Later today I will be joining fellow directors from Business Unity South Africa to launch important research on the public sector wage bill at a media conference.

As we know from the medium-term budget policy statement, the government has committed to reigning in public spending, particularly on consumption, to rescue our public finances. The research interrogates the wage bill in a global context to determine how much of an outlier South Africa’s situation is by world standards. It pulls together all the evidence on how this plays into our economy and why it is important for government to act.

The MTBPS provided the data on how we got into this situation: excessive increases in salaries for public sector workers. Since 2008 the real cost of the wage bill has risen 51%, driven mostly by increases in salaries rather than headcount. Since 2006/7 public-service remuneration has increased faster than per capita GDP and is now 4.7 times larger. For 15 years, public sector wage increases have outpaced per capita GDP growth by an average of 1.5% each year.

In the private sector, labour markets are competitive and firms have to pay salaries to attract the workers they need. But when there is a major economic contraction, this is reflected in wages as firms react defensively to protect themselves. That has been clear during the Covid-19 crisis: between the first and second quarter this year, nominal wages fell by 8% in the private sector, but grew by 1% in the public sector, according to StatsSA data. (Note this is wage levels of those who remained employed. The total wage bill in the private sector fell by 15%.) Wage responsiveness to economic conditions is a reality that the private sector must live with and one the public sector has not had to consider for over a decade. We need more thinking about the productivity of the public sector and how the state can maximise the value it adds in our economy.

The MTBPS set out a plan for public sector wages. There are no actual cuts proposed, merely restraint on the rate of growth. For the current year, the wage bill will grow 1.8% and 0.8% on average over the next three years. That is still a far better outcome than what the private sector has had to endure over the last several years, but one that will turn the dangerous trend in public finances.

We will send out today’s research report after it is released. It makes an important and detailed contribution to the debate.

The main lever that the state has to boost private sector investment is through creating policy certainty. The state needs to unlock opportunities for the private sector not only to participate in infrastructure projects but to lead them, because it has the expertise to do so. I was therefore pleased to see that government seems to concur: President Cyril Ramaphosa said last week that the state would use a blended financing instrument aimed at de-risking projects to make them more attractive for private sector participation. Click here for my Business Report column.

We can no longer ignore the warnings of Minister Mboweni and those who came before him. Fiscal reform is no longer avoidable but is essential for any economic recovery as it will boost confidence, I wrote in Business Day. Even that alone won’t be enough to stimulate the economy. It needs to be combined with the other growth-enhancing structural reforms – where we have seen signs of positive movement.

This is a weekly newsletter from BLSA CEO Busi Mavuso.

BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. In 2017, BLSA signed a contract with South Africa, committing business to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.

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