While currently suspended, the tolling of the ring roads around Johannesburg is likely to go ahead eventually, despite the fact that it will undermine the New Growth Path in a number of areas.
Even at a greatly reduced cost, implementation of the toll road system around Johannesburg will represent an additional charge on road usage and so materially raise the cost of living or working in the city, due both to the increase in direct travelling costs and the higher cost of goods (and services) transported into or leaving the city. And as usual, it is the poorest members of society who will suffer the most from this rise in the cost of living, from higher prices for food and other basic necessities, to rising transport costs and an increased impediment to finding work.
This is despite the government’s New Growth Path specifically stating that it aims “to minimise costs for business”, “reduce cost drivers across the economy”, “moderate price increases” and prevent gains in competitiveness being “eroded by rising domestic prices“.
Indeed, there is a worrying trend in South Africa. It is one of a sharply escalating cost of living or doing business due to steep increases in administered (state controlled) prices. Rand strength has hidden this trend, but substantial currency strength is unlikely this year (and counter to government policy).
The New Growth Path also says that “most of the projected new jobs will come from the private sector”, but significantly raising the cost of doing business is not the way to achieve this, especially as it appears that the proposed toll system is not very cost effective.
There is also another, less publicised “cost” – the likely rise in the true level of unemployment in South Africa.
The official unemployment rate is ticking down, to 24 percent at the latest reading, below that of the second half of 2009. But the rate of broad (true) unemployment, which includes those termed discouraged work seekers – who want jobs but have not actively looked for work in the last four weeks – is running at 36.4 percent, well up from 29 percent in 2008.
One of the key reasons that the discouraged unemployed are unable to look for work is that they have run out of funds to do so. Discouraged job seekers want, and are available, to work or start a business immediately, but without the financial means to travel to areas with work opportunities, they are unable to do so. And the longer someone is unemployed, the more likely they will be unable to afford transport costs.
The New Growth Path says: “The Accelerated and Shared Growth Initiative for South Africa renewed government’s commitment to addressing joblessness and poverty and identified infrastructure needs (which includes reasonably priced transport), skills shortages and unnecessary regulatory burdens as core constraints on growth (job creation).
“That constructive and collaborative approach to meeting the challenges facing South Africa informs our (the New Growth Path’s) strategies going forward.”
The New Growth Path also goes on to say that “two key variables will affect the target of 5 million new jobs: the rate of economic growth and the employment intensity of that growth”.
But the operation of the proposed toll road system is capital-, not labour-, intensive with some of the revenue flowing to foreigners. The petrol price in Gauteng has risen substantially since October last year, by R1.35 a litre; and by R3.41 a litre since the start of 2009. While higher costs are passed quickly and directly on to consumers in the privately operated transport industry, the price of a fare is typically not reduced much, if at all, as the petrol price comes down.
And no, there is not a sufficient level of public transport available, due both to chronic over crowding and inadequate geographical coverage, a situation that worsens during strike action.
Already long commuting times would increase if more people switched to public transport. For many there is no choice but to take a minibus taxi to work as they cannot afford to be late, or public transport simply does not cover their route.
Taxes collected by the government via the fuel levy and licensing fees (vehicle and drivers) are not ring-fenced for the maintenance of the roads but go instead into general tax revenue – from which monies flow out to everything from rentals paid on government buildings, to the eNatis licensing system, Phakama billing system and the recent youth festival.
Government wastage, inefficiencies and overspending are severely increasing the indirect tax burden on South Africans.
The real risk is that the toll road model is rolled out right across South Africa (beyond the M1 and M2 freeways in Gauteng) because it is the poor that will be the most disadvantaged. The escalation in living costs and the costs of doing business will reduce economic demand and the demand for jobs, while pending labour legislation aims to remove temporary (piece) work – the last employment opportunity of the jobless.
The New Growth Path says that while its “goal of growing employment by 5 million new jobs over the coming decade is achievable; it cannot… be achieved with only a single policy instrument. It needs a package of interventions that addresses a range of challenges in the economy and that balances competing policy concerns while mitigating unintended consequences.“
The focus should then be on making substantial savings in government spending, specifically in areas of wastage and inefficiency, so that it becomes unnecessary to institute the new toll system in Gauteng, let alone anywhere else – particularly as the vast proportion of the roads to be tolled have already been paid for by taxpayers.
The reality is that rising administered costs, coupled with the proposed amendments to the labour laws, are disincentives – not incentives – for companies to hire more permanent staff.
The New Growth Path sums it up: “A zero-sum conflict over existing resources and jobs will not provide South Africa with a unifying vision. We need to grow both the size of the economy and the number of decent work opportunities it provides.”
In other words, those who take a larger slice of cake reduce the amount of cake available for others. As the government and state-owned enterprises’ increase revenue levels via direct and indirect taxes, the cost of living or doing business escalates for taxpayers. With only inflation, or no, increases in remuneration for individuals when the cost of living or doing business is rising faster than the official inflation rate, real economic demand will be negatively affected, reducing the impetus for job creation.
For companies, passing on the higher cost of doing business (which eventually all have to do) results in falling demand for their products or services, in turn reducing not increasing job creating opportunities. Albeit a small example, the tolling of the ring roads around Gauteng nevertheless will serve more to undermine than support the aims of the New Growth Path.
Annabel Bishop is an economist with Investec Group Economics