Economy needs a cash injection to recover, Parliament hears

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South Africa's growth is being stalled by the state, the private sector argues. iStock
South Africa's growth is being stalled by the state, the private sector argues. iStock
  • The Parliamentary Budget Office said an injection of money into the economy or increase in social wage through grants and services could aid growth.
  • The submission said investment in infrastructure and expenditure that increases household consumption could "crowd-in" investment.
  • The submission said the South Africa economy faced a "concentration, profits and low levels of investment" from the private sector.

The economy needs a cash injection – more disposable income for households, or an increased social wage through grants and service provision, Parliament's Select Committee on Finance heard on Wednesday.

This was as it was being briefed by the Parliamentary Budget Office.

The Budget Office said government spend and fiscal expansion would be needed to support GDP growth and support government's blueprint for an economic turnaround – the Economic Reconstruction and Recovery Plan (ERRP).

South Africa's economy was in a precarious state even before the Covid-19 pandemic struck in 2020. The ERRP was intended to guide the country's turnaround.

But this past week, Statistics South Africa (Stats SA) said while the economy expanded by 4.6% in the first quarter compared to the previous quarter, it was still 2.7% smaller than it was a year ago.

Official unemployment was up to a record high of 32.6% in the first quarter, too – the highest it has been since the beginning of the Stats SA Quarterly Labour Force Survey in 2008.

Government, however, is strapped for financial resources, as Finance Minister Tito Mboweni has repeatedly pointed out during various engagements with Parliament, as well as in his budget and medium-term budget speeches.

In its submission to the Select Committee on Finance on Tuesday, the Parliamentary Budget Office highlighted an "expansionary fiscal policy to support recovery and development in South Africa", saying that government expenditure and fiscal expansion could support GDP growth.

"[This could be done] directly through [the] injection of money into the economy or indirectly through increasing the social wage through grants and provision of services. Households could benefit from more aggregate disposable income to spend and invest thus supporting GDP growth," the submission said.

The submission argued that spending was essential to achieving growth that included broader economic and social development. It added that government investment in infrastructure and expenditure that increases household consumption could "crowd in" investment.

"Increased government expenditure on poverty reduction and expansion of services could pay for themselves because they can increase GDP growth and tax revenues.

"Sustained government investment that is well targeted could support the supply side of the economy and curtail inflation and increase localisation," the submission said.

The submission also said a key challenge facing the SA economy was "concentration, profits and low levels of investment" from the private sector.

"Concentration of markets and the role and actions of large corporations are critical to understanding the poor levels of fixed investment in South Africa.

"The roots of the very high level of concentration of the South Africa economy lie in the development and growth of the mining and minerals sector in South Africa and the formation of mining-finance houses," the submission read.

The PBO submission added that there was a need for structural transformation in sectors of the economy and that development of manufacturing could drive "technology dependent productivity" of other sectors within its value chains.

"Manufacturing is considered key to structural economic transformation because it has strong linkages across entire value chains from primary sectors such as mining and agriculture through to advanced services like engineering and design," the submission read.

It said the role of expansionary fiscal policy to achieve these government's economic goals and provide relief.

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