For Mboweni's growth plan to succeed the ANC has to give up certain dogmatic positions that were formulated when 7% growth was the status quo, writes Adriaan Basson.
Former finance minister Trevor Manuel.
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When Maria Ramos, the first Director-General of Treasury appointed in the post-apartheid era, left her post in 2003 after half a decade at the helm, her colleagues brought out a glossy magazine by way of farewell. Titled simply "Maria", it contained memories and tributes penned by her Treasury colleagues.
One was by then minister Trevor Manuel, whom she married five years later.
"Could the environment be tougher?" he wrote. "Of course not. Could it be a more pleasurable environment for economists committed to transformation? Of course not. Will her legacy live on? Unless the vandals arrive to destroy it the cultural change that has bombarded the Treasury has been internalized and will be permanent."
Well, the "vandals" arrived on December 10, 2015 they came in the form of a newly appointed minister, Des van Rooyen, who replaced the fired Minister of Finance Nhlanhla Nene. He came with three aides – one a chief of staff, the other an "advisor", and the third so shadowy he did not even have a title, nor did he require a contract.
This is what former DG Lungisa Fuzile told the commission of inquiry into state capture this week. He said the new minister did not seem to know, even, who was who or what their positions were. This followed a phone call he'd received from the ANC head of economic transformation, Enoch Godongwana on the night Nene was dismissed, which he described as "worrisome and traumatic". Godongwana had warned him that a new "Gupta" minister would arrive the next day with his advisors.
The new minister instructed Fuzile to draw up a contract for two of them. The third, he said, Malcolm Mabaso, was a business associate of the Gupta family and was just "going to be around".
This was step two – of the known steps – to capture the Treasury. The first was offering then deputy minister Mcebisi Jonas a substantial bribe if he agreed to become the new minister. The third step came in the hounding, harassment and eventual firing of
Pravin Gordhan, who was appointed to replace "weekend special" Van Rooyen after the markets, civil society and business balked at his appointment.
Reluctantly, then president Jacob Zuma was forced to reappoint Gordhan.
It is remarkable that in spite of the sustained attacks by "vandals", the institution of the Treasury held, as battered as it – and the economy – was.
Its resilience is due to not only the strong institutional culture built in the early days and sustained through various ministers, but through the courage and longevity of its leaders and officials.
The courage went hand-in-hand with a deep professionalism honed in the early post-apartheid days when runaway debt threatened to destabilise the new democracy. Nobody knew exactly what it was. The Bantustan administrations had sucked up money, government pension funds were insolvent and “off-budget” spending and debt, some in secret accounts, were unknown.
It would take the new government 18 months to consolidate the debt and longer to bring it down.
Moreover, the Reserve Bank had built up enormous negative reserves, often in futile defense of the currency. Known as "unfunded forward cover", it sold dollars it didn't have. Debt was "a great black hole" as Andrew Donaldson, then a young economist in the Treasury, described it.
The key to cutting debt was therefore not only borrowing less by raising more revenue, but borrowing smarter.
Among those who managed it were some of the key players in "team finance": Lesetja Kganyago, who succeeded Ramos as DG and is now governor of the Reserve Bank, played a key role. He and his team (including Phakamani Hadebe, now CEO of Eskom) traded billions of rands worth of illiquid bonds into benchmark bonds, trading liquidity for much lower interest rates.
When Tito Mboweni, now finance minister, was appointed Reserve Bank governor in 1999 with Gill Marcus as his deputy, they began to tackle the uncovered foreign exchange liability of a negative $25bn. His predecessors had effectively bet the rand against the dollar by selling dollars the Bank didn't have.
So the Reserve Bank began to buy dollars whenever they were available without chasing them. By the mid-2000s, the country had foreign exchange reserves of $25bn, representing a turnaround of some $50bn – "an extraordinary story" as Marcus put it.
Then there was the question of increasing revenue, which would not only further reduce debt but allow social spending to increase, so crucial in post-apartheid South Africa.
It was Marcus who suggested Gordhan as the first post-apartheid SARS commissioner. Gordhan had chaired Parliament's constitutional affairs committee.
A pharmacist by training and long-time community activist, and a key driver – although he was banned at the time – of the United Democratic Front, he was puzzled by the offer. But Marcus was adamant.
"I said we need someone who has the strength of character and that strength of purpose ... (and) the ability to organise people. The only person who could make it happen was Pravin, and Pravin was very reluctant. It took a lot of persuasion. It took months!"
Gordhan and Marcus drove reform at SARS, making it more client friendly and rooting out corruption particularly in tax rebates on exports. In one case, a large retail company had claimed refunds on a supposed export of 76 million bras to Lesotho (which has a population of about 2 million), prompting Gordhan to quip that the bra "has replaced the blanket as Lesotho's national dress." Manuel called it "the great Basotho lift".
A decade after Gordhan had become commissioner, individual and corporate tax rates had been cut and revenue had grown from R184bn to R558bn.
From 2001, real expenditure rose, allowing government to increase social grants, and public goods such as education and health. Although the quality of some of these goods leaves much to be desired, in actual monetary terms, the increased revenues through taxation and the targeted social spending has made a significant dent on inequality in what is the most unequal country in the world, according to research by economist Ingrid Woolard, who is a member of the Davis Tax Commission and the World Bank.
None of this was easy, particularly after the 2008 global financial crisis, which strangled growth in the country.
It could only be done with the strong institutions built in the finance environment in the early years of democracy.
This is why the extent of the assault on Treasury is astounding. Gordhan told the commission of the concerted attempts to get rid of him by prosecutorial harassment on the eve of the budget – a period when every official in SARS and the Treasury goes into a weeks-long lockdown to complete the welter of documentation required.
Treasury also monitors expenditure in provinces and it is perhaps no surprise that the EFF has become part of a "fight-back" against the exposure of the extent of state capture in recent weeks, using racial epithets against Gordhan and effectively libeling his daughter who sat on various boards as part of her job at Investec.
Treasury was tasked with cleaning up much of the corruption in Limpopo, the home turf of EFF leader, Julius Malema (then head of the ANC Youth League) in Zuma's first term; there was also the small matter of Malema's tax bill, which ran into several millions.
It is instructive too that the attack from the "state capturers" targeted four key people for removal: Fuzile himself, Andrew Donaldson, who'd played a key role in the budget for several years and by then headed the Goverment Technical Advisory Centre, Ismail Momoniat in charge of tax policy and financial regulation, and Kenneth Brown, who headed procurement.
The Treasury has not escaped harm: it has lost Jonas as deputy minister who not only turned down the Gupta bribe but reported it, Fuzile and Donaldson, both of whom left when Gordhan was eventually fired and replaced by Malusi Gigaba, and Michael Sachs, head of the Budget office.
This from an institution where the turnover has been remarkably low. Manuel was the longest serving finance minister in the world by the time he left. Nene chaired the finance portfolio committee and was deputy minister for several years before becoming minister. Kganyago, who became DG after Ramos, was there for more than a decade before he went to the Reserve Bank. Fuzile joined as a young economist in 1998, moved from Inter-Governmental Relations to Asset and Liabilities, following Kganyago’s footsteps in managing debt, until he became DG in 2011.
The breaking point for Sachs was when Zuma, against every principle of transparent and careful budgeting, unilaterally announced fee-free higher education.
If the former president could have finalised a nuclear deal, he would have done so, but he was constrained by two finance ministers.
National Treasury, as Gordhan said in his statement to the commission "is placed at the centre of our state by the Constitution".
The steadfastness and courage of its senior officials, especially Fuzile, who had to stand up to wrongdoing with scant political support, has become apparent in the past months and especially the past few days.
For that the country should be thankful: the "vandals" have weakened the institution but could not destroy it.
- Green is a journalist and author of Choice, Not Fate - The Life And Times Of Trevor Manuel.
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