In his statement to the governing party during the week, the Minister of Finance Nhlanhla Nene sketched a bleak picture in terms of the country’s lower economic growth of 3% being the “new normal.” His major concern is that there is a tendency by the government to focus the country’s expenditure towards paying of increasing salaries for government employees and this will result in diverting funds from the implementation of key infrastructure projects.
In the same week that the Minister of Finance made these pronouncements, the job numbers came out and unemployment dropped to a surprisingly 25% from 26.4% in the first quarter. When we look closer at these numbers, the bulk of the new jobs created were from the informal sector.
To be precise:The formal sector added 39,000 jobs to 10.8-million in the second quarter while the informal sector created 177,000 jobs to 2.7-million. The formal sector has contracted and is no longer creating new jobs in big numbers as it used to.
Again, in the same week, the Anglo American CEO Mark Cutifani responded to the SG of the governing party’s comments regarding the announcement that Anglo American will be cutting jobs. The mining industry is shedding jobs in large numbers, Lonmin said it would shut five platinum mines and deepen its job losses to 6,000 from 3,500. The SG of the governing party is the view that mining companies are taking the easy route out by cutting jobs.
The following are some of my analysis based on the three events:
– Balance needs to be struck between the payment of healthy and living salaries to civil servants (especially if we are to attract and retain talented skills), but caution needs to be exercised so that the country doesn’t end up with over 60% of its expenditure being allocated to salaries (especially if this done at the expense of funds dedicated towards capital programs).
The ratio between how much the country pays for salaries and how much the staff generates in terms of revenue for the country is crucial. Pay people what their due is, but the people must also generate what is adequately due to the country. The return on investment on salaries and revenue generated by such salaries should be clearly articulated and justifiable.
The funding of capital projects is important in the development of infrastructure for the country. A country with an efficient infrastructure is able to increase the ease of doing business and resulting in increased entrepreneurship activity, creating more jobs and reducing poverty and inequality.
– If there is anything to learn from the Greece debt crisis is that if a country spends most of its budget funding salaries (at the expense of developing the country and generating revenue), there is a risk that that country’s economy will not be sustainable to generate sufficient revenue to fund such salaries.
This will result in two predicaments: Reduce the salaries or look for other ways of funding for such high salaries which means using debt.
More debt and less income generation will lead to bankruptcy.
– The job numbers as highlighted in “Unemployment rate drops from 26.4% to 25% in second quarter” continues to confirm that the future of job creation in the country lies in the informal sector. Entrepreneurship continues to be the backbone of job creation in South Africa (and in any country). It is important that entrepreneurs are looked after, supported and nurtured.
– I wrote a blog a few months ago titled “How about a Ministry of Entrepreneurship (MOE)” in which I suggested that if we take entrepreneurship development seriously as a country, over a longer time we see less people relying on the government for jobs and social grants.
The impact of a high entrepreneurship activity will mean that the government will have to employ less people, which will be good news for Minister Nene in that it will mean less money will be spent on salaries for civil servants, less money on social grant expenditure, and more entrepreneurs means more taxes paid which will mean more funds dedicated to building infrastructure and developing more entrepreneurs.
– Instead of the government trying to create 500,000 jobs, how about we create 5000 entrepreneurs who (if well supported) will create 500,000 jobs, I think this is better than the government creating 500,000 jobs using taxes. More over, those 500,000 will be sustainable. This will result in less salary bill for the government and more taxes from these entrepreneurs.
The government should be not be the biggest employer, entrepreneurs should be. When entrepreneurs are the biggest employers, it benefits everyone.
– The relationship and partnership between the government and the private sector is critical. If the relationship between these two is non-existant, the following are the consequences:
* The government will not be flexible in relaxing the labour laws, because the government does not trust the private sector that it will not exploit labour (by paying them less than minimum wage)
* The private sector will withhold their reserves and not reinvested them into the economy in terms of expansion projects and job creation. There is about R1,2 trillion is sitting idle in the Reserve Bank and is not invested in the economy. There are many reasons for this, but one of the reasons is that this is the private sector’s show of no confidence in the way the economy is regulated by the government (especially the inflexible labour laws).
No matter the merits or not of their positions, maintaining the status-quo will stifle the development and economic growth of the country.
We need leadership that will see beyond the narrow self interest of the government and private sector individually. We need leadership with a vision that is of the greater good of the country. At the moment, it seems like we have self-interest trumping national interest. This needs to change.