Sifiso Skenjana | Inequality in SA is about to get uglier

On 14 April, Finance Minister Tito Mboweni released a long-awaited media briefing detailing phase one of the response to the health, economic and financial crises facing the country on the back of the coronavirus pandemic.

The briefing highlighted the initiatives undertaken by National Treasury, the South African Reserve Bank (SARB) and the top five banks in the country and highlighted that phase two was underway and would be communicated in due course.

The criticism that that has been levied has been that the economic cluster, including National Treasury, have been slow to respond and that the impact of this will be most felt by the poor and vulnerable people in our society and will likely worsen the inequality.

Since then, President Cyril Ramaphosa has released a historic R500-billion stimulus plan aimed at cushioning the economic and social impact of the pandemic on South Africa.

Risks to service delivery

Between 1 July 2018 and 30 June 2019, municipal borrowing in the form of shorter term loans showed a sharp spike, rising from R41.7 billion to R50.8 billion over the 12-month period, while longer term borrowing in the form of municipal bonds decreased marginally from R18.6 billion to R18.2 billion over the same period.

According to National Treasury, municipalities in Bloemfontein had the highest number (84{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}) of creditors outstanding payments older than 90 days, followed by the North West at 81.1{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}, pointing a looming liquidity crunch.

Almost a year ago, this was a glaring red flag of deteriorating municipal finances. In addition, there were 87 listed “dysfunctional” municipalities as identified by CoGTA and 113 municipalities in the 2018/2019 financial year which approved/adopted unfunded budgets.

The Covid-19 pandemic adds additional strain to the state of municipal financing. Moody’s Ratings agency in the 15 April 2020 statement said that they “expect temporary disruptions to the revenue collections across all municipalities” which will lead to lower collection rates, higher bad debt provisions and ultimately to a decline in operating balances for the next one to two years.

Lower operating balances means that service delivery happens at reduced capacity, at a time when the provision of such goods and services are most needed, particularly in the vulnerable communities.

The unfair privilege of a digitally intense economy

The Finance and Business Services sector contributed 20{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} to GDP in the 4th quarter of 2019, according to Stats SA, followed by Government at 18{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} and Trade at 17{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}.

Finance, the sector with the highest propensity to work remotely in a forcefully digitised working environment as a result of the national lockdown, accounts for 15.6{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of the labour force; this means that these workers have the highest propensity to retain their jobs during and post-Covid19 – ironically these workers are on average of a higher skills’ profile and have, on average, a higher wage profile.

Sectors like mining, construction, private households, tourism etc. have faced a complete shutdown with very little opportunity to do remote work. These sector participants are also coincidentally the lower wage earners in the economy.

This dichotomy exacerbates an already bleak picture of inequality and social and economic marginalisation of vulnerable groups.

In the same vein, some of the more prominent universities like the University of Cape Town and the University of Witwatersrand (Wits) have been able to negotiate with network providers to zero-rate access to their websites and learning material. Wits has also started delivering laptops to the learners who are unable to do remote learning due to lack of affordability. This is, however, likely an unachievable feat for universities like Walter Sisulu University, which tends to be home to poorer students.

Structurally, the economy lends itself to this unfortunate prospect of worsening inequality during this time of crisis and the interventions that will follow from the economic cluster and from the National Treasury ought to reflect and address this leakage to ensure the marginalised pockets of our society are not left unattended.I

Sifiso Skenjana is the Chief Economist and Thought Leadership Executive at IQ Business. Views expressed are his own. Follow him on Twitter: @sifiso_skenjana

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