Finance minister missed the mark by focusing too much on ideology and too little on the social compact, says Lumkile Mondi
Finance Minister Tito Mboweni stood on the National Assembly podium on Wednesday a deflated and defeated man, despite announcing his economic reforms – many of which are out of his control.
These reforms include energy, telecommunications and trade and industry, which had already been announced in the National Treasury’s macroeconomic document in November last year.
They may yet see the light of day, in spite of the fragmented policymaking of the ANC government.
The best that the minister, the Treasury and the SA Revenue Service can offer is a strategy – let us call it the “winning hearts and minds (Wham)” strategy – to rebuild the trust and confidence that has been broken by years of economic mismanagement by the ANC.
This view is supported by Mboweni’s decision not to increase VAT, although he hiked the sin and fuel taxes.
This may be a tactic to sweeten society before negotiations with the unions take place on the public sector wage bill.
Increasing VAT would have annoyed many South Africans.
Mboweni may be attempting to persuade public sector unions to support his proposal while at the same time drive a wedge between society and public sector employees.
The risk of adopting a Wham strategy comes with the high probability of failure to rein in the public sector wage bill, which has grown by about 40% in real terms over the past 12 years – without equivalent increases in productivity – and has been crowding out spending on capital projects for future growth and items that are critical for service delivery.
Of concern are the ideological shifts in Mboweni, an architect of the current labour policies which, business has argued, have resulted in inflexibility in the labour market.
The shift by Mboweni and the attempt to undermine a negotiated employment contract with the public sector employees can be found in the unstable positions and contradictions that are reflected in this year’s budget, signifying the metamorphosis of the minister’s position in his public portfolios.
Mboweni was an actor in the so-called Class of 1996.
He was instrumental in changing the minds of many sceptics about a black government’s ability to manage a modern economy with the characteristics of a developing country – high levels of unemployment, poverty and inequality.
Former finance minister Trevor Manuel’s National Treasury was revered, respected and modelled as one of the best at implementing fiscal restraint and monetary discipline.
Mboweni’s role in the Class of 1996 only became apparent when he joined the Reserve Bank in 1999 to cement the Treasury and the Reserve Bank relationship, and the introduction of the inflation targeting monetary policy.
The move from being an architect of South Africa’s rigid labour policies to an inflation-targeting framework was a big shift – arguably the right one, given that inflation in the country remains below the upper band of the target.
However, before he returned to public service, and failing to access capital, he discovered the need for a state bank. This was what the EFF was advocating.
Mboweni should have told South Africans which existing market failure this bank is meant to address – unless, of course, it has to do with the ideology that the state knows better than the market.
The state bank is going to be launched and very little detail is in this year’s budget, except that it will be subject to the Financial Sector Conduct Authority.
Its capitalisation is also not pronounced, leading me to guess about the possibility of the state merging our development finance institutions – the Land Bank, the Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation – and allowing them to take deposits.
This will allow the state to have retail, sectoral lending and an investment bank.
I hope that the recent lessons of the DBSA funding SAA – without due diligence and financials – along with scandals relating to VBS, Ithala Bank and the community banks, as well as the possibility of capture by elites, will be addressed.
More significantly, the repurposing of state-owned enterprises (SOEs) for private gain, as has been shown in the cases of Eskom and SAA at the Zondo commission of inquiry, also need addressing.
The long-awaited sovereign wealth fund is to be capitalised by R30 billion.
However, the uncertainty of where exactly the funding will come from – the budget merely refers to a broadband spectrum levy and royalties from mining and fuel – shows that this has not been explored in detail but was announced to satisfy certain political constituencies.
Mboweni did not say much about other low-hanging fruit to help mobilise state revenue.
These include privatising some SOEs, including the state’s shares in Telkom.
Perhaps the defeatism I alluded to earlier with regard to Mboweni and the Treasury has to do with the return of state ownership of key sectors of the economy, which one of the members of President Cyril Ramaphosa’s economic advisory council, Mariana Mazzucato, calls a mission-oriented state.
The state and the markets can allocate resources efficiently under different economic environments.
However, where the state has shown an inability to manage these resources, society has to ask what has changed for government to suddenly believe it can allocate resources better than the markets.
The fact that the state continues to throw good money at Eskom and SAA – R250 billion in the next 10 years – and is prepared to get itself out of a negotiated contract, indicates that government will do whatever it takes to save the SOEs, whose rents benefit a few, by sacrificing public sector employees.
This is what is missing in this year’s budget – the credibility of a Wham strategy and the intention of government to build capability and keep the social contract by allowing costly, inefficient SOEs to fail.
In the absence of the state playing its part, it is too much to ask from public sector employees.
The economic reforms are going to be resisted by interest groups in the Cabinet and will be rejected by society.
Mboweni needed a much more credible plan. His Wham will fail. So will growth and employment.
Mondi is a senior lecturer at the School of Economics and Finance at Wits University