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Reforms to kickstart South Africa in 2021

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Professor Bonang Mohale is the chancellor of the University of the Free State, professor of practice in the Johannesburg Business School (JBS) College of Business and Economics, and chairman of both Bidvest Group and SBV Services. He is the past president of the Black Management Forum and author of Lift As You Rise.
Professor Bonang Mohale is the chancellor of the University of the Free State, professor of practice in the Johannesburg Business School (JBS) College of Business and Economics, and chairman of both Bidvest Group and SBV Services. He is the past president of the Black Management Forum and author of Lift As You Rise.

A lot of things need to be done to get SA’s economy off to a good start again.


What came out of the 2020 ashes were success is human capital. Now that the feasibility of working at home has been proven, it will be tough for companies to walk things back to pre-pandemic times.

Over 2021, millions of companies will begin reengineering everything from physical offices to digital infrastructure, and this has broad implications for the economy and our culture. 

It seems like only recently that the term “ESG” (environmental, social and governance) gained mainstream traction in the investment community. In a short amount of time though, the trend has blossomed into a full-blown societal shift.

In 2020, investors piled a record $27.7bn of money into exchange-traded funds (ETFs) traded in US markets, and that momentum only appears to be growing. At the time of writing, China, the world’s most populous country, has already left the pandemic behind and is back to business as usual.

Over the past few years, brands have become increasingly values-driven. Millennials, who are now the largest generation in the workforce, are shaping society in their own image and the expectation is that companies should have an authentic voice and that their actions align with their words. This trend is augmented by the transparency that the internet and social media has enabled.

The year 2021 will prove to be yet another existential crisis, a historic defining moment, tipping point or an inflection point where economic, political and social freedoms will never be viewed quite the same again. Megatrends we are living through have been fast-tracked, bringing the future ever closer to our doorstep.

In the meantime, South Africans are hurtling fast towards a fiscal cliff with the country’s debt at about R3tr, where we are borrowing at a rate of R2.1bn per day, sit with a debt-to-GDP ratio of 93% and when we include government guarantees to public enterprises, it shoots up to 110%.

We are forecasting GDP growth of between 1% and 2% in 2021. The contraction in real GDP is expected to be 8% in 2020 and tax revenue declined by an estimated 18%. In addition, 2020 was characterised by dwindling exports from SA for the period April through August.

The road to recovery will be long for the whole world. The second wave of Covid-19 infections pose significant downside growth risk. The downside to growth imparted by new Covid-19-related restrictions will be met with further policy support.

A lot of things need to go right simultaneously. To address the lowest levels of confidence, trust and hope since World War II, we must send some top state capture miscreants to prison.

We need to secure vaccines as a matter of life and death; execute on the long-promised deep systemic socio-economic reforms; reduce the soaring government debt and fix the more than 740 state-owned companies.

We need to increase our infrastructure spend; execute on the 10-year old spectrum auction as it is now underwhelming when SA says it is going to do anything.

The heart of good management is execution.

Very crude arithmetic dictates that, if interest rates are about 8% and inflation is at about 4%, then we must grow the GDP by, at least, 4%. This is especially the case when considering that SA’s population growth is about 1.5%.

Yet, in the past five years, at least, our GDP growth has been less than 1.5%, which means that both our disposable income and discretionary purchasing power have been seriously eroded on a per-capita basis.

SA’s major economic constraints are the R70bn that is planned to go to Eskom over the next three years, with the real risk of further bailouts at state-owned companies. Furthermore, social grant payments keep pace with inflation – which is necessary to protect the poor.

In addition, capital expenditure by the government is budgeted to grow faster than inflation – which is commendable, and operational costs have essentially been flat in real terms since 2017.

Reducing the public sector wage bill is becoming a tall order.

The dilemma is who will bear the brunt of the planned wage cuts, among government spending priorities such as learning and culture; peace and security; health; economic development; general public services; social development and community development.

The conundrum is the three-year wage freeze agreement that must be struck in a municipal election year. No less than 80% of the reductions must occur where trade unions are the strongest and most influential.

There is a real risk of fiscal slippage, thereby creating a crowding-out effect. This refers to a large budget deficit leading to government dis-saving and a subsequent reduction in the available pool of domestic savings necessary to fund fixed investments.

This may result in a steep yield curve, driven in part by a rising sovereign risk premium which raises the cost of borrowing for various public and private sector entities.

Higher interest rates lead to increased interest payments which absorb an ever-increasing share of tax revenue, thereby leaving less available to buy vaccines, build hospitals, clinics, schools and houses.

Professor Bonang Mohale is the chancellor of the University of the Free State, professor of practice in the Johannesburg Business School (JBS) College of Business and Economics, and chairman of both Bidvest Group and SBV Services. He is the past president of the Black Management Forum and author of Lift As You Rise.

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This article originally appeared in the 21 January edition of finweek. You can buy and download the magazine here.
finweek, january, 2021

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