BNC#8: Dawie Roodt warns SA’s “parasitic state” is choking growth and bankrupting taxpayers

At BizNews Conference BNC#8 in Hermanus, Efficient Group chief economist Dawie Roodt delivers a blunt assessment of South Africa’s economy - warning that a bloated state, runaway debt, and failing institutions like Eskom are suffocating growth. While financial markets briefly showed optimism after policy shifts such as a lower inflation target, Roodt argues structural problems remain severe. With civil servant wages consuming a huge share of the economy and government debt racing toward 80% of GDP, he says South Africa risks deeper stagnation unless the state is radically reformed..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..Watch here.Listen here.Edited transcript of the keynote address .Thank you very much. It's very nice to be in this beautiful Hermanus. I went for a jog this morning and it is really a very nice place. It is really beautiful. I listened to some of the speakers and I've got a bit of a dilemma. I listened to some of the speakers and some of them I... 00:32totally disagree with. So maybe later on when we get the opportunity to talk, maybe we can discuss some of that. Let me start by saying two days ago, I was invited to talk to a farmers' organisation, a bunch of maize farmers. And I did an economic talk there. But before that time, I listened to what they had to say. And they showed me all sorts of things. People spoke—there were speakers talking about hybrid seeds and genetics and stuff, and stuff that I don't understand. 01:03Other speakers were talking about fertilisers and how to fertilise and precision farming and drone technology and blah blah blah. They showed me also graphs on how the yields on a hectare increased over time. These guys are seriously clever guys. They know everything about farming. They know everything about maize farming. And they can compare their yields to the Americans and all of it. There were some international speakers as well and so on. So these guys are really on top of their game. 01:32In August last year, we climbed Kilimanjaro. We went to climb Kilimanjaro, and it took me five days to get to the top. It's really something special. And then I cycled down from the top on a mountain bike all the way down. So five days up, one hour and 22 minutes to get down. It was really amazing. It was really, really—it was just "wow". But that's not what I'm going to tell you. 01:58What I am going to tell you is that from then on, we cycled all the way through Tanzania and through Kenya to the sea, to a town just south of Mombasa. And of course, that took us about four or five days or so. And we went through the rural areas of Tanzania and Kenya. And we came across many of these subsistence farmers. And many of these subsistence farmers farm maize mostly on a piece of land smaller than this tent. 02:25And I spoke to them, asked them about—I asked them, "Is this your land?" They said, "Yes, more or less." They're not sure which part is their land. I asked them about their farming practices. They work the land by hand, literally by hand. I asked them about fertilisers. They say they don't believe in fertilisers because they have never used fertiliser. I asked them about where they get the seeds and they said they buy the seeds in pharmacies. They're going to buy the seeds in a pharmacy. And I looked at... 02:53what they produce on the land and it really—I mean most of the lands were simply dry. They couldn't produce anything, or very little. So that is the subsistence farmers, and that's what it looks like in rural Tanzania and rural parts of Kenya. Then I thought to myself: what is it that we want in South Africa? Do we want subsistence farmers like these, or do we want these modern corporate farmers? And is it possible for these subsistence farmers to ever be able to compete... 03:22with the farmers that we have in South Africa producing all the maize and feeding most of South Africa, or in fact the southern part of Africa, with maize? And the answer is there's absolutely no way that these guys can compete with our farmers. And then I ask myself the question: why is it that we have policies in South Africa that actually want to create all these small businesses, so-called small businesses, or so-called subsistence farmers, for example? Why is the ANC government... 03:51Why do they not want us to become a modern economy that works in a corporate world with people with skills, people using the most recent technology and producing these amazing yields? Why is that so? And I don't know what the answer is, but I was thinking about that and I could think of four possible reasons why we are where we are. I can just make this comment about small businesses: small businesses are important. 04:17Small businesses eventually become medium-sized businesses and big business, and small businesses sometimes fill a certain niche. But small businesses are usually not successful. Most of them go bankrupt. Small businesses do not pay taxes. Small businesses do not employ people. Small businesses are not this romantic thing that we think they are. So why do we stick with this small business development and spend billions of Rand on small business when it doesn't work? Or try to create all these small farmers? 04:46It doesn't work. They're not going to be able to compete with the big guys. And I can think of four reasons why the ANC wants to do this. The first one is an ideological reason. They want to do some romantic thing and some romantic idea. You want to control people, and you control people by having them in small forms. You don't want the big corporate farmers because they do their own thing and you can't control them. I mean, they're good at whatever they do and they don't like you either. So that's one reason. It's an ideological reason and I can say a lot about that. 05:17The second thing about the ANC, following from the ideological reason, is that the policies are wrong. So the ideology is wrong. The policies are wrong, and there are many policies—policies like expropriation and many other of these things that have been mentioned here. Peter talked a lot about some of these policies. Those are policy issues. The third thing is that the ANC has got a policy where they employ their cadres. It's called cadre deployment. And you employ somebody not because they can do the job, but because they are loyal to the party. 05:46And that means another word for cadre deployment is incompetence, quite often. And the fourth thing that the ANC stands for is high levels of corruption. Now, if you have this, you get what we have in South Africa at various levels. Now, I can give you all sorts of numbers. I can tell you about the local authorities that have been run into the ground, financially and operationally. We've spoken about the local authorities. Most of the local authorities have got qualified audits. And the local authorities are crucially important... 06:15because they're supposed to give you water, they're supposed to give you electricity, they're supposed to give you a pavement—they don't do that. And if you don't have that, you cannot grow an economy. And they have mostly been run into the ground financially and operationally by the ANC. The same goes for the state-owned enterprises. State-owned enterprises like Eskom—it's a shadow of what it used to be—Transnet, the Post Office is just disappearing, it is just gone, it is just not functioning anymore. And it is because of those four things... 06:45of the ANC. I listened to the chairman of Eskom; I'm going to come back a little bit later to Eskom because I totally disagree with him. And then the last thing that the ANC mostly did is that they pretty much destroyed the national accounts of the Minister of Finance, that is the state debt levels and everything that goes with that. Before I get to the budget and what's going on in the national accounts, I just want to go back a little bit... 07:12to last year because some people, some economists, including myself, when I analysed the budget of the Minister of Finance, said that I more or less agree with the Minister of Finance and there are signs that the economy is getting a little bit better. And indeed they are. I can point especially to two things that stand out for me last year. One is that we were taken off the so-called grey list and put on the so-called white list, making it easier for me to open bank accounts for my clients abroad, making it easy for us to move money in and out of South Africa. 07:42So it's easier. That's a big thing. But another major thing is that we decided—the Minister of Finance decided—to reduce the inflation target from 3 to 6% to a 3% target. Now the run-up to all of this is very interesting. It's interesting to see how we eventually got to a 3% target. Previously—and remember, this is the prerogative of the Minister of Finance to set the inflation targets—he set the inflation target... 08:11to 3 to 6% The idea was to gradually reduce that over time, but it got stuck there and we've had this for nearly, well, 25 years or so. And then the Reserve Bank, under the leadership of Lesetja Kganyago, managed—he tried to manage inflation to be within the 3 to 6 per cent target. And then gradually what he did, he said, "No listen, I'm not going to target 3 to 6 anymore because then 6 becomes the target. I'm going to target 4.5 in the middle of the range." And that's what he did. 08:39And gradually, inflation started drifting lower, and he kept interest rates relatively high for a long time to force inflation lower, and we paid a very dear price for that by way of lost economic growth. And then last year, beginning of last year, the Governor of the Reserve Bank came out with a statement saying that "I am going to target 3%; 3% is the target." And the Minister of Finance, he threw his toys out of the pram. 09:06He said, "This is my prerogative. I set the inflation targets. It's 3 to 6%." The Reserve Bank knows it's three per cent, blah blah blah. Why is it that the Minister of Finance was against this? The reason why is because politicians like high inflation. And I'm going to get back to that just now. But back to some of the green shoots: so the inflation target was set at three per cent. Inflation expectations gradually started coming lower... 09:34actual inflation started coming lower as well and that allowed the Reserve Bank to start cutting interest rates. And of course, if you cut interest rates, that's good for the economy. But there's another factor that we quite often do not appreciate enough, and that is: remember in an environment where you have high inflation compared to a country with low inflation, inflation erodes the value of money. So in a high inflation environment your money is eroded, the value of that is eroded... 10:03compared to a low inflation environment where the value of money is eroded at a lower rate. And over time, your currency keeps on losing value against this other currency. And that's why the South African currency, the Rand, lost a lot of value over time, because our inflation rate was higher than others. But if your inflation rate is higher than others, that also means anybody wanting to invest in your country runs a huge risk... 10:30because if they put money in your country and they want to take the money out eventually, by then the currency could have weakened and they take a foreign exchange loss. They take a foreign exchange loss on that. So foreigners and local guys do not want to invest in South Africa in a high inflation environment because the risk is too high that you're going to lose your capital. But what has happened in the last year or so: actual inflation, inflation expectations, and inflation targets—that's the policy change... 10:59was reduced to 3%. The result was a huge inflow of capital into South Africa, into our equities (which did very well), into the bond market and into the currency—the Rand—which also appreciated very nicely. So by changing a policy, the financial markets reacted very positively to that, and some of these positive things like, for example, low interest rates, will spill over into the real economy and it will support economic growth in the real economy as well. And those are the reasons... 11:28why I was kind of getting optimistic and positive about South Africa's outlook—the economic outlook. Unfortunately, this spilling over into the real economy will support the real economy, but not enough. Because there are many other obstacles in the real economy that prevent the real economy from growing much, much faster. And we've spoken about those as being expropriation and all that sort of nonsense. So until we fix the local authorities and fix these other policies... 11:56the real economy will not react, but we have seen the financial part of the economy changing and reacting to some of these changes in policies like, for example, inflation targets. Coming to the budget of the Minister of Finance, now I just want to unpack that a little bit. So if you look at the revenue side of the Minister of Finance—the tax collections that he gets—a few things are very important to understand. We have an exceptionally narrow tax base in South Africa... 12:25which means very few—I can give you all these numbers; I've given a slide, you will get the slides on the website probably—so very few individuals pay just about all the taxes. The second most important tax is Value Added Tax; that's approximately 30% of the Minister's revenue. That is the only tax that we can potentially increase to give you more money because the other taxes—personal income taxes (the most important one) and corporate taxes—are already over the so-called Laffer Curve. 12:53If you increase those taxes you're going to get less, because people are going to very aggressively organise their tax affairs or emigrate or stop working and so on. We look at company taxes: the tax base on company taxes is even narrower. For example, approximately a thousand companies pay 80 per cent of company taxes. Which means—and I come back to what I said earlier about small businesses—small businesses do not pay taxes because they just don't pay taxes. 13:22Despite this, the revenue side of the Minister of Finance was under a lot of pressure. But there are two reasons why the Minister of Finance is doing quite well on his revenue, on tax collections. One is that we had this very nice commodity cycle last year. And the commodity cycle and increase in commodity prices like the gold price and the platinum price resulted in the mines paying more taxes and eventually the Minister of Finance will get something like about... 13:5050 billion extra in the current financial year which is the end of March—and the financial year of the state starts on a very appropriate date, and that's the first of April. So the Minister of Finance will get a lot of extra revenue because of the commodity cycle, but not only that, he will get, despite a very weak economy, a lot more revenue because of an exceptionally aggressive SARS that is squeezing this economy for every last drop of blood. 14:19So on the revenue side, it's doing actually quite well and the total tax burden on the economy is going up despite a weak economy. He did make some adjustments on the personal income tax—tax rates, for example—and some other changes on the sin taxes and stuff like that. Not much, but a few changes on the revenue side on the various taxes. If you look at the expenditure side, there's a couple of very interesting things happening, and that's why I'll come back to Eskom, for example. 14:45On the expenditure side, the biggest expenditure item for the Minister of Finance is education—by far the biggest one. The second one is usually social expenditure; number three is the interest on state debt. Now the debt levels have been increasing at an alarming rate in recent years, and this year, in the current financial year which will end at the end of March, we had some months where interest on state debt was actually the number two expenditure item—bigger than social expenditure, the various social expenditures. Subsequently, it came back a little bit. 15:14So interest on state debt is a major expense item. But if we look at the other expenditure announcements by the Minister of Finance, it becomes very clear why the Minister of Finance does not want to lower the inflation targets: because inflation erodes the value of money, but inflation also erodes the value of debt. And that is the trick that politicians use to pay off debt by having high inflation. He didn't want to reduce the inflation because he's got a debt problem. 15:42And debt-to-GDP is currently—the Minister of Finance expected that to reach a turning point this financial year or the coming financial year at about 78 or 79% of GDP. That is one reason. The other reason why the Minister of Finance does not want to reduce the inflation targets is because of the civil servants. Now he doesn't say this in the budget speech; you have to dig into the numbers to get to the actual number. Civil servants—before I get to the civil servants... 16:09regarding social expenditure: there are 27.5 million people out of a population of about 65 million people that get a grant from the state. The biggest grant is about 2,400 Rand for the old-age grant and the various grants go down to about 500 or 600 Rand for the child support grant, for example. 27.5 million of them getting a grant from the state. The increase—we're talking about people that are destitute. If you don't give them this grant, they are literally going to die of hunger... 16:39in many instances. So the increase in the grants was 3.8%. And remember the inflation target is 3%. So the increase in grants is 3.8 per cent for most of these various grants for 27.5 million people. The civil servants will get an increase over the next three years of 4.4%. Now let me give you some numbers. And the reason why is because SADTU is part of the Tripartite Alliance and of course they want... 17:06they want the civil servants to be much better remunerated. I've done some calculations: the average civil servant is paid more than 50,000 Rand per month. The civil servants—there are 1.2 million. I exclude the state-owned enterprises and local authorities. The average civil servant gets 50,000 Rand per month; there are 1.2 million civil servants. The salary of the civil servants is a third of total state expenditure, and as a percentage of GDP, those civil servants... 17:36get—note, I do not use the word "earn", I use the word "get". There's a difference between those two. They get approximately 13% of the economy. So 13% of the total economy is used to pay only the national account civil servants. That is not all, and that's why I want to come back to GDP numbers and to Eskom as well. 18:02The GDP numbers were released last year for 2025. The economy expanded at the rate of 1.1% last year. That means that the last time we were here, in terms of per capita GDP, was 20 years ago. We've lost 20 years. Weak economic growth below the population growth. The Minister of Finance expects economic growth of 1.6% going forward; I'll get back to that just now. But something here that I am very concerned about... 18:30the real state capture in South Africa are the civil servants and the "tenderpreneurs", where they are totally and completely overpaid. 18:42That is not all. If you analyse the numbers of GDP yesterday, one of the categories—the second worst category in South Africa—is a category called "electricity, gas, and water", which contracted last year by 4.3%. And the biggest contributor to that is Eskom. Eskom prices will increase by 9% or up to 12%... 19:09while the inflation target is 3%. That means all of you must get well below 3% in order to get inflation to 3%. How on earth do we allow a mismanaged company like Eskom and Transnet and the Post Office to get above—well above—inflation increases? I'm very sorry about the chairman of Eskom last year; his salary is wise here—he is not a chairman. He is a civil servant working for a company that belongs to the state, that belongs to the people of South Africa. 19:39He thinks he's a chairman. He thinks he works for a company. They think they have a board and a CEO. They don't have that; it's only in name. The CEO of Eskom got paid 13 million Rand per year. How on earth can I pay civil servants 13 million Rand per year? We can't do that. The same goes for Transnet: eight million Rand per year that we pay the civil servants. And that... 20:08debt of Eskom is 350 billion Rand, and the debt of Transnet is 150 billion Rand, and the debt that the local authorities owe to Eskom is in excess of 100 billion Rand. That's all debt that should be included with the Minister of Finance to get the real picture of what's going on in the state's finances, and it's time that we as the taxpayers stand up and say, "Genoeg is genoeg." 20:35So that is the reason why I became optimistic about the budget of the Minister of Finance, because economic growth seemed to be achievable, even if a little bit on the high side, because of some changes in inflation targets. Financial markets reacted quite well—stronger Rand, lower inflation, some of that will spill over. It looked a little bit better, and that's what I also said. And then Donald Trump happened, and all bets are off the table. So I do not know what's going to happen now, but what I do know... 21:04there was a huge shock to the system. To the system, to the global economy—we will see upward pressure on inflation. How long this war is going to go on, I do not know. And it's not necessarily the level of the oil price, but as long as it stays there, that really matters. But without a doubt, we will not see a 2 x 25 basis points reduction in interest rates over the next few months. And I thought that possible previously. That is now not going to happen because of the impact, because of the shock... 21:33of the oil crisis on the South African and on the global economy. The same goes for economic growth. The Minister of Finance told us in the budget just now in February—he told us last month—he said economic growth is going to be 1.4% in 2025. The actual numbers just came out: 1.1%. He told us economic growth now going forward is going to be 1.6%. We're not going to get there. We're not going to get there as long as the ANC is there. That means also that the debt-to-GDP ratio is likely to exceed 80 per cent... 22:03in this financial year and the year thereafter, which means where we thought that the debt was going to stabilise this year, it is not going to happen—next year if we are lucky. Which also means we're not going to see a further upgrade in the state debt because the debt levels are far too high. Which also means with weak economic growth, we will see a further increase in unemployment and a further increase in poverty in South Africa. And at this time now for us, and we've been listening to some politicians in South Africa and listening to us speaking here today... 22:30I want a political leader to stand up and say the real issue is that we've got this massive state that is supposed to serve me and to look after me and to look after my interests, but this state has become a parasitic state and we must stop this and vote for me because I am going to make sure that I create a state and I create the kind of civil service that does what it's supposed to be doing, and that is to serve the people of South Africa.

BNC#8: Dawie Roodt warns SA’s “parasitic state” is choking growth and bankrupting taxpayers

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