Structure of economy needs to be transformed, says Nene

A COMPETITIVE and “friendly” landscape for business is crucial if the structure of the economy is to be transformed, Finance Minister Nhlanhla Nene said on Tuesday.

In a written reply to a parliamentary question by Economic Freedom Fighters MP Floyd Shivambu, Mr Nene said structural transformation of the economy in order to stimulate job creation meant changing the sectors or industries where economic activity occurred from capital and energy intensive sectors to more labour intensive sectors. The structure of the sectors themselves had to change to become less concentrated to facilitate the entry of new firms.

“Investment into these new sectors or new firms is critically required, which requires a competitive and friendly landscape for business to invest and employ individuals, and that productivity can be raised so that economic activity can expand. For productivity to improve, education and skills levels need to rise and the cost of doing business and the cost of living to fall.

“It is important to make spatial living patterns more dynamic, public transport more ubiquitous and user friendly, and to provide better service delivery generally,” the minister said.

“The National Development Plan points out that faster economic growth and job creation require a broad shift from consumption to investment in SA. This investment should be in dynamic sectors that transform ownership and economic structure, and draw in a larger proportion of the currently economically inactive population.

“Government’s medium-term strategic framework (MTSF) outlines programmes to improve productivity and competitiveness across the economy, and improve the competitive landscape for business by reducing red tape, promoting investment and encouraging innovation.”

In another question Mr Shivambu asked why the allocation of national revenue for local government was a “mere” 9%. Mr Nene said that local government received a smaller share of the division of revenue because municipalities had their own revenue raising powers, including property rates and service charges.

“Transfers from national government account for about a quarter of the total revenue of the local government sphere, with the remainder funded by own revenue. Therefore, the size of municipal budgets is not determined only by their allocations from national government but also by the revenue they raise themselves. As a result of this, cities can have larger budgets than some provinces.”

Mr Nene conceded that the revenue raising abilities of local government varied greatly across the country. Some cities raised more than 80% of their own revenue, while in some rural municipalities up to 80% of the revenues came from transfers from national government. The system of allocations to municipalities took account of these differences by allocating more funding to those municipalities with less ability to raise own revenue.

Mr Nene noted that the allocations to local government had grown faster than those to any other sphere over the past 15 years, increasing from 3% in 2000-01 to 9% over the 2015 medium-term expenditure framework.

“Municipalities also benefit from indirect grants, which are grants that national departments spend on behalf of municipalities. When these funds are taken into account, the share of revenue spent on local government increases to 10%.”

He added that to protect the ability of municipalities to provide free basic services to their residents, allocations for local government under the equitable share were not included in the reductions to baseline allocations that were announced in the 2014 medium-term budget policy statement. The local government equitable share was the largest transfer to local government and funded the provision of free basic services as well as administration costs and community services in poorer municipalities. ­– BDLive