstein. “Our situation requires a
tough choice of priorities for expenditure and
ferocious determination to stick to these.”
The report recommends that South Africa
should continue to rebuild vital institutions,
based on the rule of law. “Real progress
has been made on this front although much
more is required. However, the debate
about expropriation without compensation
and the nationalisation of the Reserve Bank
have set this back.”
CDE argues the entire SOC sector
must be rethought. “Those entities whose
finances are in a mess must be forced
to address the high level of operational
costs, failing which bailouts will have to be
repeated endlessly.”
This year’s budget
estimated that
between 2015/16
and 2021/22,
government and the
major SOCs would
borrow almost
R2.2-trillion – or
R1-billion a day,
every day for
seven years.”
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