|The budget speech is an opportunity to see where our national priorities lie. National Treasury, on behalf of the nation, puts its money where its mouth is and gives flesh to what the executive branch of government has proposed in their policy approach. If we are unhappy with the direction the nation is headed, the budget speech ought to be an opportunity to voice our displeasure in relation to how our national purse is being spent.
After the 2016 budget, Treasury issued a “budget review” which outlined the economic outlook, budget framework, spending programmes for the next three years, and of course, the tax proposals that tell us how much to render to Caesar.
What was telling in Treasury’s review, is that of the R1.6 trillion to be spent on programmes in 2016-2018, the lion’s share was allocated to basic education (R707.4 billion) and to social grants (R457.5 billion). Basic services at municipal level and public housing, came in at a third and fourth place respectively with R171.3 billion and R108.3 billion to be spent. In those four allocations we see the current priorities of the state, with R1,444 trillion of the R1,6 trillion (90%) of expenditure going to social goods. Compare this to the measly R10,2 billion allocated for incentives in manufacturing development, R13.5 billion towards rail commuter subsidies and R30.3 billion towards roads. This means that a tiny fraction of revenue is being spent on industry enabling factors. Although government is set to spend upwards of R93.1 billion on universities and R102.billion on bulk water infrastructure, the budget is basically a deindustrialization master plan. The expenditures on tertiary education for instance are largely unaligned to the real industrial skills requirements of our economy. The consequence of such a budget is not job creation and fiscal sustainability. The consequence of the current budget is state dependence and untamed sovereign debt.
South Africa currently has a socialist distributive budget when what is needed, what our unemployed citizens require, is a productive investment by the state in the means of production. So, what would a “black industrialist” budget, to use a term from the ANC’s policy rhetoric, actually look like?
Firstly, the mining sector, the bedrock of our national wealth endowment for the last two centuries, must be conceived of as a national asset and positioned for global competitiveness. This flies in the face of the current policy group-think in the ANC which has become obsessed with “ownership patterns” at the expense of growth curves, which is why the sector is shrinking, closing shafts and shedding jobs. Pragmatism dictates that the presence of at last 80 years of exploitable resources makes this mass employer a possible cornerstone on which to build. In any case, any dreams of a beneficiation orientated manufacturing sector requires the mining sector’s mineral inputs and necessitates an efficient sector at that. University education, particularly faculties associated with engineering such as chemical and mining in which we have world class know-how, must be prioritised and fully funded. Free economic zones in proximity to mineral sources must be revitalised and created where necessary, replete with the infrastructure necessary for cost competitiveness and inter-linkages with supplier inputs, connecting them to adjacent industries and markets. Labour will need to make some trade-offs in exchange for new opportunities. Transnet, currently distracted by archaic notions of mass passenger rail at the cost of the state owned enterprise’s real purpose as an industrial enabler, must refocus and make targeted investments. People migrate for work, they only commute when meaningful migration towards real opportunities has not been adequately facilitated.
Resources being poured into the bottomless pit of primary education at a unmatched scale with unmatched failure as an outcome must stop. South Africa uniquely has an example of a world class primary and secondary education system operating alongside the dysfunction of public schools. The elements that have made this national asset effective, such as meritocracy and the dismantling of teacher unions, should be applied across the board. Where there are infrastructure backlogs, these need to be addressed, understanding that our investment in the education of our children is a long term investment in the human capital that will drive our next economy.
Social grants must be scrapped, except child grants for minors who have no legal guardian. Instead, a flexible temporary employment regulatory regime should be implemented in specific low skill services sectors such as cleaning, with a tax incentive to companies, community organisations and the like who employ large cohorts of otherwise unemployed people. Redistribution in lieu of basic productivity drives broad-based economic growth, not cash transfers. Similarly, allocations for basic services, instead of being paid for and contracted by local municipalities, now serving as shady vehicles for mismanagement, should be brought under a national development fund which uses a privatisation model to provide training and grants for housing development etc. This is not a proposal for another inefficient and corrupt SOE in the form of a state construction megalith, but rather an agile facilitator organisation that networks black-owned SMEs in the sector. Likewise, the flirtation with nuclear mega-projects must make way for aggressive investment in renewable energy so that South African entrepreneurs can cut their teeth in our market in preparation for taking energy to the bulk of Africans who live in energy poverty. This means investment in R&D in energy, training of entrepreneurs and technicians and partnering with big players in retail and logistics to scale their solutions.
The final piece of the black industrialist puzzle is the investment needed in high-tech, digitally enabled additive manufacturing. Yes, the digital economy is the future, but that future will continue to require consumer products, embedded with robotics, plastics, artificial intelligence and various forms of programmable machinery. The key to unlocking long term wealth and economic freedom in South Africa is leveraging our current foothold in mining, chemicals and automotive, with our innate flare for design and creativity, to take future products to markets in ways that deliver more value at a lower cost.
The narrow political debate about the VAT rate and how much more the tax base can bear is not really in the long term national interest.
Marius Oosthuizen is a member of faculty at the Gordon Institute of Business Science, University of Pretoria, South Africa. He teaches leadership, strategy and ethics. He oversees the Future of Business in SA project that uses strategic foresight and scenario planning to explore the future of South Africa, Africa and Brics