by Stef Terblanche

South African economy

Country’s sustainability dilemmas continue mounting

National Development Plan2.jpg

The 8% per annum tariff increase just granted to national electricity utility, Eskom, again served to focus attention on the escalating number of sustainability dilemmas faced by the South African economy over a multitude of sectors. The National Development Plan (NDP) does recommend some remedies, but the country is a long way off from resolving most of these. 

In a number of key economic sectors as well as in the public sector, there is much pressure to deliver in line with national planning goals, but the means to do so are being severely eroded or undermined. This creates sustainability dilemmas that spell serious trouble for South Africa, unless speedily resolved.

As reported last week,the 8% per annum tariff increase over the next five years granted to Eskom by the National Energy Regulator of South Africa (Nersa) – only half of which Eskom had initially requested – may be good news for consumers and electricity users across the board.

Economists and analysts agreed that a 16% increase would have been a severe blow to the economy. Given a combination of factors, from rising fuel and food costs, high unemployment levels, serious labour pressures to global economic pressures, a 16% increase could have played havoc with growth and development plans as contained in the NDP.

The question remains, however: will the 8% increase be sufficient to allow for Eskom’s capacity expansion targets and to guarantee sufficient reliable future supply? If not, it would have serious long-term economic repercussions that could be worse than the crippling rolling power blackouts of 2008.

Mining

In the wake of recent violent labour troubles, numerous assessments concluded that many South African mines could no longer operate profitably, or even survive in some cases, without shutting down some mines and/or shafts. But that also implied major job losses, which goes against the grain and vision of South Africa’s new economic guiding light, the NDP.

Where mining companies have taken this option, it has brought the full wrath of government, the ruling party and trade unions down on them. Recent examples are Harmony Gold and Anglo American Platinum.

Mines are also under serious pressure from global economic conditions, both in their traditional markets such as Europe and the United States, as well as in new emerging markets. Market conditions for a number of mining types have been adverse for several years. Labour pressures and drastically escalated wage bills, sharply increasing electricity, transport and fuel costs, increased competition and more are all impacting negatively on the bottom line and on the struggle by South African mining companies to stay afloat – with no obvious solutions in sight.

Agriculture

After serious and disruptive labour unrest in the Western Cape agriculture sector, a similar and equally unsustainable dilemma is playing itself out on farms across the country. A 52% minimum wage increase granted to farmworkers brought it to R105 per day, which is unaffordable for many farmers.

There are already signs on many farms that mechanisation and restructuring, with resultant reduction in jobs, are well under way.

Various studies, however, have found that the R105 per day is still by far not enough to provide farmworkers and their families with a living wage and a balanced diet. 

While government has offered to assist those farmers who cannot afford the increase, it is widely doubted that there will be sufficient subsidies made available in time to avoid some drastic restructuring.

The choices farmers face are the following:

·       Pay workers more, with the NDP’s goals of increased employment and eradication of poverty, while possibly going under or ending in an unsustainable debt trap; or

·       Pay workers more while cutting back the workforce via mechanisation and restructuring; or

·       Stick to a below-minimum wage to keep workers employed below the poverty line, and in so doing fall foul of the law. 

Local government

Another unsustainable dilemma is the sorry state of local government. Despite repeated warnings from auditor-general Terence Nombembe in his annual audits, the treasury earlier this month for the very first time took action  against a municipality by suspending funding in terms of the Constitution.

But that may not be the answer, as it only shifts the burden to the provincial government while the affected municipality can no longer function and deliver services.

Government adopted a local government turnaround strategy in 2009 with great fanfare and set a number of priorities. Implementation has been extremely slow, however.

It has taken the department of co-operative governance and traditional affairs more than three years to draft a bill to give effect to recommendations contained in the strategy. It aims at speeding up delivery by amending or removing up to 300 clauses in various pieces of legislation. It is expected to be submitted to Parliament only later this year.

The latest of many plans by the ANC aims to redefine and re-demarcate the types of municipalities, their borders and jurisdictions in the face of rapidly escalating violent service delivery protests around the country. According to Municipal IQ, the number of protests rose dramatically in the first eight months of 2012 to 226, of which 80% were violent.

Furthermore, many key vacancies in local government remain unfilled or occupied by unqualified and/or inexperienced persons.

This problem arose from affirmative action and cadre deployment policies that removed valuable institutional memory and experience from the public service. The governing ANC recently acknowledged that its policy of cadre deployment is partially to blame and has pledged steps to address this. To date, in practice the opposite is happening.

One of the symptoms of the problems at local government level is that while earlier this month finance minister Pravin Gordhan budgeted R85 billion more for municipal infrastructure for 2013/14, by January – halfway into their current financial year – the majority of municipalities have managed to spend only a fraction of their budgets.

This untenable situation is only likely to be improved once local government administration and delivery is depoliticised and manned by qualified and experienced officials, better financial control and management systems as well as oversight are implemented, and feasible jurisdictions are established in line with sustainable demarcations, among many other things.

For the longer term, these are just some of the critical, unsustainable dilemmas faced by South Africa – with no easy solutions.

 

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