Thebe Mabanga
Finance Minister Tito Mboweni presented his ‘Dire Straits 2020’ budget as a reminder that while there are many policy ideas that a country can implement, one requires political will and support to succeed.
Political will, or lack of it, remains the government’s biggest challenge in implementing structural and policy reforms which are required to turn the economy around.
Political will needs to be demonstrated by the President before any of his key Cabinet Ministers, including Finance, can follow his lead.
And in some ways that has been lacking.
A striking feature of President Cyril Ramaphosa’s presidency is that it is easy to forget that he was the deputy chairperson of the National Development Commission.
When Basic Education Minister Angie Mosthekga presented the national matric results a few weeks ago, she reminded everyone that this is the decade of the National Development Plan.
One would expect Ramaphosa to pick up the narrative and frame what will hopefully be his two terms in a similar vein and unequivocally endorse the NDP as South Africa’s policy guide.
But instead the NDP receives casual mention.
Ramaphosa instead looks to Mboweni’s Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa as a guide, and that is the closest South Africa currently has to a display of political will through Mboweni’s ability to defend it against opponents in the tripartite alliance, as former finance minister Trevor Manuel and President Thabo Mbeki had to do with the unpopular and mildly successful Growth, Employment and Redistribution policy between 1996 and 2001.
The biggest test of the political will from the budget will be the undertaking to slash the public sector wage bill by R162 billion over the next three years, which will require a battle against the unions.
The public sector wage bill is a hangover of the financial crisis and the only job creator when the private sector was shedding jobs.
To now be treated like a scapegoat feels somewhat harsh and unfair on civil servants, and unless the private sector can absorb those who will lose their jobs in similar salaries, it’s hard to see where the losers will run to.
But the bill has to be chopped, and there will be pain.
The next area that will require political will is fixing SOEs with some coming up for sale.
The biggest of these is Eskom, the biggest recipient of bailouts since 2008 and over the medium term.
But the decision to split Eskom into three is not entirely new.
It was mooted in the early 200s, with the difference then being that the distribution assets were to be pooled with those of metros to form Regional Electricity Distributors (Reds).
That plan failed on two counts when municipalities resisted it, citing the Constitution, which gave them powers on electricity reticulation and then a failed attempt at Constitutional amendment ahead of the 2009 general elections.
The question now is how each of the three new entities with their new boards and management team will take on the R 450 billion debt burden.
The answer may lie in the proportion of assets each gets to keep going.
More importantly, the sale of SOEs needs to be guided by a clear honest rationale.
The last time South Africa undertook privatisation, it was to pay off national debt the most successful of these was the sale of a 30% stake in SAA to Swissair in 1999 for R 1,3 billion, only to buy it back for R300 million in 2001 when Swissair collapsed, netting SAA a R1 billion profit.
This time around it’s not clear why entities are being sold.
Is it to remove the bailout burden on the fiscus?
That is not enough of a reason for a buyer may insert a clause that maintains government guarantee if failure is due to market rather than governance failures.
If the reason is to divest from sectors where government does not need to be involved, then the sale of SAA should be followed by that of Airports Company of South Africa, but all that is suggested for the latter is an Initial Public Offering (IPO), which would be partial privatisation.
It took Funanani Sikhwivhilu of Limpopo to remind the government of the need to prioritise infrastructure development, an observation with which government concurs.
Mboweni noted that capital spending is the fastest growing component of non-interest spending and is complemented by the Infrastructure Fund, housed at the Development Bank of Southern Africa.
Mboweni said over the next three years, the DBSA will package blended finance mega-projects of least R200 billion while government has committed R10 billion over the same period.
Ramaphosa announced infrastructure spending of R 700 billion over the next seven years, or an average of R 100 billion.
This is a start. But this economy needs more.
Infrastructure spending is a key area of economic stimulus, one which government should be willing to borrow aggressively in order to fund.
In 2008, then finance minister Trevor Manuel presented his Medium Term budget shortly after the collapse of Lehman Brothers, an event now officially recognised as the start of the Financial Crisis.
In that MTBPS, Manuel announced infrastructure spending of R 187 billion over the medium term, a measure that served to boost confidence and shield the economy from the worst storms of the recession.
When South African finances were much healthier, infrastructure spending was running at close to R1 trillion over a three-year cycle, although that was at the time when Medupi and Kusile were under construction.
South Africa, as the continent’s most industrialised economy, needs to return to that level of ambitious spending on infrastructure to boost not just its economy but also the region.
The budget and timeline overruns witnessed in Medupi are a feature of capital projects and while undesirable, they should not discourage the country from taking on similarly ambitious projects.
Foreign expertise can be sought to better manage such projects.
The idea of a State Bank is a good one, but again depends on ultimate intention. If it is to be run on commercial terms, facing the same capital and impairment requirements as commercial banks, how will it lower the cost of borrowing?
The only way it can succeed is if it can be benchmarked as a Development Finance Institution, which have a higher impairment level than commercial banks.
More importantly, the bank will find that challenges to small, black-owned businesses go far beyond lack of access to finance, but rather suffer from a lack of access to opportunity.
The establishment sounded like a trick pulled out of desperation to offer something new, with the proposed initial $2billion lower than what such funds are established on.
In any case, Sovereign Wealth Funds tend to pursue opportunities outside of their countries to diversify wealth from a windfall from.
Say oil or other minerals.
Unless the proposed Fund has a domestic facing mandate it will not do much for a sluggish economy.
There was a time, in South Africa’s early years of democracy when there was political will but not too many ideas of how to tackle unemployment.
Then under former President Thabo Mbeki, policy ideas and political will were aligned to produce the economic performance that was disrupted by the 2008 crash. Under President Jacob Zuma, especially during his second term, we lost both the will and ideas to do anything about unemployment, content instead to blame things on the Global Financial Crisis without explain why peer countries recovered quicker than us.
Mboweni seems determined that we are not trapped in that meandering slumber.
He needs Ramaphosa’s backing.
THE DRAIN ON CASH: BAILOUTS TO SOEs
Between 2008 and 2019, SOEs have received R162-billion in bailouts, as follows:
- Eskom R132.7-billion,
- SAA (R22-billion),
- Denel (R2.2-billion),
- South African Express (R1.9-billion
- SABC (R3.2-billion).
- Over the next three years, the total SOE bailouts will rise to R291.2-billion with Eskom receiving R244.7-billion, followed by SAA R38.4-billion.
SOURCE: BUDGET REVIEW
