Bears and tough talk

2014-10-26 15:00

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Finance Minister Nhlanhla Nene has not been home for a month. He got off a plane in Durban on Friday evening, just two days after delivering his first medium-term budget speech, to attend a business dinner.

But he planned to go home to his wife, who left teaching to start a small farming project, and then attend a family wedding. By the time you read this, he is in London for more meetings.

It has been a relentless few weeks, as can be expected for someone whose job is to tell South Africa, and the rest of the world, the bad news that our economy is in a straitjacket and to present limited options to loosening it.

This week, Nene delivered a tough, no-nonsense medium-term budget policy statement. It pointed to higher taxes – to collect R27?billion from overstretched middle class, working people and put the brakes on excessive government spending – to save R25?billion. These are unpopular statements and reflect the dwindling number of options at his disposal.

Most shocking, though, was the adjusted growth rate which, at 1.4% and rising to 3% by 2017, might still be optimistic. At this level of economic growth, job creation is almost impossible and the National Development Plan (NDP) – which needs growth – looks fanciful.

Nene believes he has produced a package of financial options that is “realistic” given our challenges, which require tough measures.

He is not sure this is enough to ward off ratings agencies, which are considering lowering the country to junk status in investment terms.

“It is difficult to know how they are going to respond,” he said. “We have a credible package on the table, we are looking at what is humanly possible and we think they understand the position.”

Nene is aware they might understand, but could turn around and say his plan was simply not good enough. “I got my first response, from Standard & Poor’s, which is the most conservative of all [the ratings agencies] and they said we did address all the issues the ratings agency had raised.” The agency said it was looking to see if government walked the talk, and this was Nene’s mission. “We need to deal with the execution deficit we have,” he said.

There is some scepticism that squeezing government’s expenditure is easier said than done, considering the excesses that are evident, and the lack of control over them.

Nene said government had already proved it could tighten its belt. Since former finance minister Pravin Gordhan started the belt-tightening exercise, there have been R500 million of savings within eight months.

Government is looking at selling a few assets or entering into strategic partnerships, which some have interpreted as privatisation. Nene says this is nothing new.

Government is looking at what elements of state-owned entities fit its developmental agenda and those with commercial interests. Options include working with the private sector in partnerships, finding equity partners and selling non-core assets.

His most unpopular action, which is expected to be announced in February, is a tax hike that is likely to be met with huge resistance by South Africa’s working classes, who have already shown their intolerance to new taxes, like e-tolls.

“We all go to church and we want to go to heaven, but getting there is painful,” said Nene.

His big task, come February, is to match the needs of a developmental state with a capable state. “We are cognisant of the challenges we have. You need a capable developmental state which is responsive to those challenges.” His is informed by the NDP, whose main aim is to reduce the cost of doing business and the cost of living for the poor. With tax hikes on the horizon, this looks like an unenviable challenge.

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