President Cyril Ramaphosa will have his big unveiling on Thursday, a month after reaching an “agreement” at the National Economic Development and Labour Council (Nedlac) on an economic recovery plan.
Considering that it comes about seven months after he announced his intention to close down the economy — throwing millions into unemployment and instant poverty — some might argue that it’s a bit late. But this would not be completely fair.
For one, such an interpretation implies that the president and the government have done nothing to mitigate the impact of the misery caused by the lockdown.
That isn’t true even if one is left unconvinced by the claim that there is a R500bn stimulus package. From the uneven rollout of Unemployment Insurance Fund payouts to the small take-up of the R200bn loan guarantee scheme, problems with the various Covid-19 initiatives have been well documented.
Second, at least as I understand it, the so-called reconstruction and recovery plan acknowledges that SA’s structural underperformance predates the Covid-19 outbreak and the plan is therefore a bit more than another “relief” plan.
It’s supposed to be a bigger blueprint and re-examination of how the economy is organised and restructured. Unfortunately, based on what’s making the rounds, it’s likely to disappoint.
It’s nothing like the wholesale rethink of the state and its role in the economy envisaged by presidential adviser Mariana Mazzucato, who was featured in the Financial Times scolding UK Prime Minister Boris Johnson for a lack of ambition or understanding of the state’s role in driving innovation, and therefore ensuring preparedness for the next crisis.
The Ramaphosa plan does little more than commit to “agreed reforms” and “building the capacity” of the state. It does leave one to wonder what agreed reforms? We know the Treasury paper released a year ago still faces great opposition within the ANC alliance.
Looking at the latest blueprint, one can hope that it’s still a work in progress and what will be presented this week will resemble something more like a plan rather than a wish list. In fact the most amazing thing about it is that it took so long to put together, seeing that it’s full of generalities that nobody will disagree with. Who would really oppose having more transparent procurement processes, or boosting education levels?
It would be good here to step back and look at just one example of something that needs to be dealt with but will be left lingering in the hope that a solution will magically present itself.
When Ramaphosa speaks on Thursday, it will be have been three weeks since Carol Paton wrote about what was supposed to be a social compact on Eskom developed at Nedlac, pointing out that it had sidestepped the biggest problem — what to do with its R488bn debt. This won't be answered either.
Eskom CEO André de Ruyter was at the Joburg mining Indaba this past week and suggested that for the utility to have a sustainable future, virtually all of its government-guaranteed debt would have to be taken off its balance sheet, leaving it with about R200bn. While grateful for the Treasury bailouts that service the company's debt, he wants a more “structural solution”.
Of course the idea of moving some of Eskom’s debt to the sovereign is not new, having been proposed by former chair Jabu Mabuza late in 2018.
Then the debt was about R400bn and the amount proposed for the write-off was a quarter of that. Mabuza told investors in London that this would form part of a plan that would involve cutting about a third of the workforce of about 48,000.
“It’s a work in progress,” public enterprises minister Pravin Gordhan told a press conference in December 2018, promising that “sometime in the new year government as a whole will give you some idea of where we are going”.
That of course came and went, and as we approach another new year, Eskom under different leadership is looking to offload an amount three times what Mabuza asked for. That’s what happens when you are constantly kicking the can down the road. Problems multiply.
To be fair to the former CEO, Phakamani Hadebe, he understood such a bailout, without the necessary reforms, would simply see him coming back later with another begging bowl. Politics did him in and his reign effectively ended when he tried to freeze wages without getting prior support of the shareholder.
While De Ruyter seems to more politically savvy, that in itself doesn’t make the problem go away. If the sorry state of government finances made a transfer of Eskom debt unpalatable in 2018, how much more so now with junk status, an economy in the midst of a depression and a budget deficit that is set to exceed 15% and is still growing?
It might be different if Eskom, like other utilities in the same position across the world, could restructure its unsustainable debt and let the bondholders take the necessary hit, just as investors in Steinhoff did. But we shot ourselves in the foot there too, providing state guarantees that mean the whole country will be paying a big price if Eskom defaults or imposes haircuts on bondholders.
Another discussion needs to be had about the morality of providing such guarantees in the future, and potential lenders, some of whom gave money to Eskom when the evidence of state capture was there for everyone to see, need to take a hard look at themselves too.
It’s unjust that they get to walk away from such reckless and amoral behaviour with zero losses, at the expense of taxpayers. This might be something to think about for banks as they consider lending money to SAA. If it doesn’t make commercial sense without a taxpayer guarantee, then it should surely be regarded as reckless.
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