SA must boost supply side, say experts

By Time of article published Feb 28, 2011

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Economists from the left and right of the spectrum agree that Finance Minister Pravin Gordhan’s budget carries real dangers of overemphasising the demand side of the economy, while stimulation for the supply side is lagging.

Iraj Abedian, Pan African Holdings chief executive and one of the architects of Gear, said the minister had made two stern warnings in his budget last week. One was the doubling of the public sector wage bill. The second concern was the growth of debt service charges.

“Essentially the rate at which the wage bill is rising is unsustainable unless there are commensurate rises in the productivity of the public sector labour force,” said Abedian, a centrist economist.

There was also the problem arising that South Africa was not productive enough to generate the taxes needed to cover the wage bill, which had implications for rising debt.

The growing spend on social welfare grants was also worrying, he argued.

“The more you spend on welfare, the more you create backlogs in the road network, the power network, urban infrastructure networks,” he said.

The job creation drive by the government would not find practical expression “unless the private sector comes to the party” and involved itself in learnership programmes and took up sudsidies to create economic activities that generate work – in this case mainly for the unemployed youth.

Progressive economist Colen Garrow from Brait said the New Growth Path’s emphasis on creating jobs would probably be “at least partly successful”. It was a “new experiment” and would likely create some of the jobs that were targeted – 5 million over 10 years. South Africa had a way of “muddling” along between any two extremes.

Cosatu had, he noted, objected to the employment subsidy system – to mop up youth unemployed by providing companies with subsidies – on the grounds that it could create a two-tier employment structure. This could mean that employers would get rid of seasoned workers because they were more expensive and employ subsidised young people.

However, Garrow said this was unlikely because the economy was skills hungry.

Garrow noted that President Jacob Zuma had emphasised that South Africa was not actually a welfare state but was aiming to be a developmental state in which people must pay their way.

However, Mike Schussler, the chief executive – a more conservative economist – said South Africa was already “the biggest welfare state in the world”. Just 2.1 million taxpayers of the 5.9 million personal taxpayers paid 90 percent of the tax. With 13 million employed – slightly more than the 12.1 million reported to be employed in the budget – there were 15 million on social welfare grants.

This meant that each taxpayer was paying for three on social welfare, which was simply not sustainable, argued Schussler.

South Africa was throwing money at education. Each child was subsidised at school to the tune of R12 000 a year. This was four times the child welfare grant, he noted. Yet the products coming out of the schools were not improving and there was a major skills mismatch.

Schussler said the government needed to lower the cost of doing business to fast-track job creation. It needed to ensure that the roads, the railways and the harbours worked.

“We have to make sure that we get the right workers trained from our education system.” - Donwald Pressly

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