You are currently browsing the category archive for the ‘National Budget’ category.
Sunday’s newspapers were more interesting from a political risk and investment point of views than normal.
This is what I thought mattered, as far as financial markets were concerned, in last week’s Mail & Guardian, the Sunday Times, Sunday Independent and City Press:
Construction industry – possible prosecution and fines for fraud and racketeering
Government and the national prosecuting authority are reported to be facing a dilemma: managers in at least 20 major constructions firms might be guilty of serious criminal practices relating to may years of in-industry collusion, but a successful prosecution of the guilty parties would rip the whole management level out of up to 20 top companies and thereby sink government’s infrastructure plans – Mail and Guardian.
The stories are covered in the Mail & Guardian and the City Press – both drawing their details from a series of leaked 2011 affidavits apparently produced by individual managers at Sefanutti Stocks when they (Stafanutti) realised that despite co-operating with a Competition Commission investigation, individual managers were likely to be liable for criminal prosecution (by the Hawks and the NPA) and that the punishment could include imprisonment.
Paul Ramaloko, Hawks spokesperson said “This case is bigger than people think. We are going to take our time and do a thorough investigation” (Mail & Guardian), but in City Press he says the investigation was in its “early stages” and that he would only comment once it had “matured”.
So What? Sounds like a political dilemma. The NPA and the Hawks are not (entirely) governed by the political priorities of government (despite apparently decisive co-ordination between the Hawks, SARS and the Public Protector in the Julius Malema fraud, money laundering and tax evasion investigation). However, government is likely to do what it can to make sure the companies survive intact – albeit compliantly chastened and grateful for leniency. Of course, the NPA and the Hawks might, alternatively, feel these managers would make good examples of how ‘old-order’ and ‘untransformed’ individuals and companies are as important sources of corruption as the ANC, its leaders, supports and structures.
Either way, the reputation and coherency of the companies concerned could be seriously impacted. However it is not clear from the news reports that there is any differentiation between, “winners and losers” … no-one appears more or less guilty than anyone else – which rather suggests the sector as a whole is risky, with no safe havens.
Key Jacob Zuma allies Atul and Rajesh Gupta (using family vehicle Oakbay Investments) are reported to be on the verge of adding a 24-hour continent-wide news channel to their media portfolio (which includes New Age newspaper) in partnership with Essel Media and an unnamed black empowerment firm. Multichoice will likely be providing the platform but purely on a commercial basis and is not expected to be partner in the venture (Mail & Guardian).
Well, one of the Guptas’ current empowerment partners is President Zuma’s son Duduzane and the Guptas themselves have become key ANC funders and power players in South African politics. The Mail & Guardian has a picture of Atul and Rajesh Gupta (who came to the country from India in the early 90’s) ensconced at the ANC’s elective conference in Mangaung in December. Obviously, the more the merrier on the news diversity front – and who says government and the ANC shouldn’t spend more money in the space? South Africa has a free and open media culture – to the point of government and ANC leadership spending a considerable amount of their time denying allegations and defending government policy against feisty attacks. It is unlikely to be harmful if government and the ANC strengthen their ability to put their point of view. Influence trading is always a feature of politics and is no worse or better in South Africa than it is in many countries across the world.
Telecommunications – new political upheavals on the cards
All the weeklies report that Communications Minister Dina Pule is about to be removed from her post in a cabinet reshuffle. At least part of the reason is because she is accused of “routing large sums of money to her alleged lover” – Sunday Independent. So many individuals are touted as possible replacements, but the one person who comes up time and against is Lindiwe Zulu. This is what the Mail and Guardian has to say about this close Zuma confidant: “Zulu has just been appointed head of the ANC’s communications and her star has been rising under Zuma. A government source said Zuma trusted her opinions. She is his adviser on international relations. ‘He likes her bravery. The way she’s handling the Zimbabwe issue in a fearless manner has impressed him.’ She is one of Zuma’s three envoys on that country.”
So what? Pule will be the third minister to exit this portfolio in four years and instability in the department has raised fears that SA will continue to wander in the policy wilderness as far as migration to digital TV, Telkom’s business plan chaos, spectrum allocation and unbundling of the local loop (to name but a few pressing policy mattings) are concerned.
Mining Indaba – policy confusion as rife as ever
The Business Times has a depressing few pages about the Mining Indaba that implied that if anything the industry is more concerned than ever about policy uncertainty. On the proposed Mineral and Petroleum Resources Development Amendment Bill: “The move has again flooded the country’s struggling mining sector with uncertainty” – Loni Prinsloo.
“On the exploration side” said Magnus Ericsson, Chairman of Raw Material Group, in the lead story, “I think it’s a general hesitation … if you find something in South Africa, what will be the BEE requirements? What are the other requirements? For some foreign investors they are seen as difficult”.
The same series of articles argues that the pressure to “quarantine” SA assets is becoming fierce. “A valuation by AngloGold Ashanti’s biggest shareholder, Paulson & Co, indicated that South Africa’s biggest gold miner could boost its share price by as much as 68% if it split out it local assets.” Elsewhere on the front page of the Business Times, the paper argues: “The true investor sentiment will be measured tomorrow (now yesterday– ed) when Sibanye (Gold Fields’ local assets – ed) lists separately.”
So what? To my mind regulatory uncertainty, especially in the minerals sector, remains the key politically driven investment risk in South Africa. The risk is being driven by pressures (felt by the ANC and government) to improve delivery and redistribution. These pressures will increase going forward and the increased regulatory burdens government is placing on private mining companies is unlikely to achieve any of government’s objectives … in fact, the reverse is more likely to be true. This is an unhappy environment for those searching for policy certainty.
Bits and pieces
- The brutal rape, torture and murder of Anene Booysen in Bredasdorp filled many column inches in all four weeklies – hoping to stimulate the kind of outrage against rape that swept India recently. Many of the stories point out that South Africa has the highest incidence of rape in the world.
- Ramphele – will she or wont she? The press is full of speculation about whether Mamphela Ramphele (former anti-apartheid activists and close friend of Steve Biko, a doctor, academic, successful businesswoman, a former director at the World Bank and former Vice-Chancellor at the University of Cape Town) will set up a political party and that that party will capture a significant percentage of urban black support. I think she might, but I doubt whether the party will make a dent on South Africa’s politics. The most likely scenario, to my mind, is Ramphele ends up in the Democratic Alliance.
- There was much speculation about what President Zuma might say in his State of the Nation address this Thursday – with a generally excited consensus emerging that Zuma is less beholden to special interest groups (post his decisive victory at Mangaung) than he was previously. I am not convinced this will lead to bold new steps. I am watching for tension between this speech and the National Budget on the 27th of February. I expect the political plans in Zuma’s State of the Nation to be at odds with Pravin Gordhan’s plans to balance the books … but I expect that tension to be hidden.
- The Mail & Guardian gave a list of who it thought is in Zuma’s inner circle: (Lakela Kaunda, Lindiwe Zulu, Mac Maharaj, Collins Shabane, Gwede Mantashe, Nathi Mthethwa and Batandwa Siswana), but then spoiled any special insight that might have given us by adding :
“Those privy to Zuma’s kitchen Cabinets say the president also has a high regard for Economic Development Minister Ebrahim Patel, National Planning Commission Minister Trevor Manuel and Justice and Constitutional Development Minister Jeff Radebe. Other key confidants include Rural Development Minister Gugile Nkwinti, Intelligence Minister Siyabonga Cwele, Cosatu president S’dumo Dlamini, Public Enterprises Minister Malusi Gigaba, KwaZulu-Natal Premier Zweli Mkhize, Finance Minister Pravin Gordhan and, to some extent, Higher Education Minister Blade Nzimande. People outside government who are in the president’s good books include businessperson Sandile Zungu, film producer Duma ka Ndlovu and businessperson Deebo Mzobe, widely considered the man behind the building of “Zumaville”, the town surrounding the president’s homestead.”
… hmmm, must have a pretty big kitchen.
I think the e-tolling saga is important precisely because my headline bastardising the denouement of John Donne’s famous poem is, in truth, wrong.
Gauteng’s road upgrade does not come for free.
The R20bn was borrowed by Sanral and lent by people and institutions (which) who assessed the risk attached to repayment on the basis that e-tolling was part of the deal.
This is a précis of what I told my clients about some of the political implications:
The North Gauteng High Court granted an urgent interdict on Saturday that will postpone the implementation of e-tolling until as late next year – and perhaps contribute to stopping it completely.
At this stage the court has ordered a full review of the process that will probably take at least two months to complete. If the court rules that e-tolling can go ahead the appeals process, all the way to the Constitutional Court, can take up to two years.
There are a number of significant risks associated with this decision .
The National Treasury itself, during the course of legal arguments, predicted dire consequences for South Africa’s sovereign risk rating and for public finances more generally.
I think they exaggerated but one could hardly blame them. The Treasury is the custodian of the public purse and its officials and political head carry the responsibility if R20bn that will no longer be raised from tolling has to be dug out from somewhere.
But the ruling is important for a deeper reason. South Africa, according to President Zuma’s State of the Nation address (and confirmed by a number of government and ANC statements in the last few months) is engaged in an infrastructure programme that is expected to cost just short of R1 trillion over the next 8 years.
This is the biggest bet for anyone hoping to invest in the country for the next ten years. Will it happen or will it – again – fizzle?
At least part of the funding model for this infrastructure programme is the ’user pays’ system established in the planning of the Gauteng highway upgrade project. In general, I think a user pays system is a more efficient – and fairer – system of allocating capital than unwieldy central plans that draw on the central tax pile.
Further, private sector lenders funded the project on the basis of the collection of user fees – this is how they did their calculations and assessed their risk. The ruling effects government’s credibility as a borrower.
Chris Hart (economist at Investment Solutions) is reported to have dismissed this saying the delay is no big deal – less than 0.2% of planned government expenditure this year. Goolam Ballim (chief economist at Standard Bank) said if there was a contractual infringement impacting on Sanral’s ability to pay, it did not imply sovereign default risk and “will not compromise South Africa’s international credit standing in any way”.
Now those two economists are no slouches – and know more about our public finances and the basis that the rating agencies changes the investment grades of our government bonds than I ever will – but surely it is obvious that there is a degree of damage to government (and Sanral’s) credibility as a borrower? Perhaps not as much as the Treasury argued during the urgent application. But we are coming up for strike season, the Treasury has promised to hold the line on public sector wage increases, the budget is under immense pressure and R20bn is not a meaninglessly small amount.
The whole of the South African government looks weak – with the Treasury and the Department of Transport being the most obviously and immediately affected. Both are “studying the ruling” before making public statements. These issues might not swing Standard & Poor, Fitch or Moody’s against SA bonds, but there is no question that this ruling will be part of their assessment.
The risks are clearer when we look at the political back-story. There is a changed political configuration in the Ruling Alliance. The rise of Jacob Zuma was characterised by an already growing influence of Cosatu on policy making. A Thabo Mbeki led ANC would have taken a much stronger line against Cosatu’s campaign against e-tolling and would have stood much more firmly behind the Treasury’s arguments in favour. I am not necessarily cheering for that side, but I do think the Zuma administration is beholden to Cosatu in a manner that limits its options in public finance – and that limitation is being set by a very narrow interest group.
Cosatu has – as is its wont at the moment – been tactically brilliant in this campaign. It has built a classic broad front, multi-class alliance against the e-tolls and has strengthened the group made up of Zwelinzima Vavi, Irvin Jim and Numsa on the one hand and weakened the group made up of Sdumo Dlamini (Cosatu President) Frans Baleni and Num on the other. See here for more discussion on the relevant factional splits within Cosatu.
The gravitational centre of the Alliance is only weakly occupied by Zuma and “the left” in Cosatu has been able to shift the whole edifice towards itself. This is a trend that we will have to keep a close eye on during the lead-up to Mangaung, when the Zuma administration is likely to be at its most docile and weak.
And it is in this environment that Cosatu has taken on e-tolling as ‘privatisation by stealth’ and an infrastructure funding method that taps its constituency too directly. Cosatu is a sectional interest group … and is completely entitled to pursue the sectional interests of its employed worker members (employed, by definition, in ‘union jobs - and all strength and luck to them for that advantage’.)
The most important signifier issue will be how government deals with public sector wage demands over the next few months. It’s strike season, and I mentioned elsewhere, Gordhan’s budget only balanced because of the hard line he took against public sector wage increases.
To give you a sense of why that is important, this is what I said about the budget and public sector wages on February the 23rd:
Public sector wages: This is the area, to our (I wrote this with economist Sandra Gordon) mind, of least credibility with the most consequence:
Total Compensation % of total budget % yoy 2009/10 248558.0 31.8 17.7 2010/11 281619.2 33.6 13.3 2011/12 314907.2 33.9 11.8 2012/13 336959.4 33.5 7.0 2013/14 357168.2 32.7 6.0 2014/15 378148.7 32.1 5.9
Adjusted for inflation those figures in bold are heading towards zero – and remember we are talking about over 30% of the total. The public sector wage bill was R8,1bn more than budgeted for in 2011/12 and it is not an exaggeration to suggest that the whole edifice of the budget could crumble on this point.
So what? … Public sector unions set the tone for industrial bargaining throughout the economy. Our main scenario, in which 2012/13 becomes an industrial relations blood-bath, is looking ever more likely – although we await, with interest, Cosatu’s formal response to Budget 2012. This proposed spending shift – if Zuma’s ANC can hold the line – is also supportive of our construction and investment relative to consumer equity theme – with the consumer sector keeping a “look-in” by social grants increases from R105bn in 2012/2013 to R122bn 2014/15 and the promise to reassess if inflation rises further.
So the e-tolling is an ongoing threat to public finances and it is an indicator issue of how beholden … and therefore weak … Zuma’s leadership is.
But there is an upside to this story. The ANC and Cosatu did agree to postpone e-tolling after their meeting last week – and announced that they had instructed government to do this (revealingly issuing a hastily retracted statement saying they would, in fact “request government to postpone”).
But the real upside is that it wasn’t, ultimately, political weakness or fiscal slippage that led to the cancelling of e-tolling. It was judicial sensitivity to popular opposition and an assertion of the principle of the rule of law.
You will be able to tell by reading between the lines that I think e-tolling was actually the right approach, but it is clear that an unaccountable system, that never bothered to consult the public properly and that, in addition, has badly damaged its own credibility in as far as corruption and maladministration is concerned, was defeated by a judge determined to uphold legal accountability and respect for popular discontent.
It might make the Treasury’s job more difficult and it might create uncertainties about funding infrastructure development, but it has got to be positive for the South African democracy as a whole.
Some of the things we think we know about revolts and revolutions – but that do not always apply:
- Where there are adequate elective processes dissatisfied people believe they can influence outcomes through voting and therefore are unlikely to make the sacrifices required of a revolution.
- Revolts are generally lead and organised by the middle classes – a degree of education is required – thus where the middle class is linked to the ruling elite through patronage or ethnicity, its members are less likely to lead a revolution.
- Societies where a middle class is non-existent (where the division in the society is a simple one between the rulers and the people) can be surprisingly stable and enduring.
- Poverty and unemployment tend, on their own, not to be strong predictors of unrest and revolt – it is often a necessary condition that these two social ills exists alongside visible inequality.
- Ethnic exclusion from government or the economy is a powerful driver of unrest and revolt – colonialists loved to place favoured ethnic minorities to rule over less favoured ethnic majorities – a recipe for revolt and, depending on the relative size of the groups, civil war.
- Revolts tend not to happen in situations or countries where the condition is continuously and steadfastly awful. Revolts happen when expectations begin to rise amongst “the people” – in response to improving social, economic, political or cultural conditions. US sociologist James C Davies turned the simple observation that expectations rise faster than improvements in the underlying conditions and further that the system can cope with the disconnect only until conditions continue to improve (the Davies J-curve). I discuss the usefulness of this formulation in relation to South Africa’s ongoing service delivery protests here, a blog post that could have been written … almost word for word … today, but was, in fact, written in March last year.
With those meagre points acting as a theoretical background here then are my thoughts on the forces working for and against revolt in the South African context. It is not as simple a matter as putting some things in one column and others in another. Many of the protective factors are also depth charges seeding our future with hazards, but I will do my best to make it as simple as possible.
Why we are less revolting than we might be
- The first and most obvious reason is unlike many of the Middle East North Africa countries (from now on written as MENA, following a financial market convention) South Africa is a fully functional democracy where citizens have several opportunities to vote for and against parties that run their lives at a local, provincial and national level.
- The Ruling ANC is still seen by much of the electorate as the party led and staffed and supported by those who fought apartheid and those whose lives have improved because of that system’s demise. Whatever it might be in the future, right now the ANC still has enormous reserves of goodwill based on the fact that it is the premier liberation movement (still) led by the heroes of the struggle.
- The ANC government pays just under 40 percent of consolidated non-interest expenditure (that’s R314 billion up from R156 billion five years ago) on the public sector wage bill and a further 20 percent to the poorest South Africans in the form of social grants. These are crucial constituencies to get to buy into stability – and a large part of the nation’s wealth is doing just that: providing jobs for the emerging middle classes and poverty alleviation for those who would otherwise be without hope.
- Add into the stability mix the fact that the ANC has managed to dispense a huge degree of patronage to the most aspirant and powerful of its leaders, members and constituents through the legal and regulatory regime of Black Economic Empowerment and the application of employment equity laws especially in the parastatals.
- Finally, whatever the criticisms, this government has built more houses for the poor, paved township roads, established sewerage and water connections, and provided the poorest South Africans with private and public goods on a scale unimagined under the previous dispensation of the Apartheid rulers.
Why we might be more revolting than we think
- Firstly, the obvious threat to stability is fiscal. Can we afford to meet the ever growing needs of the poorest as well as the growing middle class? At some impossible to predict moment in the future a force (a Maggie Thatcher type force) will arise within government and attempt to get our financial house in order. The first cuts will be in the fattest areas: social grants and public sector wage bill. I have no doubt an even slightly popular government could weather the resulting storm, but it will be a weather phenomenon that will be spoken of for many years.
- Secondly, failure to meet the fiscal challenge has its own terrifying dangers. In fact, this is precisely what happened in Zimbabwe. The leaders of Zanu-PF ransacked the war veterans pension fund which caused ex-combatants to begin militantly to threaten Mugabe and Zanu-PF. The pension fund was recapitalised to the tune of $2bn in the late 90′s and the rest, as some are wont to say, is history. Spending $2bn they didn’t have led directly to hyperinflation, food riots and the formation of the MDC. With no largesse left to dispense the white owned farms were next on Zanu-PF’s attempts to stave off revolt and the last titbits of that economy are currently being pissed up against the wall with the same objective but in the name of “indiginisation”. Of course, Zimbabwe hasn’t revolted, but the price the politicians have made that country pay for stability has left Zimbabweans worse off than even the most cataclysmic revolution might have done.
- If a greedy, rent seeking, corrupt, politically powerful and unaccountable elite is what fuelled revolt in MENA, then we are in all kinds of trouble. “Elite Theory” is a branch of sociology that argues that the economic and political elite make up an informal network that is the actual source and exercise of power – not “the people” through elections and parliament. At an obvious level the theory applies to us: a publicly unaccountable elite within the ANC deploys loyalists to key institutions throughout the state and economy so as better to control the shape and direction of society. But with such a dominant and popular ruling party, such practices are unlikely to lead directly to revolt. However, beyond the formal exercise of the policy of “cadre deployment” we have an elite almost identical to those in Tunisia, Egypt, Libya and a host other MENA countries. These are the grand political families that thrive on tenders won from the state and bribes won from global corporates attempting to secure lucrative deals here. These are the groups and individuals that have turned some of our provinces, town and cities into gangster fiefdoms ruled by fear, patronage and manipulation.
We are still well within the safety zone and the system seems to have the flexibility and resources to withstand firm assaults in the future.
The obvious danger is the parasitic elite that honeycombs the upper echelons of our politics and economy. Many who participated in the Polokwane Putsch understood themselves to be cleansing the ANC and government of such an elite.
Unfortunately they failed to notice that their principal allies were the second -rankers and blatant criminals that Mbeki had managed to keep away from the trough.
If this elite manages (as it constantly strives to do) to divert the resources our society has available for economic growth, employment, poverty alleviation, infrastructure development, public health and education (you name the social good, it is threatened by the elite’s rent seeking activities) then we will have to reassess.
While people like Willie Hofmeyr are still loyal ANC members and in place as senior state officials there is hope. Yes it is horrifying that he estimates that his Special Investigative Unit will scrutinise R20bn of tender fraud in this financial year (read about that here) but the real trouble arrives when people like him throw up their hands in disgust and head for the private sector.
A guest post from my friend and colleague Sandra Gordon. Sandra is a respected financial market economist and we increasingly present work as a team in what is often called “a dog and pony show” … although in our case there is some disagreement over who will be the dog and who will be the pony. Sandra is an excellent market commentator and I have known and respected her views since she was my client on the “buy side” at Nedcor Investment Bank Asset Management (Nibam) in the mid-90s.
Over to Sandra:
If there was one message from this year’s budget it is that, despite all the hype that economic transformation has finally arrived (the dreaded “shift to the left” which tends to give the financial market types sleepless nights), it’s actually probably more of a case of business as usual.
In the wake of the global financial crisis, there was serious debate worldwide about the merits of various economic growth models. In the 2010/11 Budget, Minister Gordhan noted: “The recent crisis and its aftermath have led to a serious introspection and rethinking of what were thought to be robust and superior economic models.” With the Washington Consensus in disgrace, South Africa was able to signal its intention of shifting towards a “developmental state” (essentially a more active role for government in the economy).
So it seemed South Africa was headed for a developmental state and real economic transformation. The new model was finally outlined by the New Growth Path (NGP), which was released by Minister Patel late last year. The primary aim of the NGP was the creation of five million new jobs by 2020.
This theme was echoed in the recent State of the Nation address, in which President Zuma announced a range of measures to encourage job creation.
Yet, despite all the talk of economic transformation – and the ongoing tsunami of change in the global environment – this year’s budget is essentially unchanged from the previous. The critical issues facing our economy were again identified as the twin evils of unemployment and poverty, while the best way to address them is to focus on job creation and encouraging growth in those sectors most likely to generate employment.
Admittedly this year’s budget had a greater focus on jobs than last year – with a grocery list of programmes and measures totalling R150 billion over the next three years. A key difference was also the absence of any mention of the “developmental state” – with government’s role limited to the provision of incentives and the creation of an environment conducive to growth – such as the easing of transport and logistic bottlenecks etc. Other than that, the key measures were familiar – more social spending to support the poor, huge sums for investment in infrastructure and a focus on skills development and training.
Essentially the budget delivered on the priorities laid out by the NGP – with one glaring exception: demands for a weaker rand. Minister Gordhan neatly sidestepped this particularly contentious issue by noting that government had already responded to excessive rand strength by easing exchange controls and accelerating the accumulation of foreign exchange reserves in October last year. Beyond those measures, Treasury will be “monitoring” the measures adopted by other countries – including Brazil and Thailand – which have had similar struggles with massive capital inflows and excessive currency strength. So effectively, “we’re looking into it.”
The other political hot potato that was neatly avoided in the budget was the issue of the National Health Insurance. This year’s budget included measures which “lay the foundations” for NHI. The implementation progress is going to take time – but things are undoubtedly going to get more interesting when the debate shifts to how the NHI is to be funded. Gordhan listed a range of possible funding sources including a VAT hike, a surcharge on personal income or a payroll tax. None of those options are likely to be particularly well received.
Essentially then, Gordhan was able to address all the priorities outlined in the NGP (barring rand weakness), while maintaining an element of fiscal discipline. With the deficit remaining at 5.3% of GDP in the new fiscal year – in line with the previous fiscal year but above expectations – debt servicing is now the fastest growing spending category.
While we are in a far better position than countries like America, the UK and various European economies which are slashing government spending and raising taxes, it could well be that this is our last chance to really get the economy moving. If the measures in this year’s budget deliver growth, tax revenues will ultimately rise and fiscal discipline will be maintained.
If, however, growth stagnates – perhaps due to a deterioration in the external environment – the state may find its finances stressed, providing less scope for social spending and job creation initiatives. As one analyst put it in the press this morning, this could be “the last throw of the dice”.
And it is on this front that the news is a little less reassuring.
It is positive that – amidst the global turmoil – the centre is holding and our basic economic policies remain on course. But our key weakness has always been not our policies but our inability to implement those measures. So for all the good news in this year’s budget regarding measures to encourage job creation and infrastructure investment, there have been no developments which would lead one to think that there is going to be any significant improvement in implementation and delivery.
In an increasingly unstable global environment, it is becoming ever more important that we finally start making significant progress on reducing our unemployment rate and pervasive poverty. We have the money, for now, but the ability to implement and deliver is becoming ever more critical.
With so much at stake, it looks set to be another interesting year.
The budget is the spending, taxation and borrowing plans of government.
Don’t just think of it as a series of hefty documents (the national budget review, the estimate of national expenditure, the appropriations bill and the division of revenue bill) – hundreds of pages and millions of calculations, graphs and tables.
It is more than just the grand plan to tax and borrow and divide the money between central , provincial government and municipal governments as well as between a thousand different priorities.
It is, in theory and in a functioning democracy at any rate, how the will of the people is exercised in the world; the full process of planning and execution by the elected government.
Obviously elected governments are not always perfect translations of “the popular will”, and “the popular will” itself is not always something more noble than a self serving and ugly little collection of prejudices, fear and greed.
But anyway, the questions I was asking of the budget were:
- Is the Treasury still the guiding hand in macro-economic policy – in the sense that it remains able to force prudence and fiscal rectitude on the rest of government?
- The New Growth Path calls for measures to make the currency more competitive: more restrained fiscal stance combined with more active monetary policy, accumulation of reserves, a sovereign wealth fund and possible controls on short term capital inflows. Does the Budget 2011 confirm these commitments?
- How much money will be allocated to removing infrastructural, skills and administrative bottlenecks in the economy? Is there the promised Marshall Plan type urgency to increase the economy’s capacity for growth?
- Are there measures to encourage domestic savings: compulsory retirement savings, discouraging high debt levels, increasing corporate savings by discouraging dividend payments and development bonds … and horror of horrors the return of a strong version of ‘directed investments’? Depending on how this is phrased it could spook investors and generally indicate hostility to open markets.
- Were the supportive measures in the State of the Nation address (in particular the R20bn to manufacturing subsides) something new or actually measures that had been announced before?
- Did the mention of a 9 billion rand jobs fund in the State of the National address refer to the long missing subsidy for first time youth workers? This is significant because it will show government preparedness to take on Cosatu over the labour market.
- Shifts in the over-all allocation of state money between priority areas as different as policing, housing, water and sewerage can indicate changing strategies as well as changing prioritisation. But in general we will be looking for the meat on the bones of the statement that government wishes to be a “developmental” not a “welfare” state.
- How close are we to a National Health Insurance scheme and how aggressive will that scheme be to the private sector?
- Is the allocation for the civil servants wage bill set to endlessly increase or does it look like government might, at some stage, dig in its heals and face down the public sector unions.
- What measure are in place or likely to be put in place to control corruption and cronyism within government departments and in the allocation of state contracts?
If that was where I was looking for the signs of where we are going, my next post will look at what the budget revealed with regard to these questions.
‘Not as bad as I feared; perhaps even better than I hoped’ – is my reply to the question implicit in the title.
I have been flat-out covering the event for paying clients and I was at parliament in the gracious hands of the lovely people from Radio 2000 – where I commented for about an hour. Hence me only scribbling these short notes at this late stage in proceedings.
View from before
This is what I had to say before the event:
It is a ceremonial occasion; Jacob Zuma is there in his capacity as Head of State (not only head of government); it’s a joint sitting of the National Assembly and the National Council of Provinces; the Executive, the Legislature and the Judiciary is in formal attendance; there’s a red carpet, a twenty-one gun salute and a public gallery packed with ordinary people, senior representatives of the governing alliance and foreign and local dignitaries … this is just not a place where policy decisions, especially the various nettles Jacob Zuma will be required to grasp, could be spoken of in the clear and forthright terms that will, ultimately, be required.
View from the moment
I was initially very positive.
After a ten minute glance at the document I said to Reuters:
With surprising fluency Jacob Zuma managed to sound like a head of state dealing with an emergency – the crisis of unemployment. He didn’t grasp the nettle of the regulations that are strangling the labour market, but he placed more emphasis than expected on the private sector – especially manufacturing. There was also more detail than expected – and a confirmation that the interventionist aspects of the NGP will be issues to be dealt with this year.
I was impressed by the details namely:
- The nugget at the core of the speech: the proposed R20 billion in tax breaks for manufacturing investments above R200 million for new projects and R30 million for expansions and upgrades – I do not expect the ANC’s trade union allies to be charmed by this idea (money in the hands of the bosses!) even if they will be amongst the ultimate beneficiaries.
- Significant (and part of the New Growth Path’s underlying strategy of fiscal constraint and monetary easing) he foregrounded the statement that: “The Budget deficit is set to decline from the current 6.7% to between 3 and 4% by 2013. Concerns about the exchange rate have been taken to heart”.
- The R9 billion by 2013 “jobs fund” – what is interesting about this is apparently Helen Zille interpreted this on an SAFM interview as the long-lost subsidy for first time youth workers … Cosatu is also going to hate that implicit segmentation of the labour market. ’
View from today?
I’m still positive. There was lots of ra! ra! in there, but that is to be expected in an election year and, quite frankly, every victory he claimed he said how far we still have to go.
He also spoke surprisingly like a statesman and he made the drive for jobs sound like a clarion call to mobilise the nation for war … which this campaign is or should be.
Finally, he mentioned that the Municipal elections will take place before the end of May. That will be enough grist for me mill … heady times to be a political analyst in this country.
This is the first of three articles that look at the political and policy bloodline of the New Growth Path and the main criticisms that have emerged about the policy in the public domain over the last few days.
This first post is a summary – using quotes and paraphrasing – of Ruling Alliance statements about macro-economic policy since 1990.
To understand the policy we have to understand:
- firstly how the policy fits into the discussion/dog fight in the Alliance over the last 20 years;
- and secondly the fact that the policy comes from Minister of Economic Development, Ebrahim Patel, whose department and position, in my opinion, was a last-minute structural compromise to reward Cosatu (and to a lesser degree the SACP) for having backed Jacob Zuma against Mbeki.
So the big bulls (ANC and the SACP) have been butting heads for 20 years (see below) and now the little bull is trying to horn in on the action.
20 years in the trenches of the ideological squabble
Since the release of Mandela from prison in 1990 (and, in fact, well before that – mostly behind closed doors) different factions of the ANC, the SACP and Cosatu have had a sometimes productive and sometimes vicious policy debate about economic policy. At issue has always been the stance the state should take towards private business and the appropriate amount of persuasion and coercion required to achieve redress and redistribution.
The first sign of things to come was the speech Nelson Mandela made on his release from prison in 1990. After the excerpt from Mandela’s speech I will let the comments flow and tell their own story of the conflict within the Ruling Alliance.
A history of the conflict in quotes and paraphrases
“The nationalisation of mines, banks and monopoly industry is the policy of the ANC and the change or modification of our views in this regard is inconceivable”
Nelson Mandela paraphrasing the Freedom Charter on his release from prison in 1990
“We are convinced that neither a commandist central planning system nor an unfettered free market system can provide adequate solutions.”
The 48th ANC National Conference, July 1991 from a conference resolution
“It was a demand-led and internal infrastructural development proposal, which envisaged less immediate concern with budget deficit reduction and inflation.”
African Communist No 147, third quarter 1997 discussing the Macro Economic Research Group’s (MERG’s) proposals from 1993
“Of particular importance was the proposal to restructure the economy by way of a policy of ‘growth through redistribution in which redistribution acts as a spur to growth and in which the fruits of growth are redistributed to satisfy basic needs’. This proposal was predicated on the central policy idea that the state needed to boost demand, primarily by ensuring that greater amounts of income would be received by the poorer sections of the population, which in turn would stimulate output and hence economic growth.”
Dennis Davis in From the Freedom Charter to the Washington Consensus 2002 discussing the RDP proposal of 1993
“Despite its ideology while in opposition, once in power the ANC government implemented an orthodox macroeconomic policy which stressed deficit reduction and a tight monetary policy, combined with trade liberalisation. The stated purpose of this package (the Growth, Employment, and Redistribution programme, or GEAR) was to increase economic growth, with a 4.2% rate programmed for 1996-2000. At mid-term of the programme, growth remained far below this target. The GEAR’s lack of success cannot be explained by unfavourable external factors; rather, the disappointing performance seemed the result of fiscal contraction and excessively high interest rates”
A standard left criticism of GEAR from: Stuck in Low GEAR? Macroeconomic Policy in South Africa, 1996-98 John Weeks Cambridge Journal of Economics, 1999, vol. 23, issue 6, pages 795-811
“Faced with deepening unemployment, poverty, and inequality, and with disappointing growth and investment, the GEAR policy framework has met with persisting criticism from COSATU and the SACP in particular. From the side of its principal proponents within the government, there have been several adjustments in the face of disappointment. Increasingly, GEAR has been redefined as a conjunctural stabilization program and not what its acronym suggested it once aspired to be (a growth, employment and redistribution strategy). In this rereading, GEAR was necessitated by global turbulence and by a very precarious foreign currency reserve situation in 1996. Its “success” is now measured not in terms of growth, employment, and redistribution outcomes, but anecdotally and by way of comparison—“whatever our problems, South Africa’s economy is not in the same predicament as Argentina, or Turkey, or Zimbabwe,” or “GEAR has helped us to survive the worst of global turbulence” (which may not be completely incorrect).”
Jeremy Cronin rephrasing GEAR as a conjectural stabilisation strategy – 1998
In an address to the Socialist International October 2003 and then in various speeches in 2004, Thabo Mbeki argued that solving unemployment, poverty and low levels of black participation in ownership and control of the economy had become very urgent. Further, he argued that to solve these problems an effective, strong and interventionist developmental state was needed – just proving that there is nothing new in heaven and earth. He put the case for improving the public service and extending the state’s influence and ability to lead the economy. “Influence” meant keeping hold of strategic state assets (and therefore a partial withdrawal from the privatisation specified in GEAR) as well as a detailing of micro-reforms including BEE. He placed a strong emphasis on private public partnerships as well as on galvanising a collective consciousness about the “common good”. From this shift the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) was codified in 2005/2006. While it set targets for growth and employment, Asgisa was primarily an infrastructure investment programme combined with various (mostly supply-side) measures to remove impediments to growth – much of which the economy continues to benefit from today.
My own summary of Thabo Mbeki’s initial motivations for AsgiSA
In the lead up to Polokwane this was the definitive statement from ‘the left’ attacking the direction that the Mbeki government had taken: “The post-1996 class project” was led by a “technocratic vanguardist” state with the mission for “a restoration of the conditions for capitalist profit accumulation on a new and supposedly sustainable basis” (as opposed to “a revolutionary … transformation … to resolve the .. contradictions in favour of .. the working class ..”). The document argued that “The post-1996 class project” rests on three pillars: Firstly, the ANC leadership has mistakenly bought into a myth of a gentler, kinder world, but imperialism is stronger and more hostile to popular democracy than ever; secondly, to fit into this world “the second pillar of the project is a powerful presidential centre” that necessarily installs a top state/ leadership group of state managers and ‘technocratically’-inclined ministers and (often overlapping with them) a new generation of black private sector BEE; and finally, the project calls for the organisational modernisation of the ANC … “to transform the ANC from a mobilising mass movement into a ‘modern’, centre- left, electoral party”. There is a “manifest inability of capitalist stabilisation and growth to resolve the deep-seated social and economic crises of unemployment, poverty and radical inequality in our society. The ravages to the ANC’s organisational capacity and coherence (are caused by) “the attempts to assert a managerialist, technocratic control over a mass movement, and in the crises of corruption, factionalism and personal careerism inherent in trying to build a leading cadre based on (explicit or implicit) capitalist values and on a symbiosis between the leading echelons of the state and emerging black capital.”
My paraphrasing of the SACP Central Committee Discussion Document. Bua Komanisi – Volume 5, Issue No1 May 2006 – difficult to read but a perfect summary of the position that exists to this day in the SACP
Then came the answer to the ‘left critique’ from the central ANC leadership: “…the trapeze act here is to co-opt the ANC, formally, as an organisation pursuing socialism; and then condemn it as having betrayed the socialist project”. First, and most importantly the ANC denies that it ever was or should have been an organisation whose objectives was to achieve socialism. The ANC, the document claims, is the organic result of the struggle of black South Africans for national liberation and redress for what they suffered and lost under Apartheid. Additionally the ANC prioritises the poor and the working class. Once this point is made, the ANC argues, all the rest of the SACP critique falls away. The ANC accuses the authors of the SACP document of “ahistoricism, subjectivism and voluntarism”. This is more than just name calling. In the argument of the authors of this document: ahistoricism refers to the SACP’s alleged failure to understand what led to the present conditions as well as the character of the historical moment in which they find themselves, subjectivism means that the SACP has used its own preconceptions to guide its views and has seen the world as they wish it to be rather than how it really is; voluntarism means the SACP believes that through pure force of will, hard work and determination it can achieve socialism in South Africa, whatever limitations the domestic or global environment and balance of forces, especially the strength of global capital markets, impose on possible outcomes.
Managing National Democratic Transformation – ANC response to SACP discussion document – probably the last time the ANC spoke plainly and confidently about economics and the class struggle – 19 June 2006 the official NWC response to the above quoted SACP Central Committee discussion document
The next post will summarise the actual policy contest (from an economists point of view) of the last 15 years. This will essentially be the actual macro-economic policy of the ANC (run from the Treasury) and the SACP’s consistent “industrialisation” alternative (proposed from the Department of Trade and Industry).
I phrase it like that deliberately to suggest that the Department of Economic Development and the New Growth Path Framework represents a new political assertion even if the policy formulation ultimately turns out to be a hodgepodge of previous proposals – as suggested by my summary of Thabo Mbeki’s AsgiSA policy above.
It’s been a difficult week, and I started the following post on Monday soon after hearing the general tone of the press and analysts response to the cabinet reshuffle.
I wanted to publish while the accolades for Jacob Zuma were still glowing and, unfortunately for both the President and me, the corrective doubts and scepticism are starting to be discernible in the analysis that up until now has been characterised by the “a change is as good as a holiday” school of political commentary.
Anyway, this is what I wanted to say:
- outwits some enemies at the ANC NGC,
- announces (again) a process towards a (not very) New Growth Path,
- (his Minister of Finance releases) the Medium Term Expenditure Framework which emphasises continuity, and
- he shuffles his cabinet
and suddenly he’s a visionary, man of action, seizing the nettle of corruption and there’s a new spirit of optimism skipping through the land.
It’s obviously exhausting to have to read the same old strands in our news media day in and day out: incompetence, lack of vision, cronyism and inability to overcome endemic conflict in the ruling alliance.
So I understand the need to seize on a sign, any sign, as the first swallow of summer, but I think a little restraint is called for.
What leads the official opposition to conclude that the cabinet reshuffle is first and foremost “a positive indication of renewed focus on accountability’, when the far more obvious explanation is Jacob Zuma is using the reshuffle as part of his own agenda to stay in office beyond 2014?
Jacob Zuma is no fool and those who forget that he has played inner-ring ANC politics as head of Mbokodo, the ANC internal intelligence organisation, will constantly be led to make mistakes of analysis. He did, after all, defeat the acknowledged master of palace politics, Thabo Mbeki – and if this was a swords and sorcery story we would understand that he now has the previous master’s powers at his disposal.
A whole range of benefits and protections accrue to Jacob Zuma and his backers from him remaining president of the country. But to remain president, he needs to use a cabinet reshuffle to do four things:
- He must ensure that his cabinet is seen to be busy with the job of optimising delivery to the poorest South Africans (the constituencies he is talking to here are made up of the voting poor themselves and the various elites who feel threatened by those poor South Africans and who pay their taxes and various formal and informal levies towards the upliftment of the poor – and who cannot countenance that protection money being stolen or squandered by the political middle-man);
- Linked but separate is the need to be seen to be fighting against government corruption and cronyism. This is slightly difficult when one of the features of his presidency is the degree to which his own family is making oodles of money out of his good name, but a major cabinet reshuffle gives him an excellent opportunity to sacrifice the biggest and fattest offenders and offer them up to the uncritical daily media as grist to the mill of their learned analysis.
- Forming the cabinet allows him to woo individuals who belong to camps which oppose him. This is either in preparation for alligning with those camps around particular issues in future or it is part of an attempt to weaken the coeherency of the opposition.
- Finally cabinet posts and and especially the more amorphous post of deputy minister are excellent ways of building a corps of supporters to back him during future transitions.
Thus some of the major aspects of the reshuffle could be undertood as follows (and I quote myself from a recent research report);
The firing of General Nyanda
Zuma and the ANC has been under the cosh of public opinion – and negative opinion of Alliance leaders, particularly Cosatu’s Zwelinzima Vavi – for the tender abuse and rampant corruption of senior politicians. No-one represents this better (along with a very in-your-face approach to the ministerial car fleet) than the good General. Nyanda is powerful and wily, but his usefulness as an ally has gradually been outweighed by his usefulness as a sacrifice to prove that the President is serious about corruption. The fact that telecommunications policy has been a consistent political failure for the ANC (right back to the days of the awful but sweet Ivy Matsepe-Casaburri) makes it easier to throw Nyanda to the wolves.
Barbara Hogan has been a growing problem for the ANC. Liked and respected by business and the media and largely regarded as competent, her incipient ideological rebellion has been deeply threatening to the ANC and since her criticisms of the refusal to grant a visa to the Dalai Lama the party has been looking for strategy to getting her out of the way before she does something really embarrassing. Also, the position of Minister of Public Enterprises is a real plumb. Hogan represents no power constituency in the ANC and therefore the ‘patronage resource’ of the position is wasted on her. Public Enterprises is a massive area of political oversight. Hogan was a gifted and thorough minister, but moving her out of this portfolio is not going to make much difference to government performance in this arena. Finally, she has conflicted with Nyanda (and Zuma) and removing Hogan and Nyanda at the same time allows Zuma to sell the act as ‘even-handed’. She will be missed.
Malusi Gigaba, Fikile Mbalula and Paul Mashitile
This is slightly more Byzantine, but the promotion of Malusi Gigaba to public enterprises and Fikile Mbalula to sports and recreation and Paul Mashitile to arts and culture (and to a lesser extent Ngoako Ramathlodi to deputy in correctional services) is both an attempt to keep in with a key and potentially competing faction and also to place those competitors in positions that will be demanding and time consuming, but will not be a base from which to launch attacks. The leading figure in this faction is probably Tokyo Sexwale. Now all the key members are up to their necks in Cabinet jobs that will keep them out of trouble. At the same time Zuma may benefit by drawing them all into the heart of government, bound by its discipline and codes and directly under his authority. It is now only Julius Malema who is still outside the tent, with an independent base, able to make a noise and engage and challenge Zuma publically.
One of the ways to ensure power and influence is to woo particular and defined constituencies. ANC Women’s League stalwart Bathabile Dlamini to social development is an obvious example of wooing the voting block of the League. Also, the South African Democratic Teachers Union has already expressed its delight at the appointment of its previous General Secretary Thulas Nxesi as deputy in rural developement.
The slew of deputy ministers
In general the pushing up of cabinet numbers works to the benefit of Zuma. The more largesse he can dispense the more power he will have when it comes to the lead-up to the ANC’s centenary conference. Each deputy appointment provides the opportunity to reward some, make promises of future greatness to others and bring potential enemies closer.
I am sure it would be possible to run a similar analysis on every appointment or shift and the guiding analysitical principles would prove fruitful.
An interesting point to note is that President Zuma has left untouched the key economic departments which are part of a broader alliance process and the security departments, which were the first areas he put firmly under his own control.
In conclusion let me reiterate: Zuma is great on tactics and strategy – it is the arena of principles that he leaves something to be desired. His presidency has not been a great advance on Thabo Mbeki’s, but, in general, his priorities have led him to appoint people better equipped for the tasks set for them.
The cabinet reshuffle has not significantly changed the overall capacity of this government , but it does leave the Nkandla team stronger than at any time since Polokwane and a second term for Jacob Gedleyihlekisa Zuma is looking more likely than ever.
Cosatu has released its long awaited document in which it provides the facts (as it sees them) and theoretical underpinnings for “A Growth Path Towards Full Employment” – and in doing so attempts to align its views with those emanating from Minister Ebrahim Patel’s Department of Economic Planning (the Two Year Strategic Plan) as well as Minister Rob Davies of DTI’s (IPAP2).
Stephen Grootes at the Daily Maverick has done an exemplary quick analysis (catch that here). I am not quite certain I am as gung-ho capitalist as the guys down at the the DM are … although I am as clear as Grootes is that Cosatu’s main planks of policy would turn us into a wasteland in two flicks of a lamb’s tail – as not even my old Granny was prissy enough to say.
I saved a copy of Cosatu’s full document here and hope to give it a more thorough treatment than the cursory skim I gave it in the middle of last night. Whatever I conclude will be faithfully reported on these pages.
Here is the summary of South Africa’s performance in the Global Competitiveness Report 2010 – 2011. The highlights are mine and the seriousness of the problems is obvious..
While we quite rightly bemoan health, education and labour market failures it is interesting to note we were top ranked – in the whole world! – in two categories: in auditing and reporting standards as well as in the regulations that govern our securities (financial instruments) exchanges.
But on with the bad news: part of the process of the construction of the report involves asking the opinion of “business leaders” (see note below about methodology) about their concerns. The top four concerns they had about South Africa are not a huge surprise:
Methodology note from the press release: “The rankings are calculated from both publicly available data and the Executive Opinion Survey, comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organizations) in the countries covered by the study. This year, over 13,500 business leaders were polled in 139 economies.”
Click here for a link to the full report.
Herewith a note I wrote a week ago for a South African client concerning a recent whip around the London fund management industry
Foreign fund managers perceptions of South African political risk
I recently had an opportunity to interact with a few London-based global emerging market fund managers. These were generally from long-only equity funds, but included a smattering of everything else.
The main lessons I learned were
- not to be overwhelmed by the negative news flow;
- always think in relative terms – a negative and obsessive focus on South Africa is meaningless without realistic peer comparisons.
This was brought home to me again as the weekend news of the brutal killing of Eugene Terre’Blanche hit the local and international press. The media focus alone seemed to suggest that this was a potentially destabilising event. However the story has quickly descended into the squalid domestic tale it really is, and the over-the-top alarmism should be faintly embarrassing to those who trumpeted it over the holiday weekend.
Here are the main questions I raised in London and the main responses I received*:
The news explosion around Jacob Zuma’s latest romantic and similar engagements does not drive capital flows
This point did not need emphasising with the fund managers I saw. If anything they were faintly puzzled as to why I would bother to raise it. For them the emerging market universe has much colourful (and sometimes ugly) personal behaviour by the political leadership and other powerful members of society. Zuma’s polygamy and latest love child are way down the list of “transgressions” in that universe.
Conflict over economic policy making the investment and operating environment difficult
The point I was making was that Pravin Gordhan’s budget speech differed in important ways from both the DTI’s Rob Davies’ Industrial Policy Action Plan II and Ebrahim Patel’s Two Year Strategic Plan. My issue with this was that Jacob Zuma had not settled important policy conflicts within his cabinet.
The different emphases could be summarised as follows:
- Pravin Gordhan supported fiscal restraint, inflation targeting, a segmented labour market and a competitive and unprotected manufacturing sector – and for this he was heavily criticised by Cosatu.
- The policies espoused in IPAP 2 and the Two Year Strategic Plan from the Department of Economic Development implicitly called for monetary easing, a weaker currency and a vigorous programme of interventions into the domestic economy through the use of tariffs and taxes – policies strongly supported by Cosatu.
Several of the fund managers that I interacted with had recently (within the last few months) met with all the ministers concerned either as part of a marketing tour led by Jacob Zuma or while in South Africa themselves. The detailed interactions with all these departments had convinced them that the policies of government were the policies as espoused by Pravin Gordhan and further that the more activist policies from Patel and Davies were not uncommon in emerging markets and at least did not include new capital controls.
I am not convinced the policy confusion is ‘investment neutral’ – although I do not think is catastrophic. Cosatu and the SACP clearly believe they have a chance to set policy – including monetary and industrial policy – through the DTI and the new Department of Economic Development. Thus Jacob Zuma seems to be clearer and more decisive about these issues in front of foreign fund managers than he ever is in front of a domestic audience. He will reap high resistance and anger from Cosatu and “the left” when they realise they have been lied to again. I think it is clear we are seeing the first signs of this realisation – in, for example, the threatened strikes during the World Cup against Eskom increases.
Julius Malema and the Nationalisation of the Mines
Julius Malema provokes a lot of reaction wherever he is discussed. Not many fund managers take him seriously and again it is because they have met and dealt with senior government and party officials who have spoken of Malema with patronising indulgence and a touch of exasperation.
Susan Shabangu, Minister of Mining, has done good work in assuring fund managers throughout the world that there is no possibility that the South African government will consider the nationalisation of mines as a serious policy option; and I came across several people who had met her and been convinced by her assurances.
Cronyism and tenderpreneurial flair – the threat to service delivery, stability, the functioning of the parastatals
Continuing on the theme of Jacob Zuma’s inability to solve the big conflicts in his government I argued that cronyism, nepotism and tender abuse are:
- important contributing reasons for the poor functioning of the State Owned Enterprises – the Eskom example reveals that enrichment agendas in tendering and the appointment of senior personnel damages the utility’s ability to do the job;
- key to understanding the failures of local government and hence the ongoing violence of the service delivery protests.
There were few fund managers I met who disagreed with this assessment, although some, yet again, argued that in the universe that includes Russia, the Middle East and Brazil, South Africa stands out less than we would imagine.
The World Cup and the waiting Hangover
It is perverse to argue that the downside of the World Cup includes:
- it could become the focus terrorist attacks;
- it could be targeted by organised labour and taxi operators to strengthen their hand against government or employers;
- it will inevitably entail a let-down or ‘hangover” period.
This would be a little like arguing that the downside of life is death and that it should therefore be avoided.
I never met a fund manager in London, or elsewhere for that matter, who disagreed.
*Please note that this is a subjective process, over determined by my own interpretation and by a selection processes out of my control. Any real collation of “the views” of fund managers must theoretically translate into their holdings and the prices at which they buy and sell.
I have been sitting on this for a few days partly because Cosatu’s Central Executive Committee statement on Thursday last week and the ANC response are as harsh as we have seen – and that includes the tone of voice that accompanied Cosatu’s huge strike against ‘Mbeki’s privatisation’ in 2002.
Cosatu has a long and interesting statement; one of the more important paragraphs read:
Regrettably, to our frustration and anger, the government continues with the tendency inherited from the previous administration to ignore policy directives it does not like and only implement those areas that the markets/capital are happy with. In this regard we are angry that the Treasury remain infected by the highly organised but conservative bureaucrats who have been driving neo liberal and conservative policies for the past 16 years.
The ANC replied:
ANC has grown weary of the latest media outbursts by COSATU, seeking to rubbish and undermine anything from the content of the President’s State of the Nation Address to the Budget Speech by the Finance Minister, as well as ANC policies. Taking pot shots at the ANC and its Government show signs by COSATU of veering towards oppositional politics and not sticking to Alliance politics and traditions.
The point for now is that this does not presage an actual splitting of The Alliance. Cosatu is going to mobilise its members to join and influence the ANC in the lead-up to the ANC’s National General Council later this year – much as they did in the lead-up to Polokwane in 2007.
Cosatu’s short term objective is to defend against the attack on Gwede Mantashe (emanating from, but not exclusive to, the ANC Youth Leage). The longer term objectives of Cosatu (and the SACP) are finally starting to emerge and I will deal with this in the next post.
For now Cosatu has attacked on a broad front:
- ‘tenderprenuers’, corruption and cronyism;
- relaxation of the labour market;
- failure of the ANC to stick with agreements that are reached in alliance summits;
- monetary policy, inflation targeting and the role of the SARB and
- a general lack of fit between micro and macro-economic policy.
For its part the ANC hadn’t quite finished with its fury at Cosatu’s CEC statement, and in particular Vavi’s niggling and constant accusation of corruption within the ANC and government.
Here’s the full text:
The African National Congress (ANC) has noted repeated allegations of corruption raised by the Congress of South African Trade Unions Secretary General, Cde Zwelinzima Vavi.
Cde Vavi speaks with conviction that “there is a tiny minority in the ANC leadership and membership which is corrupt and who use the ANC to enrich themselves”.
To this end, Cde Vavi has not raised this matter with the ANC in any of the fora of engagements we have and he has not provided any evidence of such allegations.
As a leader of the Alliance, we would have expected of him to have brought such a matter to the ANC leadership or even presented the list of such corrupt individuals. Together, we would have walk and matched to the nearest police station to ensure that such individuals are arrested. Cde Vavi would have assisted the ANC and government to root out the scourge of corruption in the country.
Cde Vavi’s failure to bring this weighty matter to the attention of the ANC and even his failure to report this matter to the law enforcement authorities, amounts to an insult to the standing and image of the ANC, its leadership and membership. These omissions on his part cannot amount to a fight against corruption but is reminiscent of grand standing.
ANC National Spokesperson
I don’t suppose it means much, but Jackson Mthembu was released from a police cell a few hours ago after been caught for drunken driving in Cape Town early this morning
This is not a budget review. There are just too many of them out there and I am in the middle of a roadshow to the South African fund management industry where the budget is being VERY well received.
This is more a comment on the whole budget season that yesterday’s excellent National Budget began.
The good thing about Zuma’s presidency has always been the fact that he has let every contending faction into the ruling tent.
But, I hear you cry, they are milling about in there in confusion, stepping on each other’s toes and bellowing and mooing in a kind of bovine riot as they fight to get as close as possible to the trough.
Well yes, but aside from that. You see, the Alliance of the disaffected (thank you Stephen Friedman) always consisted of an unhealthy number of BEE wannabes who wanted their turn to tear at the dwindling cherry. But they were never alone. The communists, the trade unionists, the ANC democrats who thought Mbeki had sold the revolution down the river and then a whole host of people whose contribution had been thwarted by the logic of the Mbeki imperial presidency (avoid real participation by the structures of the party, the alliance or even parliament in decisions, because they will go against you) they were all in there together. The fight between the “communists” and “nationalists” is very much a fight within the Zuma camp.
Thus, we come to the first season of the Zuma presidency in which their plans and budgets are revealed. It is important to remember that this is the first real political season of the Pirates of Polokwane (thanks Zapiro).
Well, so far we are seeing the first rays of light we have encountered in many dark months. The thugs and gangsters and vampiric crony capitalists and the racially chauvinist cabal at the centre of the security establishment (all of whom make up an important element of Zuma’s support base) have had all the running and all the press and have done all the bellowing, mooing and grunting at the trough.
Now it is the turn of the technocrats. This is the crew of lefties and trade unionists and dour financiers and tax collectors who were included in the Zuma cabinet, and gave many of us some hope to cling to in the darkening months of the whole second half of last year.
Yesterday Pravin Gordhan revealed a thoughtful budget that took all of the continuity that Manuel always showed, but added a real democratic inclusiveness that the previous minister was never able to demonstrate – given his crucial position in Mbeki’s non-inclusive regime.
Today we will hear Rob Davies and the DTI talking “industrial policy”. This is policy that sets up a combination of incentives and disincentives to shape the kind of growth we will achieve: how inclusive or job rich it will be.
During the next two weeks we will hear parliament debating the budgets of each and every department of government and finally all will be revealed.
I think it is worth treating this process with an open mind.
I will, as far as possible, provide some insight into the process as we go along.
I have whipped through the State of the Nation address while Jacob Zuma is just getting started. My initial impression is good, maybe even very good …. but maybe there has just been so much bad news and poor performance that any detailed and thoughtful stuff from government is likely to impress me …
Here are some bits and pieces:
As always the address was long on the broad brush, leaving the details to ministerial budget votes over the next few weeks.
However, there were interesting bits:
First a claim that no-one appears to be believing …. I will have to check these figures and see how they arrived at them:
We are pleased to announce that by the end of December, we had created more than 480 000 public works job opportunities, which is 97% of the target we had set.
More money for public infrastructure – power and transport
Over the next three years government will spend R846 billion on public infrastructure.
One of the most favourable public expenditure/infrastructure statements was:
Among other things, this will look at the participation of independent power producers, and protecting the poor from rising electricity prices.
We will establish an independent system operator, separate from Eskom Holdings.
Money to subsidise the employment of first time young workers
Proposals will be tabled to subsidise the cost of hiring younger workers, to encourage firms to take on inexperienced staff.
He announced a plan to hold departments accountable:
The Ministers who are responsible for a particular outcome, will sign a detailed Delivery Agreement with the President.
It will outline what is to be done, how, by whom, within what time period and using what measurements and resources.
Very concrete education targets:
We aim to increase the pass rate for these tests from the current average of between 35 and 40% to at least 60% by 2014.
Results will be sent to parents to track progress.
In addition, each of our 27 000 schools will be assessed by officials from the Department of Basic Education.
This will be recorded in an auditable written report.
We aim to increase the number of matric students who are eligible for university admission to
175 000 a year by 2014.
Brutal admission on certain health failures:
We must confront the fact that life expectancy at birth, has dropped from 60 years in 1994 to just below 50 years today.
We are therefore making interventions to lower maternal mortality rates, to reduce new HIV infections and to effectively treat HIV and tuberculosis.
We are implementing plans to increase the number of police men and women by 10% over the next three years.
Concrete stuff about housing and mobilising private sector funds:
We are working to upgrade well-located informal settlements and provide proper service and land tenure to at least 500 000 households by 2014.
We plan to set aside over 6 000 hectares of well-located public land for low income and affordable housing.
A key new initiative will be to accommodate people whose salaries are too high to get government subsidies, but who earn too little to qualify for a normal bank mortgage.
We will set up a guarantee fund of R1 billion to incentivise the private banking and housing sector, to develop new products to meet this housing demand.
I was dreading yesterday’s mini-budget.
Firstly the objective conditions were against us. It was clear that the Great Recession was going to squeeze revenue – and therefore the space available for the new Minister of Finance to operate in. As it turns out, lower revenue and higher than expected expenditure has pushed the estimated deficit on the consolidated budget to R184bn or 7.6% of GDP.
Now that is a significant shortfall, but not bigger – and in some cases a lot smaller – than governments around the world are operating on in these difficult times.
Secondly the long triumphalist Polokwane after-party had led me to miscalculate. It had begun to feel as if every milestone we reached was another opportunity to celebrate the crushing of “the 1996 class project” (read “fiscal rectitude”) and the rise to dominance of woolly thinking and left populism in an uneasy alliance with a new more voracious layer of vampire capitalist aspirants.
And here comes stout Pravin Gordhan and the new parliamentary autocue to wipe away my cynical fears. He said it loud and clear for all to hear:
Special appreciation is therefore due to Minister Manuel for his sound stewardship of our public finances.
The new Minister of Finance stood before our parliament and clearly phrased the budget in the terms of this ANC’s election manifesto (emphasising education, health, rural development/agrarian reform/land, crime/corruption and the creation of decent jobs). However he did so while clearly placing himself within the macro-economic framework of the past – including by continuing to relax exchange controls and defending inflation targeting.
I have no reason to think that Gordhan will gradually bow to pressures from any quarter before the the real budget early next year. This does not mean that we won’t have higher taxation and more poverty relief in future. In a country like South Africa these thrusts are inevitable and appropriate.
So the chickens that actually came home to roost yesterday were not born in Polokwane in December 2007. They are in fact the fruits of pro-investment policies and fiscal austerity in the mid-90′s. Those chicken were hatched as part of the macro-economic framework developed under Nelson Mandela and Thabo Mbeki and guided by the stewardship of Trevor Manuel.
Pravin Gordhan yesterday spent some of the heritage of a sound macro-economic framework that has prevailed for the last 14 years. It is this very framework that the ANC’s left-wing and Cosatu and the SACP excoriate at every opportunity. It feels better to know that the politician dealing with these issues at the centre of the Zuma government understands perfectly well what is owed to those men and women who held the line against self-serving economic populism in the 90′s – at great cost to themselves and their future careers.