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Investment, not social welfare, key for SA economy, says Mboweni

Former South African Reserve Bank Governor Tito Mboweni says a challenge for fiscal policy is that it needs to shift into investment and not just public sector wages and social grants. ‘Let us not waste the opportunity of the commodity tax windfall’, he says. Picture: File

Former South African Reserve Bank Governor Tito Mboweni says a challenge for fiscal policy is that it needs to shift into investment and not just public sector wages and social grants. ‘Let us not waste the opportunity of the commodity tax windfall’, he says. Picture: File

Published May 5, 2022

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Former finance minister Tito Mboweni has warned that South Africa’s economic growth will remain stagnant if the government does not change its policies to focus more on investment instead of social welfare.

This opinion against the expansion of a social welfare net, among some of his eccentric views, is probably the main reason Mboweni has clashed with the powerful trade union movements and socialists within the ruling party alliance.

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Speaking at the PSG Konsult annual conference yesterday, Mboweni cautioned against populist policies especially those implemented to appease voters after the ruling party lost electoral support.

Mboweni said that the expanding social expenditure bill needed to be reined in, particularly since the social sector already accounts for about 60 percent of the consolidated budget.

“A challenge for fiscal policy is that it needs to shift into investment and not just public sector wages and social grants. Let us not waste the opportunity of the commodity tax windfall,” Mboweni said.

“As people go around talking about the basic income, they have to be careful about where we want to take the country to. Yes, there is massive poverty and we must make interventions, but I'm not quite sure [that] a basic income grant is where we should go,” he said.

In February, President Cyril Ramaphosa announced the extension of the R350 Special Covid-19 Social Relief of Distress Grant for another year to March 2023 to ensure that no person in this country has to endure the pain and indignity of hunger.

Social welfare lobby groups have been calling for a universal basic income grant as South Africa has the highest unemployment rate in the world, affecting 12.5 million active and discouraged work-seekers.

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Mboweni says, given South Africa’s unemployment time bomb, the country needs to invest massively in infrastructure development as the construction industry is a huge creator of jobs.

The former minister said even though South Africa’s economy bounced back quickly from the Covid-19 setback, it was still at levels last seen in 2017.

“That short-term V-shaped recovery, there's not much to write home about it. It was recovering from a very low base,” he said.

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Mboweni said the 1.2 percent economic growth realised in the fourth quarter of 2021 painted the true picture of stagnation, proving that the target of growing the economy by 5 percent by 2030 was but a dream.

He said there were many other pre-conditions for achieving higher economic growth that were not present in the case of South Africa, especially with the prevailing energy crisis.

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“Eskom is a major constraint to economic performance,” he said.

“A capable state is very important. A state that is going to fix the roads and do all of those things, it’s very important.

“Where the state cannot fill the infrastructure gap, the government should let the private sector help.

“The key thing that has happened in the transport sector is that the government has accepted that private operators can operate on the Transnet rail system. That's a huge development.”

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