New partnerships are needed to arrest economic malaise in South Africa

This article was written by Steve Koch

South Africa’s Finance Minister Pravin Gordhan presented his 2016 mid-term budget on the back of a crisis in higher education funding characterised by widespread national student protests. The Conversation Africa’s business and economy editor Sibonelo Radebe asked Steve Koch to weigh the minister’s speech.

What is your reaction to the minister’s statements on funding higher education? Could he have done better?

The minister’s statements were well calculated, measured, and responsible in the current climate. The additional increase in National Student Aid Financial Scheme funds should go quite some way towards improving access to post-school education.

Assuming “better” means finding money to fund “free education for all, immediately”, the answer is no. Despite what student activists would like to believe, free education for all is pro-rich. This is because, disproportionately, students who qualify for post-school education come from richer households.

The answer is a more nuanced “maybe” if “better” means finding more money to help poor students fund their tertiary education. There are options, not necessarily palatable to all, such as privatisation of state-owned enterprises, which might raise revenue and reduce pressure on the fiscus. But changes of that nature would not be made in a medium-term budget. They would more likely feature in the State of the Union Address.

What should be done to address the higher education crisis in the long term?

There appear to be two components to this crisis. The one that appears to have driven the initial #FeesMustFall movement is that post-school education is relatively expensive and, even though funding for post-school education is one of the fastest rising budget items, student numbers have risen faster.

The bigger problem is that the economy has not grown fast enough to absorb workers for far too long. Students or their parents are left with potentially crippling debt and yet limited prospects to repay. Dealing with this will require some creativity, and a willingness to experiment to engender positive change in the economy. In my view, positive change requires opening up space and creating funding opportunities for entrepreneurs and businesspeople, while working to limit “rent-seeking”. Corruption, bribery and collusion are common forms of rent-seeking, which is the use of a position of power (political, economic or otherwise) to further your one’s own interests.

But one of the undercurrents of the current crisis is political, not economic. There is a desire for change, period. Thus, we see the rejection of democratically elected student council representatives, the rejection of current curricula and the rejection of socially accepted rules of engagement, among other things. Dealing with this will have to go far beyond the structures of a medium term budget.

What do you think credit rating agencies are taking out of this budget?

The medium term budget did not signal any big changes in policy associated with either large increases in budget deficits or long-term debt. And the minister was adamant that South Africa was able to control its own destiny.

These were important pronouncements because they underscored a commitment to budget sustainability.

The credit rating agencies are likely to take solace from this. But the minister is not capable of changing the economy overnight. And there are international risks, as well as local economic and political risks, beyond his control that remain important factors in credit rating decisions. Politically, uncertainty surrounding the minister’s continued appointment, as well as any potential replacement’s commitment to sound fiscal management, remains. Similarly, uncertainty surrounding the US Presidential elections, and the US’s continuing commitment to either free trade or Africa cannot be discounted. Economically, Brexit and the resultant relationship between Europe, the UK and Africa create further uncertainties about South Africa’s growth potential.

Given the prevailing political environment do you think the finance minister will achieve what he has set out to do?

One way to define the minister’s job description is that he has the responsibility to pay – sustainably – for activities that government would like to fund. He spoke about the realities of the local and international economic situation. He also restated the importance of creating a South Africa that was different (and far better) than the one inherited in 1994.

The reality is that government’s ability to directly fund new activities has decreased. But if business and civil society become more involved, government’s need to directly fund new activities will decrease.

For me one of the key takeaways was the message that the country’s full potential requires not just the government, but also the efforts of the private sector and civil society. If I’m reading this correctly it could herald the beginning of positive change in the economy and society.

It remains to be seen whether this theme permeates future government policy actions, or whether business and civil society begin to work with government and each other to achieve positive change. But the minister’s efforts are likely to open fiscal space, and, therefore, could help achieve what is required.

The Conversation

Steve Koch, Professor of Economics, University of Pretoria

This article was originally published on The Conversation. Read the original article.

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