Gauteng the drag on SA’s economic progress

The ratings upgrade and employment figures show that South Africa is making economic progress, but Gauteng is holding the country back.

Busiswe Mavuso, CEO of Business Leadership South Africa (BLSA), says in her weekly newsletter that the upgrade of South Africa’s rating outlook by S&P Global to positive is hopefully the first of many steps toward regaining our investment grade credit rating that we lost at the beginning of the Covid crisis.

“It is a testament to the success of government to regain control over its finances during the last few years, rescuing us from the road to the crisis which the Zuma administration firmly put us on.”

She says the primary budget surplus that government achieved in the last financial year was an important milestone, indicating that it was spending less than it was getting from taxes and other revenue (excluding debt service costs), for the first time in many years.

“While the Medium-Term Budget Policy Statement (MTBPS) showed that it will miss revenue targets for this year, it nevertheless painted a picture of a government that is in control. The state-owned enterprises are no longer the bottomless pits of taxpayer money they once were and some moderation has been delivered in core government spending.”

She congratulates National Treasury in particular as well as the rest of government that had to tighten its belts to deliver this outcome.

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Ratings improvement makes material difference for SA’s economic progress

“A ratings improvement may seem intangible to the average citizen, but it does make a material difference. Since the elections, yields on key government bonds improved by about two percentage points, which translates to roughly 20% less in interest government has to pay when issuing new bonds.

“That is a material improvement in the cost of debt. It not only means that less of government’s money goes into debt service costs, but it also lowers the cost of capital for the whole of the economy. Businesses must function within the sovereign ceiling – in other words, our banks and other large companies that issue bonds can only do so at some margin above the government yield.”

Mavuso says with improvements in the sovereign yield, other businesses also see an improvement in the cost of debt, which makes it cheaper to invest and grow the economy.

She points out that the result of that growth will be more jobs and says it was good to see the small dip in unemployment in the third quarter announced last week, with 294,000 new jobs helping to reduce the unemployment rate by over a percentage point to 32.1%.

“That is, I think, an early reflection of the positive response to the government of national unity (GNU) and the confidence it created for businesses to go ahead and invest in expansion. A more stable electricity supply also helped, with the trade and construction sectors particularly strong in adding jobs.

“The improvement in construction, which added 176,000 jobs, reflects momentum finally on infrastructure investment, suggesting that an improvement in economic capacity and growth is underway.”

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Disappointing to see Gauteng shedding 66 000 jobs

However, she says within the data she was disappointed to see that the improvement was broadly across the country with the exception of KwaZulu-Natal and particularly Gauteng. Both provinces are major growth drivers, yet Gauteng lost 66,000 jobs in the quarter and KwaZulu-Natal 2,000. The Eastern Cape added 83,000 jobs and the Western Cape 75,000.

“For those of us living in the province that is meant to be the economic powerhouse of the country, this is an understandable outcome. The quality of services continues to deteriorate amid political dysfunction in the metros and uncertainty around the provincial government’s ability to rein in metros and restore service delivery.

“Tshwane and Johannesburg in particular cannot apparently get it together to establish a stable council leadership arrangement that can start tackling the dysfunction. As The Sowetan put it in an editorial last week, ‘Joburg is anything but a world-class African city it purports to be. Public infrastructure is falling apart. Water and electricity blackouts are commonplace, widespread and consistent.

“There appears to be no confidence-boosting plan showing that those in charge are capable and committed to solving these problems.’ And then there are the threats by Eskom to periodically cut the city off from electricity. No one should be surprised that businesses in Gauteng are slashing jobs.”

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Real cost of political disfunction in Gauteng

Mavuso says political dysfunction has a real cost in economic performance. therefore, while the GNU is delivering improved confidence nationally, the experience of much of Gauteng remains negative. Given that Gauteng contributes about a third of the country’s GDP, its dysfunction puts a real handbrake on national growth, Mavuso says.

She adds that water is a particular issue of concern in the province. “Many businesses are battling with stable supply while their workers often have no water coming out of their taps at home. therefore, it was really galling to hear water and sanitation minister Pemmy Majodina last week told parliament that there is no water crisis and consumers must use water with greater care.

“This just made the minister appear completely out of touch with the experience of people on the ground. While torrents of water run down our roads from unmaintained pipes, the minister is telling consumers to cut back.”

Mavuso says that is a perverse message. “What we need is for local government to be effective in maintaining and building infrastructure, reducing the amount of water that is lost before it even reaches consumers and focusing on the water supply chain from bulk infrastructure to the last mile. We need politicians to take accountability and fix things, not deny there is a problem.”

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Still work to be done on economic progress at national level

In addition, Mavuso points out that there is also still much to get right at national level. “Much of the improvement in sentiment and government’s finances is linked to improvements in the performance of the state-owned enterprises, particularly Eskom.

“But, as I noted before, there is growing concern about the stability of government’s oversight. The closure of the Department of Public Enterprises without a clear and immediate alternative for how government’s shareholder role should be exercised creates considerable risks.

“Now, according to yesterday’s newspapers, cabinet is rethinking its whole approach after a trip to see how China does it. I would caution that before we make a commitment to any approach, we must carefully think about its suitability to our context. When all is said and done, we need a plan that restores confidence and certainty to our environment.”

Mavuso warns that we must not lose sight of the fact that the overall picture is positive, as the positive rating outlook and improved employment figures show. “If we focus some attention on fixing the dysfunction in Gauteng, we could add to that positive momentum.

“Business is, of course, eager to help where there are opportunities to improve the business environment as our partnership with government shows. Where there are opportunities to support local government improvement, we will help.”