Chris Adendorff and Des Collier are working on the second edition of their book, to be published early in June, on possible futures for South Africa towards 2055 based on the outcome of the upcoming election, with particular reference to the Fourth Industrial Revolution. This is the fourth in a series of articles written by them published in the Daily Dispatch in the run-up to the May 8 general election
Making sense of the economy
In his maiden Budget Speech in February 2019, Minister Mboweni said he was planting a new seed as he walked a narrow path between what the ratings agencies would allow before an economic downgrade, and what was needed to provide monetary policy certainty.
Reminiscent of his esteemed predecessor, Trevor Manuel, who had been the longest-serving Finance Minister from 1996 to 2007, and who presented the media with plums when he presented the February 2003 Budget, Mboweni offered a seed of aloe ferox which, he said, is resilient, sturdy and drought resistant.
Challenges facing SA leadership and citizens
With regard to fiscal policy, the government has managed to keep the overall deficit within a range of 4-4.5% of GDP in recent years, with spending and revenue levels remaining largely unchanged (as a percentage of GDP), reflecting fiscal discipline. However, most public spending has been for recurrent expenditure (such as wages and salaries), while capital expenditure (most of which is for infrastructure, notably transport and logistics, energy, and water and sanitation) has been inadequate.
South Africa’s financial governance systems are robust, but challenges remain at decentralised levels. Unfavourable audit reports from the Office of the Auditor-General continue to identify high levels of irregular, wasteful and unauthorised expenditures. These challenges are not confined to municipal and provincial public institutions but also occur in state-owned enterprises, including the country’s public electricity utility, Eskom.
Drought resistant but…
South Africa has a vibrant private sector, generating 75% of the country’s GDP. The overall business environment is comparatively well-developed, but significant challenges remain, notably in terms of energy access, trading across borders and red tape. South Africa’s ranking in the Ease of Doing Business Index has deteriorated in recent years. The main reasons for the deterioration are counter-productive reforms that created more obstacles to doing business, such as the introduction of regulations making access to credit information more difficult, an increase in property transfer taxes making the registration of property more expensive, and higher vehicle taxes.
South Africa’s financial sector is very well developed yet highly concentrated. The economy continues to balance precariously on a minimal tax base. About 18 million people, out of a total population of around 56 million, live on social grants; while around two million taxpayers account for 70% of the country’s PAYE income.Mboweni indicated that the Treasury would not be able to provide R100bn in debt relief all at once but would provide R69bn spread over three years. In order to fund this, tax brackets would not be increased to compensate for higher salaries, and expenditure would be reduced by R50bn by reducing the public sector wage bill.Will the elected government indeed choose to provide SA with transformed leadership, willing to make unpopular but necessary monetary decisions after May 8? And will citizens continue to rely on handouts or choose to become productive and self-supporting?What are the possibilities?Megatrends driving social and economic change
Increasing division of wealth between rich and poor.
International finance will become more important, domestic capital less.
International finance will become more selective, comparing between cities.
Taxation will continue to be a strong determinant of capital flows.
New ecological accounting mechanisms will play an increasing role in real estate finance and development.
Forecasts towards 2030
By 2030, over 10% of all global financial transactions will be conducted through crypto-like or synoptically driven currencies.
Crypto-like currencies in our immediate future will do to banks what e-mail did to post offices in the past.
4IR and social drivers of changeLike the revolutions that preceded it, the Fourth Industrial Revolution (4IR) has the potential to raise global income levels and improve the quality of life for populations around the world. At the same time, the revolution could yield greater inequality, particularly in its potential to disrupt labour markets.The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital – the innovators, shareholders, and investors – which explains the rising gap in wealth between those dependent on capital versus labour.This helps explain why so many workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate.It also helps to explain why middle-classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness. A winner-takes-all economy that offers only limited access to the middle-class is a recipe for democratic malaise and dereliction.Discontent can also be fuelled by the pervasiveness of digital technologies and the dynamics of information-sharing typified by social media. More than 30% of the global population now uses social media platforms to connect, learn, and share information. In an ideal world, these interactions would provide an opportunity for cross-cultural understanding and cohesion. However, they can also create and propagate unrealistic expectations as to what constitutes success for an individual or a group, as well as offer opportunities to spread extreme ideas and ideologies.In the end, it all comes down to our people and their values.Realising the possibilitiesMinister Mboweni said the Budget was built on six fundamental prescripts, namely: achieving a higher rate of economic growth; stabilising and reducing debt; reconfiguring state-owned enterprises; managing the public sector wage bill; increasing tax collection; and reasonable, affordable expenditure.Will the elected government choose to make these the orders of the day after May 8? Will citizens choose to believe that the 2019 Budget lays the foundation for a sustainably higher GDP growth trajectory? Ratings agencies and investors will be watching closely how the elections unfold and, very importantly, how SA manages the Eskom turnaround – the 4IR cannot be without power.When possibilities aboundClearly, the potential exists for us to be part of a national future that would have been virtually unimaginable a generation ago. The reality, though, is that the best-case future for SA is neither inevitable nor will it happen without active participation and commitment from multiple stakeholders.Chris Adendorff, Amathole District Municipality management and political leadership used a future scenario-based method as part of strategic planning, at a district level, to support decision-makers by identifying risks and opportunities in present and future trends that can assist in the planning, implementation and evaluation of projects, as well as informing the policy debate.A number of game-changing actions are possible, as summarised in the following example relating to inclusive economic growth.There are many challenges and opportunities that could be focused on in terms of keeping local economies on a path towards inclusive economic development and sustainable growth. However, we believe the following five priorities for action will be critical towards 2030:
Embracing shared value: Pursue profit with purpose to achieve shared value.
Promoting partnerships: Form collaborative partnership across business, government and social sectors.
Fostering entrepreneurship: Create enabling conditions for entrepreneurs and actively support SME development.
Accelerating regional integration: Accelerate the process of developing regional markets with critical mass.
Bridging the infrastructure gap: Implement enabling infrastructure for growth.
These priorities led to the following game-changing actions:
Develop entrepreneurship to promote own local economic development.
Promote smart partnerships between anchor institutions and local communities towards 2030.
Restore smart job centres in districts towards 2030.
Expand access to more well-paying jobs to ensure wealth creation in local districts.
Increase smart public participation efforts in local municipalities.
Make the processes of project planning and development more inclusive, predictable and efficient at district level.
Make district property taxes fairer.
Build affordable social housing in all district communities.
Increase smart housing supply in local districts without constructing new buildings towards 2030.
Chris Adendorff (PhD, DBA, PhD) is adjunct professor at NMU Business School in Futures Studies and Commerce. He is chairperson of the Aspire Development Agency in the Amathole District and serves on the Presidential Commission on the Fourth Industrial Revolution. Des Collier is a freelance writer/author and sole proprietor of Colliers Corporate Communications..