28 June 2020
The hippopotamus must be stopped in its tracks
On Wednesday, Finance Minister Tito Mboweni issued a chilling warning on the country’s financial position in his supplementary budget.
Mboweni said South Africa was facing an economic collapse akin to Zimbabwe in the early 2000s, Germany in the 1920s and Argentina, if we don’t arrest our runaway debt.
The former governor of the Reserve Bank told the nation in the clutches of the COVID-19 global pandemic that the gross national debt will be close to R4-trillion, or 81.8% of the gross domestic product by the end of this current fiscal year.
Simply put, by the end of the current financial year, most of what we produce in this country will be going to servicing debt. We pay 21 cents in debt service fees for every rand paid in tax.
Look at it as if it were your salary. What happens when 80% of your salary goes to paying your debts? You are unable to meet many of your financial responsibilities, forcing you to be enslaved by loan sharks who make you pay high interest rates every month. Some even keep your ID to control your life.
Mboweni was sounding the alarm bells on a looming sovereign debt crisis so that we don’t end up with loan sharks that will hijack the running of our country as part of loan repayments.
If we don’t stop our debt, the results will be devastating, the finance minister said, noting that interest rates will skyrocket, spending on key areas such as education will be crowded out, inflation will take hold and people will get poorer.
But what scared me the most were these words from Mboweni: “Our herculean task is to close the mouth of the hippopotamus. It is eating our children’s inheritance; we need to stop it now.’’
Although Mboweni did not speak about state-owned enterprises on Wednesday, many of us know that government entities have been one of the biggest strains on the fiscus. Of course, the ballooning public wage bill, general inefficiencies in the state including inflation of tenders, are top on the list of things that have hollowed the public purse.
However, state-owned enterprises (SOEs) – at a local, provincial and national level – have been the main contributors in draining public finances. Over the years, billions of rand have been poured into the bottomless pits that are SOEs in the name of bailouts. And they keep coming back for more, year after year.
Recently, the SABC and SAA announced they would have to cut hundreds of jobs, among other measures, in order to save the entities from going under. At the heart of the troubles bedevilling these public companies is years of state-capture looting and poor governance.
Ideally, state-owned companies should play a central role in the economy to not only generate income for government to fund services such as education and health, but also create jobs.
Our SOEs are supposed to be instruments of economic transformation and development. Our development finance institutions such as the Public Investment Corporation and the Industrial Development Corporation are supposed to be leading efforts to transform the economy from being white dominated to reflecting the country’s demographics.
These key institutions are supposed to create entrepreneurs who should lead an industrial revolution to build factories to manufacture products for our own use and exportation. Sadly, our SOEs had over the years become havens of looting and would soon be the killing fields of jobs in a country whose unemployment sits at a record 30.1%.
Instead of leading efforts to preserve and create more jobs amid the economic calamity unleashed by COVID-19, our SOEs are sites of a jobs bloodbath.
It is easy to argue for the poorly performing SOEs to be sold off to the highest bidder. The state, the argument goes, should not be preoccupied with participating in the economy, but rather create conditions for private enterprises to thrive. Right? It is not that straight forward. A country like South Africa needs a capable developmental state whose companies deliver cheaper services for citizens in critical economic sectors such as transport, water, telecommunications, freight and others.
Imagine if the Passenger Rail Agency of South Africa was to be sold to these greedy, profit-driven private companies? Can we afford to privatise the SABC, Eskom, SAA and Denel?
Would the poor afford electricity? Would they cope with the costs for trains and buses, if they were privately run? Can a country that takes itself serious ly afford to have its arms manufactured by a private company?
There is no question that our SOEs need sweeping changes to rid them of the elements of state capture and years of corruption and mismanagement. Some may even need to be merged and others sold. That is a given if they are not going to continue to gobble public money like a hippopotamus.
The years of state capture looting are coming back to haunt us. Innocent people are going to pay with their jobs, while the country is teetering on the brink of falling into a debt hole that could eat our children’s inheritance.