New finance minister Enoch Godongwana will need to provide “significant reassurance” to a rattled investor community after the recent unrest that swept SA and prove that he can use his political weight to fast-track economic reform and keep a tight grip on SA’s purse strings.
Analysts say these are some of the areas that will be closely watched as the ANC’s economic policy tsar steps into former minister Tito Mboweni’s shoes just months before the medium-term budget policy statement.
Luckily for Godongwana, who is well known to financial markets, he is likely to present an adjustments budget far rosier than last year’s, thanks to a tax windfall that could relieve SA’s stretched finances.
But with the extra money comes extra pressure to spend it. Already R33.85bn of the overrun, which could hit R100bn by some estimates, has been allocated to relief and recovery efforts after July’s violent looting.
Although the revenue overrun is thanks to a commodities boom that will inevitably cool off eventually, there are growing calls to make a basic income grant a permanent feature of state spending. But economists have flagged the risks of entrenching additional spending without commensurate growth to underpin it.
Speaking to the Sunday Times, Godongwana emphasised his preference for spending on employment creation programmes rather than grants, especially for SA’s unemployed youth. This is in line with a recent article he wrote for Business Day, in which he argued for expanding and extending public employment programmes rather than consigning young people “to a life as grant recipients”.
Although Godongwana’s appointment has been welcomed by SA’s business fraternity, which is impatient for structural reform, his biggest test will be whether he can bring a reluctant ANC and cabinet around to actually implementing them, according to political analyst Ralph Mathekga.
“He is supposed to be an insider in the ANC. The biggest thing is to bring the party along with him,” Mathekga told Business Day.
Mathekga believes that part of predecessor Mboweni’s long-standing reluctance to continue in his position was his frustration with a cabinet that made choices such as bailing out moribund state-owned entities — for example SAA — rather than opting for fiscal prudence.
Mboweni “was very impatient with the cabinet and the ANC’s unwillingness to tread the high road and carry on with reforms”, he said.
Godongwana’s political cachet in the ANC means he may be able to “hold his own” in the face of pushback against President Cyril Ramaphosa’s reform agenda.
Mathekga said Godongwana had been able to “bring nuance to some of the more radical posturing by the ANC” on economic issues.
These include ANC resolutions on the nationalisation of the Reserve Bank, asset prescription and land expropriation.
Citi economist Gina Schoeman said Godongwana had worked to “water down” these more investor-unfriendly policies, but by being a more consolidated political figure, he lacks the “disrupter factor” that helped Mboweni push for important commitments on state-owned enterprises and the public sector wage bill.
How Godongwana handles the thorny question of the public sector wage bill and relations with public sector unions will be another crucial test.
Though the state managed to settle this year’s pay talks with public sector unions, the agreement came with R18bn added to the price tag in the form of a cash gratuity on top of a 1.5% annual increase. The sweetener will remain in place in the event that the next round of wage negotiations, which are due to begin in September, cannot be concluded by March 2022.
The Constitutional Court must still decide on the government’s refusal to pay the last leg of the 2018 pay deal, which could raise the baseline of the salary bill by about the consumer price index plus 2%. Mboweni’s fight for wage restraint pitted him against labour. But the unions appear willing to give Godongwana the benefit of the doubt.
“We think the wage bill engagements could have been handled much better,” Cosatu’s parliamentary co-ordinator, Matthew Parks, said. With Godongwana at the helm, “hopefully we would see a more constructive approach”.
Business for SA’s Martin Kingston said Godongwana will need to provide “very significant reassurance to the investor community, in short order ... There is no doubt that confidence has been undermined in the context of the unrest and anarchy”. Domestic and international investors are likely to take a “wait-and-see” approach.
Kingston is nevertheless confident that Godongwana will be committed to fiscal discipline and structural reforms, and will provide that reassurance. “There is common ground and alignment” about these reforms in the context of the government’s economic reconstruction and recovery plan, Kingston said, and Godongwana “understands every single one of them”.
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