South Africa's new finance minister postpones tough decisions

South Africa’s Finance Minister Tito Mboweni must walk a fiscal tightrope.
GovernmentZA/Flickr

South African finance minister Tito Mboweni’s 2018 medium-term budget policy statement brought no surprises. Standing before the National Assembly on Wednesday 24 October, Mboweni presented the Natural Treasury’s fiscal policy and projections for the next three years.

The country’s economic growth has been officially revised down to 0.7% – it was at 1.5% in the Budget tabled in February by one of Mboweni’s predecessors, Malusi Gigaba. Revenue collection is lower than had been forecast. This all means that national debt levels will, again, be higher than projected.

In short, there’s very little tangible good news. That is to be expected. The economy and public finances have been in a poor state for some time. The current level of economic growth is below estimates of population growth, meaning that South Africans will have become poorer per person by the end of the year.

But with debt levels having repeatedly exceeded the levels previous ministers of finance had promised, numerous risks on the horizon and an election looming, there was relatively little room for Mboweni to manoeuvre.

What Mboweni and National Treasury have tried to do is to keep walking an increasingly thin tight-rope. This involves containing the growth in debt while not reducing government expenditure or increasing taxation to the point where it greatly harms economic growth or South Africans’ well-being.

Unless economic growth improves, the country will have to step off this tightrope. Either debt must be increased well beyond what had been planned, possibly leading to downgrades, higher borrowing costs and the associated consequences. Or expenditure will be cut and more taxes imposed – leading to immediate negative effects for citizens.

Public finances

One way that Treasury is trying to stay on the tightrope is by making use of other borrowing and spending capacity in the state. In particular, it’s looking to government’s development finance institutions such as the Development Bank of Southern Africa, the Industrial Development Corporation and the Land Bank to use their borrowing and lending capacity.

The medium-term budget policy statement also argues that various municipalities have sufficiently reliable revenue streams to borrow and spend more than they currently do.

The Treasury has indicated in the policy statement that it hopes to keep tax rates at their current levels and not introduce new ones. One important exception will be at the forefront of many South Africans’ minds: increases to the cost of fuel, in this instance possible large increases in the Road Accident Fund levy, to address the massive accumulated liability in the Fund itself.

Last year the medium-term budget policy statement discussed risks to public finances, including possible further downgrades of debt by international rating agencies and the likely consequences. This year’s statement avoided such references – but some debt downgrades and their negative results remain a possibility.

Mboweni made it clear that one of the most serious risks to public finances is the perilous condition of state-owned enterprises. More than R9 billion is going to be given to South African Airways, SA Express and the Post Office in the current financial year to prop up their finances.

Beyond this, all he could do was express the hope that restructuring these and other state-owned entities means it could reduce the risk although he offered little detail about what “restructuring” actually means.

Even though he said that there should be “no holy cows”, it’s questionable whether structural shifts could really deal with the financial risks; in certain circumstances, restructuring could actually increase the state’s financial burden.

Reforming key state institutions in general is critical. But there will be little to show for that in the short term when it comes to public finances. In fact, in some instances, doing the right thing can lead to short-term costs.

Hints, but little detail

There were some suggestions in the statement of a sensible, “New Deal” way of thinking. These include the reallocation of existing funds to the Expanded Public Works Programme, clothing and textile industry support and faster-spending infrastructure programmes. But with such limited resources this is likely to only have a small positive effect.

And in parts, Mboweni provided too little or no detail. There remains inadequate information on the costs of providing “free higher education” as promised by former President Jacob Zuma to new entrants. This reflects the irresponsibility of committing to a blank cheque to university student funding at a time when public finances are under huge strain.

Politically, the cabinet will be hoping that local and global risks will be kept in check until the 2019 election. But if some of those materialise then the government could face the unenviable task of either presenting a very unpopular budget in February 2019, or allowing public finances to deteriorate to a concerning degree.

Seán Mfundza Muller, Senior Lecturer in Economics and Research Associate at the Public and Environmental Economics Research Centre (PEERC), University of Johannesburg

This article is republished from The Conversation under a Creative Commons license.

Why Ramaphosa's "new dawn" will break slowly for South Africa's finances

South Africa’s Finance Minister Tito Mboweni must answer several big questions about the country’s economic plans.
Sebastiao Moreira

South Africa’s newly inducted finance minister, Tito Mboweni, will this week deliver the country’s 2018 medium-term budget policy statement setting out the government’s fiscal policy and projections for the next three years.

The medium-term budget comes at a time when South Africa’s economy is on a downward trajectory. President Cyril Ramaphosa’s administration is trying to deal with this in several ways. One is a “stimulus plan” to promote economic growth. Another was a recently convened “jobs summit” to identify ways of addressing the country’s high rates of unemployment.

In addition, commissions of inquiry have been instituted, or are underway, into the South African Revenue Service and the broader problems of state institutions that have been undermined and compromised by corruption. The Public Investment Corporation, which manages public sector pensions and is South Africa’s biggest fund manager, is also being investigated for alleged corruption and mismanagement.

Numerous other matters relating to critical sectors such as water, communications, transport and electricity are before various parliamentary committees.

Against this backdrop, Mboweni’s speech will reflect a harsh reality. The damage done during the preceding decade under president Jacob Zuma will have a negative effect on public finances and the economy for some time to come. Economic growth has been repeatedly below population growth for some time. The causes of this are such that the trajectory cannot be rapidly altered.

The “new dawn” promised by Ramaphosa’s administration will break slowly for South Africa’s public finances.

Dealing with the past

A year ago, when Zuma was still running the country, the destructive effects of his presidency were being keenly felt in the country’s budgeting process.

In the 2017 medium-term budget policy statement, economic growth and tax collection were forecast to be significantly lower than expected. As a result, national debt levels were forecast to rise rapidly. Worse, no concrete action was proposed to address the likely escalation of national debt beyond what had previously been planned.

Unsurprisingly, the country’s local currency sovereign debt ratings were subsequently downgraded to “junk” – that is, sub-investment grade – by two of the three major ratings agencies. That followed downgrades of the foreign currency rating earlier in 2017.

Shortly after the budget was delivered, the senior official in the National Treasury responsible for preparing the budget resigned. Reports suggested this was due to unprocedural and irresponsible efforts to fund a populist allocation to higher education.

This appeared to be confirmed when Zuma, in a shock mid-December press statement shortly before the governing African National Congress’s elective conference, announced “free higher education”.

Despite the dubious circumstances and the country’s serious fiscal situation, the 2018 Budget announced the intention to allocate an additional R12.4 billion (about US$863m) in 2018/19, rising to R24.3 billion (about US$1.7bn) in 2020/21.

Among the major proposals to fund this new outlay, while still trying to stabilise national debt levels, were a controversial 1% increase in value-added tax. Significant cuts were also proposed to planned expenditure in other areas.

But the government has never actually produced a detailed costing of the “free higher education” plan. Worryingly, the 2018 Budget referred to these costs as “uncertain”. The Treasury has now had enough time to properly address such uncertainty; that ought to be reflected in Mboweni’s medium-term expenditure proposals.

As well as dealing with this recent history, Mboweni will need to provide details of the plans referred to by Ramaphosa to boost the economy in the coming years.

The medium-term budget policy statement should reflect the fiscal details of the commitments in Ramaphosa’s stimulus plan. We already know that the term “stimulus plan” is somewhat misleading. It actually involves reallocation of resources, not an increase.

Mboweni must outline where the funds will be redirected to, and – as important – where they’re going to be taken from. One possibility in the medium-term is cutting back on the bloated bureaucracy that was introduced under Zuma.

Seeking sustainability

The broad question Mboweni will need to answer is how the government is going to maintain its plan for sustainable public finances in the face of even weaker economic growth and possibly a further decline in the performance of the South African revenue service in collecting taxes.

Some supposedly “radical” economic commentators argue that the government should spend more to stimulate the economy, regardless of debt levels. But there is little evidence to suggest this would work given the rather dire state of public sector institutions.

And a significant increase in debt without a large increase in economic growth could lead to a crisis.

A major concern is that recent budgets have maintained expenditure constraints by capping or reducing public sector employment. This is a strategy which could reasonably be referred to as “austerity by stealth”. The stimulus plan commits to filling 2,200 critical posts in the healthcare system. But it remains unclear how the impact of the government’s fiscal stabilisation is being passed on to public sector employment. It’s also not clear how that could be affecting service delivery.

There is a strong argument to be made for maintaining or even increasing public sector employment. This could be achieved by removing overpaid and ineffective senior managers and redirecting those funds to filling, or creating, posts for core front line staff.

Risk factors

Another area to watch is how Mboweni deals with the issue of state-owned entities. These were often the primary targets of efforts to loot the state under the Zuma presidency. And many, from South African Airways to the national power utility Eskom, pose a serious risk to public finances.

There are two aspects to the risk: the need for cash injections which come directly from the government budget, and the need for state loan guarantees which increase the broader precariousness of public finances. The medium-term budget policy Statement should provide a sober assessment of those risks and how they are going to be managed.

Seán Mfundza Muller, Senior Lecturer in Economics and Research Associate at the Public and Environmental Economics Research Centre (PEERC), University of Johannesburg

This article is republished from The Conversation under a Creative Commons license.

CAPE FLATS LIVES MATTER TOO!!!

 

PLEASE READ AND SHARE!

I recently visited a street block in Hanover Park, where within the space of 12 hours, 3 dead bodies laid sprawling on the pavement. Yet this was not covered by any media. No politicians came to pay their respects – because these were once again simply young men from the Cape Flats who were killed in gang-related shootings. Their lives meant little when they were alive – it now means absolutely nothing when they are dead.

And sadly, it is not only the outside world that attributes no value to Cape Flats lives, residents don’t either. They have become numb to death. It’s just another shooting, another body, another day. When speaking to people of the area, I heard one of the most bone- chilling comments ever: “Wanneer hulle uiteindelik die lyke van die pavement kom afhaal – dan spoel ons maar net die bloed weg met ’n bietjie water. Die lewe gaan aan.”

The young men killed in violence on the Cape Flats lose more than just their lives. They lose their identity and their value. We don’t draw media and political attention to their deaths because they are seemingly just a statistic. But guess what, they are not! Everyone that dies is someone's child!

That dead body lying in a pool of blood on the pavement, on a road with no name was someone’s son, someone’s brother, someone’s father. Though the world attaches no value to him – someone would have loved him enough to grieve. This dead body is the source of pain, trauma and grief to someone. This dead body mattered, because Cape Flats lives matter too.

Overwhelming oppression and genocide is taking place on the Cape Flats. Drugs and gangsterism is wiping out an entire generation of our people. Should you disagree with these statements, I suggest you climb down out of your ivory tower and come and see for yourself. For right now when you speak of the Cape Flats’ problems, or even more arrogantly yet of solutions – from the outside, you speak from a vantage point of pure ignorance and arrogance!

And it is usually in these times of arrogance and ignorance when politicians nauseatingly put on bullet proof vests and surround themselves with armed body guards and take a stroll through the neighbourhood (Obviously with the cameras and media properly positioned close by.) And it is usually after these publicity stunts that some politician will come up with a grand master plan and solution.

Therein lies the problem. You will never find appropriate solutions for problems which you are not truly familiar with. For you will be viewing the problem from your vantage point of ignorance, from your towers of privilege – and therefore your solution will not be one that fits this particular problem faced by these particular communities.

The MyCiti bus is a true case in point. It worked in South America and some bright spark in ignorance thought that all poor people's transport problems were the same – and brought it to our shores (Look at how cost-effective and well that has worked out for us).

In order to find ways to curb this community genocide, you have to listen to the community. I’m not talking about the paid informants and your data researchers. I’m speaking of those who wash the blood off the pavements after the bodies have been removed. Those community members who patrol the streets in the dark of the night. Those mothers who grieve the sons they birthed into this abnormal society.

If you care enough to help the Cape Flats – then listen to the Cape Flats. Hear our voices.

As a community we also have a role to play. We firstly need to start looking inwardly at the parents we are and have become. We need to start taking control of our households and our children.

We have to get rid of the NUMBNESS that violence and death has brought about within in. We need to dig deep and find our compassion again. And we CERTAINLY have to resist the urge to sell our votes (and our souls) to politicians who only use us to boost their own personal salaries!

I encourage those who sincerely want to assist in finding solutions to the overwhelming issues of poverty, drugs, gangsterism and subsequent violence and death on the Cape Flats to step up and unite. PUT THE EGO'S AND DIFFERENCES ASIDE, FOR WE ARE LOSING THIS BATTLE, MUCH LESS THE WAR!

I will say it till the day I die. I will always be proudly Cape Flats. My Cape Flats community is uniquely awesome! There are JUST SOOOOOOOO MANY good people caught in the middle of this war zone. There is so much greatness in the midst of this humanitarian crisis. This community is not a lost cause. But this community needs to be heard. We have to stop this genocide, for our lives matter. Cape Flats lives matter too!!!👊🏼👊🏼 PLEASE SHARE !

SOURCE

 

South Africa's economy is in a mess. New finance minister must hit the road running

South African President Cyril Ramaphosa, left, introduces the country’s new Finance Minister, Tito Mboweni, in Cape Town.
Phando Jikelo/African News Agency(ANA)

The latest reshuffling of South Africa’s finance minister, following the resignation of Nhlanhla Nene and appointment of Tito Mboweni, may have negative origins but it brings with it some positive energy.

Nene resigned as finance minister after it emerged that he lied about the nature of his contact with the controversial Gupta family, the friends of former President Jacob Zuma who stand accused of championing massive misappropriation of public funds in a process branded as state capture.

In an initial response to a journalist’s question, Nene claimed that he had only met the Guptas in passing. But in his recent testimony to a commission investigating state capture he admitted that he’d met Gupta family members on numerous occasions, including a number of visits to their house and their offices.

The inconsistency tarnished his integrity and sparked massive public criticism. Within a week of making his admissions he resigned. South Africa’s President Cyril Ramaphosa immediately appointed former South African Reserve Bank governor Mboweni as the new finance minister.

On the one hand Nene’s departure must be hailed as setting a new tone for South African politicians, particularly for the cabinet. By falling on his sword, he has taken responsibility for his actions – a rarity in South African politics. It’s tempting to cast his action in stone as the “Nene Rule” that sets a standard for politicians to resign when in the wrong.

On the other hand the appointment of Mboweni brings back someone with considerable skills and the political finesse needed to steer South Africa out of its current economic quagmire.

Mboweni needs to hit the ground running. In late October he must present the country’s medium term budget policy framework. All eyes will be on how he steers the challenge of rebalancing the national budget. His political skills and ranking might come in handy.

Equal to the task

Mboweni takes over the finance portfolio at a difficult time. Tough decisions will be required in a hostile environment as a strong populist wave sweeps through the ruling party, the African National Congress (ANC).

It’s therefore a positive that he commands a more senior political ranking than Nene had within the ANC. Mboweni claimed the 11th position in the tallying of the votes for the ANC’s National Executive Committee (NEC) during the ruling party’s 2017 elective conference that made Ramaphosa the President. The NEC is made up of 80 members and is the ANC’s highest decision making body between conferences.

In addition to this, Mboweni has a strong financial background. He served as governor of the South African Reserve Bank from 1999 to 2009. Prior that he served in Nelson Mandela’s first cabinet as minister of labour.

Both experiences should help equip him to meet the economic challenges facing the country. There’s no doubt that he’s knowledgeable about financial matters and is respected among investors.

His tenure at the Reserve Bank should ensure a smooth working relationship between the minister of finance, the national treasury and the central bank. As a previous governor, Mboweni understands this important relationship while valuing the autonomy and the independence of the various institutions and their responsibilities.

High expectations of Mboweni

Mboweni will need to be a quick study. He has only two weeks in which to familiarise himself with the details of the medium term budget.

He can’t afford to disappoint. This year’s budget will be watched more intensely than usual by key stakeholders, including investors and credit rating agencies because it follows closely on an economic stimulus and recovery plan announced by Ramaphosa. Details are expected to be unveiled in the medium term budget.

The medium term budget is also expected to signal how South Africa is dealing with its fiscal challenges. This is where government faces its very hard choices.

The ultimate aim must be to increase economic growth and eradicate unemployment. But to achieve these objectives the government must revise its expenditure priorities.

Expenditure on civil service remuneration, social grants and interest on government debt currently equates to 70% of the government’s tax revenue. This is clearly untenable. If not addressed, South Africa will face a fiscal cliff – the point at which these three expenditure items account for all government revenue and make spending on anything virtually impossible.

At the same time, Mboweni will have to work closely with Pravin Gordhan, the Minister of Public Enterprises, on the restructuring of state-owned enterprises. The precarious financial position of a number of state-owned enterprises is placing a heavy burden on taxpayers. Removing this burden will release resources that can be used to stimulate the domestic economy. Mboweni must therefore help with tough decisions about unaffordable vanity projects.

And, finally, Mboweni must sort out the challenges facing the Public Investment Corporation which is responsible for managing civil servants’ pension funds and is worth over R1,5 trillion.

Restoring trust

South Africa is in serious economic difficulty. It also faces a trust deficit owing to the state capture project of the Zuma administration. The golden triangle of trust between the government, the public and the business community has been broken. No country can succeed without this. Mboweni can play an important role in restoring it.

Jannie Rossouw, Head of School of Economic & Business Sciences, University of the Witwatersrand

This article is republished from The Conversation under a Creative Commons license.

Moral courage and decency irrelevant as South Africa's finance minister resigns

Nhlanhla Nene’s departure means that South Africa has had six finance ministers in four years.
GCIS

South Africa’s once-lauded, lately beleaguered Finance Minister, Nhlanhla Nene, has had his resignation accepted by President Cyril Ramaphosa. His successor, Tito Mboweni, becomes the country’s sixth finance minister in four years.

The President is desperately trying to dig South Africa out of an unholy mess created by his predecessor Jacob Zuma and his multiple cronies in and out of the governing African National Congress (ANC). The particularly odious Gupta family have loomed large in what a succession of research projects, commissions of inquiry, books and investigative journalism projects, have labelled state capture.

Nene was formerly regarded as “clean”, having been fired by former President Zuma for refusing to fund his more ludicrous rent-seeking projects. He was replaced by Des van Rooyen for a weekend, and then left in the cold while Pravin Gordhan became Finance Minister (before in turn being fired by Zuma). Nene was rehabilitated by Ramaphosa – who defeated the entire Zuma strategy by winning the ANC (and then national) presidency. Nene’s reinstatement as Minister of Finance was widely regarded as both politically astute and market-friendly.

But then Nene dropped two bombshells: one, that he had met the Gupta brothers at their homes and offices between 2010 and 2014, but had not shared this with Ramaphosa; two, that he had refused to sign off a nuclear deal with Russia that would have simply broken the country financially for decades to come.

And now he is gone.

Did anyone pause to reflect on the fact that after a decade of impunity, this was an act of decency and moral courage? Ignore the party colours, and look at the human being. That is clearly a test all South African politicians failed abysmally. If they have a conscience they clearly forgot to dust it off and use it.

Widespread guilt

Almost by definition, anyone who is found to have past dealings with the Guptas – themselves now safely ensconced in mansions abroad – is unclean. And by definition that includes huge swathes of the political and business classes, whom the Guptas seem to have variously seduced, corrupted, cajoled, threatened or by-passed, depending on the strength of character at stake.

The brilliance of their state capture project – laid out recently by the investigative journalists as well as various academics – is a roll-call of virtually every senior political figure in South Africa, alongside many business elites.

Some stood up – but a great many folded, seduced by cash or a crass Sun City family wedding invitation or rotten contracts.

Many are in parliament, some are in civil society, others in the private sector – including the consultancy firm KPMG, and UK-based now defunct PR company Bell Pottinger – and elsewhere. Not all are sitting on ANC benches. Perhaps that is why the President had no option but to remove Nene. Politically, the liability was too great as an election approaches – national elections are due next year – and none are so shrill as those with something to hide.

Nene went to the Zondo Commission into state capture and ‘fessed up. Yes, he had met the Guptas. No, he had not taken bribes (well, he would say that, right?). Yes, he had been put under immense pressure to sign off on the nuclear deal which would have opened South Africa’ coffers to looters. Yes, he refused to sign, and was fired.

Remarkably, he had not told Ramaphosa about the earlier meetings with the Guptas. But, he took responsibility – unlike the lies and bluster of others caught in the act. Nene said to South Africa:

In return for the trust and faith that you have placed on me, I owe you conduct as a public office bearer that is beyond reproach. But I am human too, I do make mistakes, including those of poor judgement.

This was followed by his offer to resign. This is accountability and decency.

Lacking empathy

In any version of the world, this was a man seeking an honourable redemption. He acknowledged his own mistakes, sought forgiveness, and asked to be relieved of the trappings of office for which so many continue to drool and slobber.

Were there questions to be asked? Absolutely.

But what did he get in return? The Economic Freedom Fighters (EFF), whose leadership has repeatedly been accused of corruption, leapt to the offence, claiming Nene was “corrupt as hell” and promising to release more compromising details – which are yet to appear. The opposition Democratic Alliance (DA), desperately seeking the front foot it has lost since Ramaphosa’s ascendancy, demanded Nene’s axing and wanted other possible conflicts of interest investigated.

Empathy is the ability to understand or feel what another person is experiencing from within their frame of reference. In simple terms, to put yourself in their shoes. It is singularly lacking in politics – from Trump mocking abuse survivors to South Africa today. Shout down the other side, win by volume and crassness, see honesty as weakness, but above all win – nothing else seems to matter.

Not one politician had the decency to say ‘that was a decent thing to do.’ The lack of empathy was deafening. A lack of empathy is part of narcissistic personality disorder – an inability or refusal to identify with the feelings of others. This is a rather neat description of politicians, confirmed repeatedly.

If politicians see only personal advantage, especially from the ‘weakness’ of others – weakness defined here as honesty, seeking forgiveness, repentance – then the future is bleak.

But to all those self-serving, smug TV chasing politicians and others, whose own meetings with the Guptas, or other corrupt activities, have yet to come to light, remember one aphorism: people who live in glass houses shouldn’t throw stones.

David Everatt, Head of Wits School of Governance, University of the Witwatersrand

This article is republished from The Conversation under a Creative Commons license.