A poverty time bomb

2007-11-15 00:00

Last month, Finance Minister Trevor Manuel tabled his 2007 medium-term budget in Parliament, which proposed a 0,6% budget surplus over the next three years.

Maintaining a budget surplus is the height of folly, given the depressing levels of poverty, unemployment and inequality. Just last month, Statistics SA revealed that only 197 000 jobs were created during the year March 2006 and March 2007. This is a massive slump given that in the three years before, jobs were created at around 500 000 per year. The latest employment statistics mean that the unemployment levels went up from 4,28 million people to 4,34 million people during this period. The economy will have to generate at least 600 000 jobs every year to reach the government's modest target of halving unemployment and poverty by 2014.

There is no moral or even economic defence for maintaining the budget surplus. Manuel introduced a new “structural budget” system, which means that during boom times, the government will spend the surplus. Presumably, during depressed times the government will revert to spending at low deficit levels.

“When economic conditions are good, as they are now, we must invest and save in a manner that allows us to maintain public spending and societal welfare when economic conditions turn less favourable,” Manuel said.

There is nothing wrong with this. In fact, at first glance it makes perfect sense: the government spends within its means and saves for a rainy day. But it has been rainy, or rather stormy, for a long time for many poor South Africans. It makes more sense to spend the surplus on them: creating employment opportunities, targeting poor families directly through a basic income grant, which could be linked to families with children at school along the Brazilian lines, expanding educational opportunities for the poor and expanding the housing programme, which has, astonishingly, slowed down.

The government has argued that broader social infrastructure spending will eventually trickle down to the poor. Previously, the treasury's strategy was to try to maintain very low deficits, which were much lower even than in industrial nations without the huge developmental challenges South Africa has. Manuel has been very vague about just how the surplus is going to be spent, except for saying that it will be used to expand infrastructure, the education system and government capacity building.

In spite of huge unemployment, there is still no sense of urgency, whether in the details of the medium-term budget of targeted interventions to create jobs or to reduce poverty. South Africa is sitting on an unemployment and poverty time bomb. Yet, it appears that for the government it just is business as usual.

When unveiling his medium-term budget, Manuel firmly backed the controversial policy of keeping inflation targets at their current narrow band and using high interest rates to hammer them into place. This policy has choked the economy and has hit the poor the hardest. Factors outside the control of the Reserve Bank, such as food and oil prices, are also pushing up inflation. So to increase interest rates as a solution is bad policy.

During his budget speech, Manuel proposed that South Africa lower all trade barriers. He said this would enable South Africa to leverage strong economic growth in the rest of the world, especially in the light of the impasse in the World Trade Organisation's Doha round. The idea is that if South Africa goes it alone, it will not only come as a surprise to the rest of the world, but would offer the country a strategic advantage.

Such a blanket tariff reform strategy is going to backfire. To become more competitive, each industrial sector in South Africa requires a specific approach, depending on the specific requirements of that sector. That is what the government's newly released industrial policy correctly concluded, rather than one big-bang approach as Manuel proposed. South Africa's focus must be on boosting its competitiveness and boosting the battered manufacturing sector - the sector that can soak up the army of unskilled jobless in South Africa.

Manuel is right off course when he says that South Africa cannot just “march with the procession”, that is to passively follow what other countries are doing, or just wait for the WTO Doha round to at some point in the future resolve itself. Yet, his solution - reduce all tariffs, quickly, and hopefully stand out as different from all the other developing countries, is not an appropriate one.

Finally, Manuel, rightly, lambasted South Africa's skills shortage and the fact that industrial nations lure away South Africa's and other developing countries' scarce skills. Yet, government is only making a half-hearted effort to hold on, let alone appreciate South Africa's scarce skills. Many talented individuals are turned away from government jobs because they are either not connected to the ANC elite or their political and colour orientation are suspect.

Taiwan has a dedicated database of all its students studying abroad. It specifically targets them for jobs in the public sector, and elsewhere, by personally contacting them before they graduate. China now has identified that it will need millions more scientists and engineers.

China is recruiting thousands of talented Chinese people, funding them and putting them through targeted schools abroad. The main condition is that they return to work, often in jobs already identified, for a couple of years. Countries such as Australia and Singapore are recruiting foreign scarce skills and entrepreneurs to the tune of 50 000 a year. South Africa, ideally placed to retain both its own skills and attract foreign ones, is not - it is just complaining.

• The second edition of William M. Gumede's book, Thabo Mbeki and the Battle for Soul of the ANC will be launched on December 3.

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