There is no denying that Eskom’s shortcomings have had and likely will continue to cost the economy, which, despite what the recent GDP figures imply, is still in bad shape.
Giving the power company the money it needs to keep running, even if it’s a swan song, should be a priority. But the budget tightening, which has won Treasury plaudits from many conservative commentators, cannot be undone on a whim.
Yes, Eskom’s decline is economic poison. So is the government’s fiscal strategy, which should be roundly criticized, and not just when the lights go out.
Last week, as the country plunged back into the dreaded upper stages of load shedding, Eskom explained that the depletion of its diesel budget had forced it to strictly conserve fuel for dire emergencies.
The diesel problem is complicated. The price of fuel, needed to run Eskom’s gas turbines, has increased dramatically over the course of this year amid Russian sanctions.
Meanwhile, Eskom’s plant outages reached peaks in 2022 that forced the utility to turn its turbines on full force to prevent the inevitable. Even if Eskom had all the diesel in the world, it wouldn’t be able to get it to its plants fast enough to avoid blackouts.
That being said, in situations like these, the government should be able to reach into its coffers. Doing so would at least soften the blow to the economy, which has struggled to gain momentum for the past decade or so.
Tellingly, last week, despite a much better than expected GDP print, most economists remained pessimistic about South Africa’s long-term growth prospects. The stubborn energy of the country
The crisis was widely cited as the reason to be cynical.
Last month, when the Reserve Bank of South Africa cut its growth forecast, its monetary policy committee noted that the burden reduction could cut 0.6 percentage points of the country’s GDP in 2023.
In the context of chronically low growth and high levels of unemployment, burden reduction is a major threat to economic and social stability. Mind you, the current high levels of load reduction have come painfully close to the ANC’s elective conference and while the ruling party is in the midst of a presidential scandal that has inspired more damaging uncertainty.
All of this constitutes an emergency and should be treated as such.
But the government’s budgetary mechanisms, over which the treasury has maintained tight control for the past two years, aren’t exactly geared toward responding to emergencies.
Government bureaucrats also appear to lack the foresight necessary to manage an economy that has become increasingly precarious and therefore vulnerable to even the most seemingly benign blows.
Last week, in response to calls to intervene, the Treasury noted: “The staggered nature of the budget process, which allows for necessary legislative and executive oversight, as well as informed planning on how to allocate the country’s scarce financial funds.” resources, makes it difficult to consider and accommodate any ad hoc funding requests outside of this process, especially large requests that are made at short notice.”
In the context of fiscal prudence, the Treasury position on the diesel dilemma makes a lot of sense. The budget is strictly managed and the government cannot easily access its coffers for something that has not been budgeted for.
But as the Bureau of Economic Research pointed out this week, not providing the funds comes at a huge cost to the economy, far more than the roughly R19bn Eskom is asking for.
That said, the Treasury has always said that in the era of tight public finances, when fiscal flexibility is constrained, there will always be trade-offs. Many of these tradeoffs have already occurred, and while it may be much easier to turn a blind eye to them, each one has been detrimental to the long-term health of the economy.
Every day we witness the results of inadequate public spending. Although much of this can be attributed to corruption and financial mismanagement by the government, the fact is that long-lasting fiscal policy means less money goes into building and maintaining infrastructure that is vital to the economy. .
Last week many of us watched as roads were washed away by floods that swept through some of Johannesburg’s poorer suburbs. The government has been disastrously slow to build climate-resilient public infrastructure, and we have already paid a heavy price for this.
Grid, water and electricity infrastructure is fraying, putting increasing pressure on the public and businesses. Low levels of public sector investment suppress private sector investment and thus the growth potential of the economy.
Then there is the issue of subsidies. We can argue at length about whether a basic income subsidy would stimulate economic growth or whether the current social subsidy system is good or bad for employment. But the fact is that millions of South Africans depend on income support.
When grants don’t keep pace with inflation, the government puts its recipients in an even more precarious position, creating discontent. Last year we got a taste of what happens when government pockets aren’t as deep as the crisis facing its citizens, and the economy suffered.
There are estimates of how much the Eskom fault damages the economy. It is less easy to determine the extent to which austerity has done the same. But one only has to look at the country’s slow pace of economic growth over the years to get an idea.
The easy solution is to hand over state management to the private sector. At least that’s what the government and business would have us believe, although there is no evidence that declining public sector participation in the economy creates inclusive growth and helps prevent our current crises from deepening.
South Africa’s fiscal policy needs to be more sensitive to the reality we face. As long as this is not the case, the country’s economy will continue to falter.
Sara Smith is a mail and guardian business reporter
