Public sector

• Levels of Government

  • Central Level
  • Provincial Level
  • Local Level
• Central Level


  Manage and govern the country

  Head is the President

  Make strategic decisions
• Provincial Level


  Manage and administer the Province

  Nine Provinces

  Head is the Premier
• Local Level


  Responsible for service delivery in the community
• examples of Public Corporations (SGES-State owned enterprises) Parastatals

  • Eskom
  • Transnet
  • Denel
• Public Goods


  • Mostly in the form of services

  Government uses policies such as taxation and government spending to supply them

  Characterised by non-excludability and non-rivalry
• Community Goods


  • Defence, Police, Street lighting
• Collective Goods


  • Parks, Beaches
• Merit Goods


  Benefit people more than private goods

  If the public sector does not provide them, there will be an undersupply

  Generate little income, so the private sector is not keen in providing them
• Non-Merit Goods


  Harmful to society

  Government imposes taxes and regulations to discourage consumption
• Environment


  • Consists of resources that no one owns but everyone can use it free of charge

  Governments must intervene to protect the environment by making laws and setting up legal structures
• Objectives of Government


  • Job creation

  Price stability

  Economic Growth

  Stability of the Exchange Rate

  Economic Equity (Justice)
• Accountability


  It is expected of a person to explain their decisions, actions and expenditure
• Accountability


  • People want to know the number and quality of goods and services they receive in return for the taxes they pay
  • State enterprises are not directly accountable to the tax payers
  • People want to be sure that the government officials do not abuse their position and power for their own benefit through corruption, nepotism and incompetence
  • State officials do not always act on behalf of the public - Many times they act in their own interest and benefit themselves
  • State officials do not have to set profit or loss statements
• Different forms of responsibility


  • Ministerial Responsibility
  • Parliamentary Questioning
  • Treasury control
  • Auditor-General
• Ministerial Responsibility


  • Minister of Departments are the spokespersons for their departments
  • Each department has a Director-General who is Responsible for the department
• Parliamentary Questioning


  • Members of the National Assembly may pose questions to Ministers who are compelled to respond
  • Portfolio committees scrutinise government departments and make recommendations to Parliament
  • Members of the public are invited to participate in such hearings
• Treasury control


  • National Treasury is responsible for the expenditure control of the public sector
  • Minister of Finance is the chairperson of the Treasury committee
• Auditor-General


  • Oversees the expenditure of public finance
  • Reports annually on each department to Parliament
  • They point out unauthorized and fraudulent spending
• Accountability does not ensure efficiency
• InEfficiency


  • Goods and services are not produced in the needed quantity and quality
  • Public goods and services are efficiently produced when the Pareto optimum is achieved
  • Pareto optimum means is impossible to make someone better off without making the other worse off
  • Objectives such as job creation etc. are not always possible because of limited resources and serious structural weaknesses in the economy
• Factors contributing to inefficiency


  • Bureaucratic rules and procedures (Red Tape)
  • Officials focus on rules and the quality and quantity of services are neglected
  • They are sometimes insensitive to the needs of the people
  • Policies take a long time to be implemented
  • Lack of competence to do a task successfully
• incompetence

  Lack of skills, training and experience
• Corruption


  • Government officials sometimes use their position for personal gain
  • Businesses influence government to allocate resources so that they benefit at the country's expense
• Assessing of Needs


  • In the private sector, supply and demand determine the prices of goods and services
  • These forces of demand and supply also communicate the needs of consumers
  • State Enterprises are not run by the forces of demand and supply
  • Government provides goods and services according to the needs of people
  • It is difficult for government enterprises to determine the needs, that is why public goods and services are sometimes over or under supplied
• Pricing policy


  • The state does not operate within the market system of demand and supply
  • Prices can be overvalued or undervalued
  • When prices are determined the following must be considered: financing considerations, political considerations, social considerations and public interest
  • Certain services rendered by the government are free of charge to get groups to use other services where they pay the burden
  • The government partially covers the cost of the service or product
• Government Controlled Enterprises (GCEs)


  • They are created due to the necessity to deliver certain services
  • Examples: ESKOM, SABC, DENEL, TELKOM
  • To reduce the dependence on other countries
  • To provide essential services of national importance
  • Private sector does not have the funds to set up these industries
  • Many GCEs encountered large losses and placed a huge financial burden on the government
  • Some of these GCEs function inefficiently which also puts pressure on the economy
• Privatisation

  • Refers to the transfer of functions, activities and ownership from the public sector to the private sector
  • Aims: To reduce the relative size of the public sector, To stimulate the growth of the private sector, To improve the overall efficiency and performance of the economy, To broaden the ownership base of the economy so that wealth levels can be reduced
• Arguments in favour of privatisation

  • Provides additional funds to the government
  • Broadens the tax base which leads to an increase in government income
  • Improves the efficiency of the economy
  • Attracts foreign investment
  • Reduces pressure on government budget
  • Promotes Black economic empowerment
  • Reduces personal income tax and government debt
• Nationalisation


  • The opposite of Privatisation and refers to the transfer of functions, activities and ownership from the private sector to the public sector
  • People lose their jobs - Contributes to unemployment
  • Ownership of assets are transferred - no capital investment
• Regulation


  Deliberate actions to put laws, regulations and prescriptions in place to regulate economic activities
• Deregulation

  Deliberate action by government to remove all unnecessary restrictions placed on economic activities by law, regulations and prescriptions
• GEAR (Growth, Employment and Redistribution Policy)

  A strategy implemented to create a positive climate that was conducive (helpful) to employment creation by the private sector
• Macro-economic objectives of the government

  • Economic Growth
  • Full Employment
  • Exchange Rate Stability
  • Price Stability
  • Economic Justice
• Economic Growth

  Refers to an increase in the production of goods and services, measured in terms of Real GDP. For economic growth to occur, the economic growth rate must be higher than population growth.
• Full Employment


  When all the people who want to work, who are looking for work must be able to get work. High levels of employment are the most important economic objective of the government.
• The unemployment rate increased over the past few years
• Exchange Rate Stability

  The economy must be managed effectively and Fiscal and Monetary policies must be used to keep the exchange rate relatively stable. Depreciation and Appreciation of the currency create uncertainties for producers and traders and should be limited.
• The SARB changed the Exchange rate from a Managed floating to a Free floating exchange rate
• Price Stability

  Stable prices cause better results in terms of job creation and economic growth. The SARB inflation target is 3-6% and they are successful in keeping inflation within this target. Interest Rates, based on the Repo Rate are the main instruments used in the stabilisation policy. A stable budget deficit also has a stabilizing effect on the inflation rate.