Ramaphosa extends payouts for poor amid jobs-or-welfare tussle

South African President Cyril Ramaphosa extended the payment of a stipend for the poor by a year, deferring a contentious decision on whether to introduce permanent income grants.

About 10.3 million people signed up for the R350 monthly handouts, which were dispensed to cushion them from the fallout of the coronavirus pandemic and were due to expire at the end of next month. A debate is raging in South Africa over whether the government should continue bolstering welfare spending or focus on creating jobs for the 35% of the workforce that’s unemployed by fostering investment and economic growth.

“It must be recognized that we face extreme fiscal constraints,” Ramaphosa said in his state-of-the-nation address to lawmakers in Cape Town on Thursday. “It remains our ambition to retain a basic level of support for those in the greatest need.”

The speech comes three months after a municipal vote in which support for the ruling African National Congress slipped below 50% for the first time since it took power in 1994, a backlash against rampant poverty and its slipshod management of towns and cities. More payouts could help shore up the party’s support ahead of national elections in 2024, but will place further strain on the nation’s finances at a time when the Treasury is trying stick to its expenditure ceiling and reduce the budget deficit.

Ramaphosa is meanwhile set to seek reelection as ANC leader at a conference in December and is likely to encounter a challenge from a party faction that is loosely aligned to his predecessor, Jacob Zuma, and advocates for the redistribution of the nation’s wealth. The extension of the stipends, which can be funded using windfall revenue from a commodities boom, will deprive his detractors of a potential source of ammunition against him.

Detailed technical work is under way to evaluate options to replace the stipends and “any future support must pass the test of affordability, and must not come at the expense of basic services or at the risk of unsustainable spending,” Ramaphosa said.

He announced that the government will employ thousands of young people in schools and to digitise records in the Home Affairs Department, while tax breaks to encourage hiring will be extended.

Reforms

The president recommitted the government to implementing structural reforms needed to grow the economy and draw investment, including reducing red tape for business, making ports more efficient, opening up access to freight rail lines to private operators, auctioning broadband spectrum and easing visa requirement for skilled workers.

He also said the government is making headway in developing a green hydrogen industry, with projects worth 270 billion rand in the pipeline, and will industrialise the production of cannabis, with a view to creating 130,000 jobs.

© 2022 Bloomberg L.P.