In an 1850 essay, French economist Frédéric Bastiat distinguishes between seen and unseen economic forces. He argues that “in the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects”. And that we too frequently focus too much on the visible effects, and too little on the unseen series of effects that follow.
Bastiat warns against pursuing “a small present good”, as this often means we face larger problems in the future. He recommends the more difficult and courageous path of suffering a “small present evil” to achieve “a great good to come”.
In short, economists have to be brave. We have to hunt for the important, unseen things. Often things we’d rather not see.
Last Wednesday’s medium-term budget policy statement (MTBPS) failed to see several important things.
Some analysts were expecting the results of the National Treasury’s efficiency reviews and previously promised introduction of zero-based budgeting. The latter has particular importance at local government level. However, finance minister Enoch Godongwana was silent on this. In fact, the MTBPS was achingly quiet on efforts to extract better value from the government’s existing efforts in general.
Another auditory lacuna was a detailed plan for forthcoming tax hikes. The February 2024 budget has been flagged to include new taxes and raise tax rates. These efforts are tipped to be an attempt to raise an additional R15bn in revenue. However, the lack of specifics is troubling. Individuals and businesses are left wondering how they will be affected. As we so often say, commerce can deal with challenges, but uncertainty kills.
The statement also dodged something that gets plenty of airtime around boardroom tables and over casual coffees. Unproductive, frivolous and inefficient spending is the sort of thing any financial executive would tackle first as part of any cost-cutting mission. You’d look at luxury travel, waste and staff parties. Buried in here are quick financial wins. In total across an entire government, savings on these non-essentials can be a meaningful figure. This administration doesn’t appear to take such a measure seriously.
One example of a “small” sum being ignored is the controversial R6.2m “leave in gratuity” payment for former deputy president David Mabuza. Taxpayers deserve an explanation for this apparent golden handshake. A few million rand may be a rounding error in the affairs of state. But we must not lose sight of the fact that, put to good use, R6.2m could transform the lives of many South Africans.
Godongwana also failed to acknowledge one of the few strokes of very good luck we have had. A global resources boom in recent years is the only thing that helped us improve our post-Covid fiscal health. It is important to say the quiet part out loud: it was not due to our own actions that we escaped falling off the still-impending fiscal cliff.
In fact, our own failures meant we could not take full advantage of this good fortune. Had Eskom and Transnet been operating well, we could have exported far more resources and done so at a lower cost per unit.
Finally, the Treasury failed to give a voice to growing calls for a debt rule — a target for debt as a percentage of GDP (see graph). South Africa is part of a small minority of countries that have an expenditure rule, but no debt rule. This is like having a lid on a barrel, but holes in the bottom.
While the primary expenditure ceiling has helped the country reduce pro-cyclicality in the economy, it has failed to stave off a rapidly worsening debt-to-GDP ratio.
The MTBPS was achingly quiet on efforts to extract better value from the government’s existing efforts in general
A menu of solutions
We’ve taken a dour tone thus far — justifiably so. The failures and omissions in our fiscal management deserve strong criticism. However, we know well that many countries have faced up to fiscal nightmares, instituted the right policies and prospered as a result.
Chile is a good example. The South American nation shares many fundamentals with South Africa. Both are relatively small economies in a highly globalised world, have dominant resource sectors and happen to be a long way from developed markets.
Chile took its medicine. It made the unseen seen. Its growth rate overtook ours in the late 1980s, and it hasn’t looked back.
Our list of complaints is also a menu of solutions. Unlike the whims of the resource cycle, these are things that can be brought front and centre and acted on — if we choose to do so. One purposeful step at a time.
* The Centre for African Management & Markets at the Gordon Institute of Business Science conducts academic and practitioner research and provides strategic insight on African markets. Macleod is a founding member, Saville is the founding director and Fouche is a research fellow at the centre
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