The funding of SAA by the Development Bank of Southern Africa (DBSA) represents a significant macroeconomic policy shift by the ANC government.
Its timing, together with the Cosatu document on Eskom that argues for the retention of the status quo and job protection through the prescribed asset mechanism — using individual state pensioners’ money — reinforces my view that the Treasury has capitulated to political pressure for a state-led economic development model.
The Treasury has an excellent record of transparency, from its medium-term budget policy statement showing how the revenue collected by the SA Revenue Service (Sars) will be spent over the coming three years to the submission of appropriation bills asking parliament to approve extraordinary expenditure in the interests of the nation. The appropriation bill mechanism allows for a transparent process that provides society at large an opportunity to scrutinise proposed legislation by debating pros and cons, thereby ensuring accountability.
However, in the case of SAA the Treasury appears to have wilted under political pressure, despite finance minister Tito Mboweni’s social media assurances on structural reforms. This is not the first disbursement by the DBSA to prop up a failing state institution.
Under Jabu Moleketi’s chairmanship it was forced to threaten to recall its funding of Eskom, which would have triggered a cross-default process given the estimated R450bn in government guarantees.
The ANC and its alliance partners have argued that the weak SA economy and its vulnerability to shocks and poor sectoral performances is a result of an “investment strike” by the private sector, with financial institutions preferring to speculate in the currency or equity markets rather than investing in the real economy. In a successful capitalist economy the financial structure abets enterprise. Some in the governing alliance argue that the state should play a much bigger role to offset the embedded speculation and avoid a complete collapse of the SA economy.
The recent Reserve Bank monetary policy committee statement also provided ammunition for this view, particularly that the Bank expects growth in the fourth quarter to have picked up, though electricity supply constraints will likely keep economic activity muted in the near term. The weak public sector investment and lacklustre export growth, despite strong terms of trade, were also raised as a point of concern by the Bank.
Low growth and rising unemployment in SA requires decisive action.
The issue of inept investments is critical if we consider that SA requires an investment-led approach that addresses issues such as climate change, which the Cosatu paper also talks to. A key question is where this kind of long-term funding will come from given the trend whereby private finance retreats from funding the real economy.
US-Italian economist Mariana Mazzucato, who sits on President Cyril Ramaphosa’s economic council, seems to be influencing the ANC and its alliance partners. She refers to a mission-orientated state where development finance institutions such as the DBSA and Industrial Development Corporation play a major role in financing smart (that is, innovation-led) growth when private finance retreats from funding the real economy. Neither Eskom nor SAA fits this definition, but because it is a political decision the work of Mazzucato and others is seemingly being used to justify policy decisions.
My observation is that there has been a macroeconomic policy shift, as indicated by the examples of DBSA funding SAA and the Cosatu recommendations. Both give power to politically appointed boards and politicians, thereby preventing the scrutiny and accountability provided by a parliamentary process. The Cosatu position of using individual state employees’ savings to support an ailing Eskom indicates that the ANC and its alliance partners are becoming mission orientated, deploying good money to white elephants with very little probability of enough cash flow being generated to repay the investment.
• Mondi is a senior lecturer in the Wits School of Economic and Business Sciences.
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