MTBPS-More continuity, when change is needed

The National Treasury argues that:

The measure of a strategy is not in the breadth of objectives it seeks to address, but rather in its focus on those objectives that really matter. Fiscal constraints force government to choose carefully between competing objectives.

Does the MTBPS have the right toolkit?

This provides a benchmark against which to assess the Medium-Term Budget Policy Statement (MTBPS). The common sense approach is to focus on the level of the deficit. On the one hand, the financial markets will welcome the attempts to reduce the deficit over the medium term, whilst raising concerns about the current perception that debt is high. On the other hand, civil society organisations will argue that more needs to be done, but the deficit will be an indicator that government is attempting to do something during this downturn. There are important public policy choices in this debate, with the National Treasury providing an important input in the Fiscal Guidelines.
However, there is a foundational question – Are the objectives the right one’s? Or more crisply, is the underlying strategy the correct one? To place, this in context South Africa lags behind its peers in terms of economic growth.

In the context of South Africa performing so weakly, the deficit becomes a less significant issue. The broader question that emerges is why does South Africa perform so poorly against its peers, and why even the moderate levels of economic growth are not better shared across the country. These are big and demanding questions, and the MTBPS inadvertently provides us with signposts as to why this would be the case.

Delayed Support Package

First, the economic stimulus package is postponed until next year. The National Treasury writes that:

The 2012 MTEF will introduce an economic support package to encourage improvements in competitiveness and promote structural change. Government will provide about R25 billion over the next six years for a range of interventions to invigorate industrial development zones, assist enterprise investment and job creation, support the transition to a greener economy, and leverage infrastructure investment and risk-sharing partnerships with the private sector. The package will include temporary mechanisms to bolster productivity and innovation in industries that have demonstrated long-term competitive potential. Funding of the package over the next three years will be contained within the available fiscal envelope. (page 18, MTBPS 2012)

According to the National Treasury, the process of implementing these strategies will be finalised by Budget 2012. This is disappointing especially since the most likely  explanation is that it less about the details of programmes, and more about the inability of government to get agreement between line departments. It begs the question, with the Industrial Policy Action Plan (IPAP) and the New Growth Path in place, there could have been a way to meet the objectives on the proposed fund in the 2011 MTBPS. More to the point, the emphasis is on industries that demonstrate “long-term competitive potential” – which due to the definitions of competitiveness operative in government would exclude the majority of small business. The reality is that it will be a long year ahead for factories that are facing tough challenges, and in fact the slowness of government on this matter will increase the number of insolvencies.

Infrastructure and the Little Guy

Second, the National Treasury argues that:

Over the medium term, fiscal consolidation will be accompanied by determined efforts to shift the
composition of expenditure towards greater investment in infrastructure. (page 10, MTBPS 2012)

The argument goes that through investments in infrastructure, government will be playing a stimulating role in the economy. The main areas of infrastructure support are outlined in the MTBPS as follows:

  • Continued investment in the road network, including stepped-up rehabilitation and maintenance of provincial roads and national highways.
  • Expanding investment of bulk freight rail to support mining production, including coal haulage capacity and the iron ore line to Saldanha Bay, to raise transport volumes from 47 million tons to 60 million tons.
  • Investment in commuter rail infrastructure and rolling stock as part of an 18-year, R80 billion replacement and modernisation programme.
  • Completion of Transnet’s R23 billion Durban-to-Johannesburg multiproduct pipeline in 2014/15.
  • Eskom’s capital expenditure programme is intended to double its electricity generation capacity from 40 000MW to 80 000MW by 2025 and ensure the economy benefits from a reliable supply of electricity.
  • The second phase of the Lesotho Highlands water project is a R15 billion investment in the Pohali reservoir, and associated water transfer and hydroelectric projects.
  • Private investment in telecommunications infrastructure will boost broadband speed and volumes, and reduce costs. By 2013 five submarine cables will connect South Africa to global telecommunications networks. In partnership with the private sector, government will roll out land-based fibre optic infrastructure in the large metros and build networks in underserviced areas to expand internet access.

Some of the projects are without a doubt required, as it is common sense to ensure the continuity of electricity and water supply. However, embedded in these choices on infrastructure delivery is significant support for large multi-national companies. Most notably, the haulage of coal benefits the few companies involved in the line running from Sishen to Saldhana. To make the point, this is the same system of production that is premised on import parity pricing for local steel, which hurts manufacturers. Moreover, the  increased capacity needed for electricity is partially driven by the continuation of aluminium smelters in South Africa, which are energy guzzling and yet receive preferential pricing. The details of each of these schemes are important to explore at a later stage, the central issue is that government is continuing to invest in areas of the economy that have been described by Fine and Rustomjee as the “Minerals-Energy Complex”. The implication is that government continues to prop up systems of infrastructure that disadvantage smaller players in the economy, and yet it hopes that the same investment will propel economic growth. There is thus a significant disconnect between the goals of economic inclusion and the proposed infrastructure package that will be funded.

Linking social and economic policies

Third, the linkages between social and economic policy must be aligned. The National Health Insurance (NHI) and the Community Works Programme (CWP) are potentially inequality busting measures. These bold programmes are indicative of government focussing attention the structural nature of inequality. Yet, the success of these programmes will rely on government shifting focus towards measures that support economic inclusion.  A focus to link the social interventions with an economic inclusion programme, the impact of public spending will be significantly enhanced. Brazil and India have both demonstrated how this can be acheived, when expanding social security and at the same time instituting reforms that stimulate economic growth and job creation.
The MTBPS thus disappoints in the means to grow the economy, and consequently who benefits from economic growth.  It is however not only a National Treasury problem, as it reflects a deep seated confusion in government in how it manages the interests of powerful actors in the economy, with the aspirations of smaller players. Budget 2012 may yet provide the details on the support programmes for manufacturing and other sectors, and potentially the process to access support from government will not be cumbersome. For now, it remains difficult being a business owner and a worker trying to create a viable enterprise. In that respect, MTBPS 2011 does not provide us with an indication that amongst all priorities economic inclusion is taking centre stage.

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