South Africa: Mboweni's Influence Put to the Test

analysis

The next few weeks are crucial for South Africa's economy as Minister of Finance Tito Mboweni attempts to shape the message of his 30 October Medium-Term Budget Policy Statement.

President Cyril Ramaphosa for his part has appointed an Economic Advisory Council to ensure that both government and society are equipped to respond to changing economic circumstances. This was a promise he made in his State of the Nation Address, and according to the Presidency's statement, 'the council will advise the president and government more broadly, facilitating the development and implementation of economic policies that spur inclusive growth.'

The council comprises local and international experts. Doubtless its work will traverse the nine wasted years under former president Jacob Zuma and the corruption and state capture that period brought. Understanding the depth of the rot in government and then dealing with it will take time. Ramaphosa is also grappling with a state so weakened by corruption that delivering on the many promises he has made will be difficult.

In Mboweni the country has a finance minister who is unafraid to take on the holy cows of retrenchment and state-owned entity bailouts. He tells it like it is. Mboweni has famously said he is not the 'minister of bailouts.'

The time for endless discussion on economic policy in South Africa must surely be over

His economic blueprint released in late August received a mixed response. It includes a nod to privatisation, ease of doing business regulations and an attempt to increase growth to 3% while creating a million jobs. It also suggests selling off power utility Eskom's coal-powered stations. Of course, these plans almost immediately met with fierce opposition from the Congress of South African Trade Unions.

The ruling African National Congress (ANC) has given Mboweni only partial approval for his blueprint. Much of its response has dodged the hard issues such as dealing with Eskom, until the Medium-Term Budget Policy Statement is delivered.

On labour market reform, the ANC has said the minimum wage needs to be discussed at the National Economic Development and Labour Council again. Interestingly, despite the aversion to selling off coal-powered stations, the ANC has acceded that an energy mix based on the lowest cost option is imperative. That will force renewables into the country's energy mix in a far more robust way. The implications for Eskom are obvious.

Economics is also about politics and so Mboweni's speech will be closely watched as an indicator of what the ANC's stance is on these hard-fought economic matters. It will also be a test of Mboweni's influence over his cabinet colleagues, for those stand-offs are crucial too.

If Minister of Public Enterprises Pravin Gordhan requests a bailout for state-owned enterprises, can Mboweni deny him and proceed with selling some of them off? It's hard to see how this could happen without decisive intervention from their boss, the president. Therein lies the rub.

Tito Mboweni is unafraid to take on the holy cows of retrenchment and state-owned entity bailouts

In previous, more stable post-apartheid years, the Medium-Term Budget Policy Statement was largely an understated affair with a few tweaks made to the national budget. The entire process is aimed at ensuring maximum budget transparency (something South Africa is renowned for) and provides an overview of income and expenditure over the next three years. It was a process built on painstaking number-crunching within the National Treasury.

Any finance minister needs credibility, a strong revenue collection service and an equally reliable Treasury. Both the South African Revenue Service (SARS) and Treasury have been severely weakened. New SARS Commissioner Edward Kieswetter has been working feverishly to rebuild the institution, but again, that will take time. Moody's has forecast economic growth at 0.7% down from its original forecast of 1.3% for 2019. It remains concerned about the debt-to-GDP ratio.

This Medium-Term Budget Policy Statement will be delivered against a backdrop of political unease and a citizenry increasingly frustrated with the economic and political crises. Mboweni will reveal what the revenue shortfall will be. It is estimated to be at around R50 billion given how sluggish the economy is. How will he deal with this, and crucially, where will Mboweni cut expenditure? His statement must also deal with wasteful expenditure in government as a matter of urgency.

Mboweni is not the minister of bailouts, yet how will Eskom be fixed? The ANC's response has been unclear, even with its proposal to restructure Eskom into three units. But Eskom isn't the only drain on the fiscus.

Whether Mboweni can ignite action depends on whether Ramaphosa can navigate ANC divisions

South African Airways is in immediate crisis with strikes threatened in late September. Then there is the state-owned aerospace and military technology conglomerate Denel, the South African Broadcasting Corporation, the Passenger Rail Agency of South Africa and a laundry list of corruption and maladministration. The state has also been slow and ineffective in paying its suppliers, thus creating a choke on small business development.

Government's new plans on a National Health Insurance will need to be funded too. Mboweni will need to provide some information and reassurance about this proposed multibillion-rand endeavour about which many questions have been asked.

South Africa talks far too much and does far too little. The time for endless discussion on economic policy must surely be over. The challenge is whether the ANC, caught in factionalism and division and addicted to the trough that is state-owned enterprises, sees this.

Whether Mboweni can ignite action (and thereby the economy) depends on whether Ramaphosa can navigate ANC divisions smartly and then take the hard decisions needed to save the economy. Somehow one suspects that the Medium-Term Budget Policy Statement will be the start of incremental economic changes - some good, some simply helping the country to limp along.

Judith February, Senior Research Associate, Justice and Violence Prevention, ISS Pretoria

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