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The South African economy is stuck in first gear. Slow economic growth, high levels of unemployment and high inflation is likely to continue for some time.
 

 
South Africans face the most difficult economic conditions since 2009.
 

 
These tough economic conditions are highlighted by the following indicators:
 
 

• 35.6% of South Africans are unable to find work. The expanded unemployment rate reached 35.6% in the 2nd Quarter of 2014, increasing by 0.5 of a percentage point between the first and second quarter.
• Our economy is no longer the most competitive economy in Africa.
• Inflation is at 6.6%, which is above the Reserve Bank’s 3% to 6% target range.
• Government debt to GDP has increased from 27% in 2009 to 46% this year.

 
With South Africa facing such difficult economic circumstances, it is expected that in his Medium Term Budget Policy Statement on Wednesday, the Minister of Finance, Nhlanhla Nene, is going to face significantly reduced revenue in his budget. There is therefore every possibility of cuts to the budget, or a dramatically increased budget deficit.
 
 
No matter what selection of excuses the Minister chooses to use, be it the global economic climate at present, or be it the platinum strike and its impact on the economy, the reality remains, government is responsible for the mess we are currently experiencing. This is a type 1 case of self-inflicted pain.
 

 
We would never have been in our current fiscal situation if government was able to curb wasteful expenditure. The SIU estimates that we lose more than R30 billion per year to waste and corruption.
 

 
Therefore every cut Minister Nene makes tomorrow, whether it is to education, health, infrastructure or social development, must be viewed in light of ineffective financial management and corruption.
 

 
With the economy in shambles and government spending out of control, the DA calls on Minister Nene to show bold leadership and adopt steps which will address the current situation.
 

 
We believe this can be achieved by addressing the following three key issues:
 
 

• Getting the deficit under control
• Increasing economic growth
• Cutting wasteful expenditure

Fiscal Deficit
 

 
South Africa’s fiscal deficit currently stands at 4% of the Gross Domestic Product (GDP), making South Africa’s current deficit R153 billion.
 

 
The DA suggests at least four areas in which government spending must be cut in order to reduce the deficit:
 
 
Wasteful expenditure. As alluded to above, wasteful expenditure is the biggest financial risk to South Africa at present and is exacerbated by the scourge of corruption in the public sector. Instead of cutting funding toward public services, government must ensure departments and their entities are held to meticulous account for their spending. We must stop the annual R30 billion loss in corruption and waste.
Stop bailing out unviable state owned enterprises like SAA. State owned public enterprises lie at the heart of the ANC’s “developmental state” model, but the irony is that the majority of these enterprises are actually blocking South Africa’s development. The Minister must cut financial bail outs to state owned enterprises, and encourage private capital funding of these enterprises.
Stop allowing the above-inflation pay hikes for public sector employees. The public sector wage bill is one of the government's biggest expenditure items. It currently amounts to R439 billion for the 2014-15 year.  The DA expects Minister Nene to streamline certain parts of the public sector to rid it of deployed cadres, particularly in senior positions, who essentially do nothing but put a financial strain on the state.
Streamline the economics ministries to save costs and facilitate better policy coherence. South Africa has one of the largest cabinets in the world, with more cabinet ministers than the US, Germany and Japan, all of which have much bigger economies and broader tax bases. With 35 ministerial portfolios, the positive benefits of such a large cabinet are unclear. Some of these departments are superfluous and must be disbanded. Their powers and functions must be returned to the previously-mandated departments. In addition, the DA would eliminate the large cost incurred by maintaining a ring of Deputy Ministers for all government departments, who require housing, staffing, travel, security, vehicles, offices, executive salaries, but have no clear mandate to deliver. With the country fast approaching an economic crisis, we must learn from developed nations that a bigger cabinet does nothing but cost government money. Cutting Deputy Ministers would free up multiple millions in annual funds which can be channelled into several front line service delivery departments.
 
Slow rate of Economic Growth
 

 
In his budget speech in February this year, former Finance Minister Pravin Gordhan predicted economic growth at 2.7% for 2014. This figure has recently been slashed to almost half of that, with revised predictions by the International Monetary Fund (IMF) and the Reserve Bank at 1.4% and 1.5% respectively. This is a matter of great concern, as without high growth, jobs are simply not created, and government revenue is lower than anticipated.
 

 
The DA believes that the following seven measures can help to kick start growth:
 
 
Regain confidence in mining and manufacturing sectors by reforming labour relations. The mining and manufacturing sectors are important players in our economy, as significant contributors to our tax base, and major job creators. However, recent labour unrest has led to a decline in investor confidence and uncertainty as to future investment. It is estimated that approximately R5 billion in corporate tax mining revenue is set to be lost this fiscal year, due largely to the 5 month long platinum strike earlier this year. Reform measures to labour relations must be announced, which will regain confidence in these sectors, and save jobs.
Increase spending on infrastructure and transport. One of the most frequently expressed concerns relating to South Africa’s growth is inadequate infrastructure. This directly affects the high cost of doing business in South Africa, as foreign investors look to other developing economies where costs are significantly lower. Minister Nene must commit to not wavering on the spending on infrastructure set out in the NDP, and ensure that there are no cuts to infrastructure spending.
Abolish exchange control to encourage foreign investment. The archaic, out of date foreign exchange control regime leads to the decline of investment in our economy, which severely hampers growth and job creation. These exchange controls act as a tangible vote of no confidence in the government, by the government. The Minister must therefore announce a plan to abolish exchange controls once and for all, so that local and foreign investment in our economy is stimulated.
Promote, support and encourage entrepreneurship with new incentives. Entrepreneurs and small businesses are at the very core of job creation. An increase in SMME’s spurs competition, promotes innovations, and ultimately creates new jobs for the 35% of South Africans who find themselves without work. The Minister must commit to increasing budgets to competition authorities, incentivizing small business development by investing in support programmes for SMME’s , and cutting red tape to assist and simplify the entry of new players in the economy.
End policy gridlock by shelving the New Growth Path, disbanding the economic development department and focusing solely on the NDP. It is time for government to finally and unequivocally speak with one voice on the country’s economic policy and its implementation, as uncertainty inevitably hinders both growth and job creation. For the economy to grow, we must attract foreign spending in our economy. However, investor confidence, both from within our borders and abroad, is seriously impeded by the uncertainty relating to government’s economic policies.
Promote and simplify trade across boarders by spending more on export promotion. South Africa is falling behind in terms of modern day international trade. According the World Bank,  South Africa is ranked 106 out of the 188 countries for “trading across borders”. Moreover, only 1.48% of the Department of Trade and Industry’s budget is spent on trade promotion. This is concerning, as trade is one of the primary methods in promoting economic growth. The story is simple: Our exports are decreasing while our imports are increasing. This needs serious attention.
Improving local government efficiencies to improve service delivery and spur growth at local level. By opening up all local tender processes, local governments can save money, deliver more and grow the economy from local level.

Issued by DA