Crisis in SA

The Current Public Services Crisis in South Africa

We see it daily on e-tv news, sabc news, and local newspapers and even on some international news channels. The public service crisis that hit South Africa, the question I put to you is why they doing it? What will it achieve? If you really think about it, it’s doing more damage to them and the country’s population as a whole than benefiting. Why I say this?

Well firstly lets just say the Government “gives in” to their demands and increase their wages. And yes sure the government does have a lot of money coming into its coffers annually through tax and various other means and can afford to submit to their demands. But the consequences for this decision can be disastrous to the South African Economy. Firstly if the government “gives in” basically you looking at hundreds and thousands of people with higher salaries thus larger spending power. To some this may seem to be a good thing as people with more money results in a richer and grander economy and to an extent higher income per capita (Net National Income divided by the population) and to some this may mean there is economic growth. Its true there is slight economic growth but realistically we are just fooling ourselves. This is because of inflation rising & interest rates rising which will be caused if the Government does give in to their demands which is most likely what could happen. Inflation will rise, as the wage increase will mean there will be more money circulating in the Economy, which in most cases is bad. As firstly we are not a “savings” population but rather a “spenders” population, i.e. we spend most of our disposable income as possible and to the extent of even buying on credit. Thus because of the increase in spending as people will want to fulfill their desires, through supply & demand prices will go up as there will be excess demand for various goods and services thus there will be an increase in prices. Secondly because we spending beyond our means and not saving our money in banks there wont be enough money for banks to finance essential capital investments for businesses, with the result that businesses will not be able to expand their production resulting in demand not been met which will in turn increase prices for products as there will be a low supply of goods & services. You may also say that the Government has a lot of money but this is actually not true as a lot of the money that the government gets is used to Fund various projects and used to pay for public services that the population requires and the countries requires in order for stability, so where will it find money to pay for the increase? Therefore to pay for the wage increase the Government may even have to increase the tax rate (Direct or Indirect) for businesses and normal residents thus for businesses to continue running efficiently and profitably the increase tax is simply included in the increased price of the product. Therefore there will be an increase in the price of products and services. Also for citizens, their disposable income will be further reduced as already a substantial part of their salary is gone for tax and now because of tax increase this substantial amount will be much higher.

Also SARB to curve inflation caused by the this wage increase SARB will be forced into increasing interest rates to tempt people to save more and spend less, but there is also a negative side to this. Loans and Bonds will be more expensive to pay and people will not be able to afford to even live comfortably as most of their money will be going towards repaying the loan or bond. Resulting in more empty pockets for even the workers that are currently striking as many of them have Home Loans, Bonds etc.

The above is just one aspect. We cannot forget the fact that there is continuous oil/petrol price hikes. This compounded with the weakening Rand (as most goods that we use are imported). Will result in increases in prices for goods & services, thus inflation being higher. Taking these 2 very major factors into account, and the fact that this wage increase could lead to an increase on the tax rate, as the government will need to find a way to pay for the increase. With inclusion of the wage increase and the above factors we can assume that it will lead to a much higher inflation rate and in turn will affect not only the normal people but also the workers that are currently striking. As maybe not immediately but eventually they will still not be able to afford the things that they desire and will see their pockets getting empty again. Thus bringing them back to the same position they in now.

So what as South Africans do we do? As at the moment the country is literally at a halt. As public services are essential to any country’s success and without it there is chaos we are currently seeing it on the news, Schools been closed, hospitals not working efficiently etc. There is a way out of it though its what SARB also tries to tell people continuously “SAVE” and spend wisely. Do not spend beyond our means. Appreciate for what we got as clearly if we demand for more like how people are now the consequences of it can be disastrous. As if there is a salaries increase without simultaneous production increase then there will be inflation. It’s for these reasons that the Government is not giving in to the demands, as they know what will happen. Now the workers need to also understand this. The above also holds for any other workers in any industry in this country. But businesses must also realize they cant exploit and pay “peanuts” to its workers. And Workers must realize that they must appreciate. The South African people must look at other countries and how they operate and the people that live there, China, Vietnam, Thailand, India sure there is a bit of unfairness but what we must learn from them is the fact that they appreciate and they happy for even earning $7 a day because they know at least they will be able to put food on their table as because labour is cheap resulting in prices of goods been cheap therefore people can survive on their current wages. You may say they are been exploited well to an extent in these countries they are, and there should be given higher salaries but not to the extent that it could kill businesses. And we must realize in their view the workers are expendable as they have a large population. This is very similar to South Africa’s unemployment situation as there is a large group of people unemployed thus current workers are to an extent expendable as they can easily be replaced especially for unskilled work. Therefore workers cannot be too demanding either.

In conclusion there must be balance, fairness and compromise from both sides in order to find the optimum point that will benefit all in the short term and long term. As if it to one sided it can lead to disastrous effect to the Economy, which in turn will indirectly or directly effect you and me.

Written by Mohammed Joosub [Al-MustaqeemSA Publications]