Austerity messaging needs to change
Before that December evening some four years ago, we knew as a country that economic conditions weren’t well on the ground and that, globally, conditions were set to become more difficult. Sure, we had at the helm an increasingly unpopular president who had just built himself a mansion at his rural homestead with taxpayers’ funds, but we were kind of used to the idea that, in a couple of years, he’d surely be out of power.
That December, our former president would go on to axe his finance minister without any warning to the nation or his party. Over the few days before he was forced to bring Pravin Gordhan back to his former post, we heard all manner of conspiracy theories about just what he wanted to do with the keys of the Treasury.
A fiscally irresponsible nuclear deal with Russia’s Rosatom was top of the list, and we could only imagine what his friends in the Gupta family wished to achieve with those keys. From that moment on, we zeroed in on the politics surrounding the Treasury and the comings and goings of the technocrats who had staffed the department over the past two decades. What markets and taxpayers wanted to hear was a message of belt-tightening.
Investors had lumped developments in the latter years of the Jacob Zuma presidency in with the uncomfortable politics of other emerging markets, such as the “car wash” corruption scandal in Brazil.
Under this intense gaze from global markets and “a bunch of f ****** bond traders”, as a frustrated former US president Bill Clinton once called them, the Treasury in word and deed had to speak in tones
reminiscent of one of the UK’s more unpopular chancellors, George Osborne.
The government debt-toGDP ratio, sitting at around 20% at the start of the global recession in 2008, ratcheted up to about 55.8% last year. It’s a worrying increase, but it still compares favourably with most developed and emergingmarket countries. According to Trading Economics, SA averaged a 40.3% debt-toGDP ratio between 2000 and 2018, while in Brazil, the country with which we are most often compared because of our geographical position and commodity blessings, it averaged just under 60% from 2006 to last year. It is currently hovering around 77%.
Now, I wonder, if the events of December 2015 had never occurred and the ANC had managed to curb the worst tendencies of its former president, how much room would the Treasury have been given to be more supportive of the country’s economy over the past four years?
Instead, it has been forced to focus on reducing expenditure; scouring every single expense item under its control, including state-owned enterprises (SOEs) such as Eskom. It has fed into the slowdown of the South African economy.
It was always rather foolish to expect the private sector to take up that slack, especially as the repercussions from that December and perhaps the Marikana tragedy three years earlier had encouraged our biggest firms to look offshore for growth.
But the political changes that investors and a large proportion of South Africans wanted — excluding almost half the ANC delegates at the party’s last elective conference at Nasrec, that is — have happened over the past two years.
For the most part, sobriety has returned to the functioning of the state, and the keys to the Treasury are in more secure hands with a president who is unlikely to make a play for them in the way Zuma did. At this stage, with political noise around the institutions under the ambit of the finance ministry significantly muted, should the Treasury not be allowed to change its tune?
One can only hope at next month’s medium-term budget speech by finance minister Tito Mboweni, his second since being roped in to replace the fleeting return of Nhlanhla Nene (the man Zuma axed that December evening), the tune does change and we don’t hear the trumpets of austerity.
The Treasury has to come to the aid of Eskom, there’s no dodging that bullet, and even rating agencies understand that, so there’ll no doubt be further support for the beast. That spend is primarily for its debt, and unfortunately doesn’t act as any stimulus to SA Inc. While SOEs hang like an albatross around the state’s neck, the economy still needs to be stimulated.
Monetary policy is no fix. Fiscal policy and the messaging around it needs to breathe confidence. As President Cyril Ramaphosa crisscrosses the globe in search of investment, he should be focusing on gaining market confidence for a more expansionary message from his treasury.
The messaging has to change — our continued economic slump is just making our debt metrics worse.
Our continued slump is just making our debt metrics worse