About a month ago I had a few minutes with Zambia’s president, Hakainde Hichilema. My slot was not long enough to form a lasting impression, though what I came back with was confirmed by a couple of people who had seen him the previous night at a dinner hosted by The Brenthurst Foundation.
It was apparently quite an event, despite the late arrival of the main course, with international relations & co-operation minister Naledi Pandor among the guests. One of them questioned whether Pandor’s department or the Oppenheimer family were driving SA’s foreign policy, in the rest of the continent at least.
This was said tongue in cheek and shouldn’t be mistaken for an endorsement of the conspiracy theories held by the “radical economic transformation” (RET) group associated with former president Jacob Zuma. It was a telling comment about the optics of SA hosting the leader of a neighbouring country — one that is of deep historical and symbolic importance due to its sacrifices in supporting SA’s struggle against apartheid — with our government looking much like a spectator.
I was more interested in what people had to say about Hichilema, who defied a campaign marred by intimidation to win by a landslide in the end. It was a case of sixth time lucky for the businessman, who is nothing if not persistent — he even did a stint in prison accused of treason.
Zambia’s “new dawn” may well be a disappointment, but Hichilema left people impressed. A breath of fresh air was how he was described. When he took over, he said the new administration had inherited an “empty treasury”. He may have been exaggerating but there is no doubt that Edgar Lungu, the man who put him in jail, had left him with a mess. Zambia borrowed liberally in the years before the Covid-19 outbreak and became the first African country to default on its international debt after the pandemic struck.
One of the things that was striking about him was that he seemed not to care about being labelled by the Zambian version of RET forces. He even had kind words for the IMF, saying he wasn’t worried about conditionalities that might come with its assistance in dealing with the country’s $13bn external debt, which was greatly understated by the previous government. It hid the extent of its indebtedness to China.
When Hichilema came into office, credit ratings agencies agreed that he was indeed a breath of fresh air, but wondered if he would be able to meet the conditions required to get assistance in dealing with the country’s mammoth debt problem. Sticking to his conviction that what mattered was the end product for his country rather than worries about him being seen as a lackey of the “Washington Consensus”, he was dismissive of such concerns, saying conditions from the IMF would be in line with what he wanted to do anyway.
“It’s not really doing things to please the IMF, it’s doing things to reconstruct our economy so that we can offer opportunities to our people, and it so happens that it fits with the IMF,” he said.
In just under six months, Hichilema seems to have made progress, and it’s being noticed. On Friday, S&P Global Ratings upgraded the country and made positive statements about the government’s commitment to economic reform, which the ratings company expects to deliver quick results, in an echo of what the IMF told SA earlier in February. S&P said Zambia’s GDP growth could average 3% a year between 2022-2025, “since the government’s reforms have helped strengthen the economy”.
But there’s no need to get carried away. The numbers still look grim. Debt as a percentage of GDP is well over 100% and likely to stay there. Though the government is making progress on cutting expenditure, such as making changes to fuel subsidies to save costs, and the economy is benefiting from high copper prices, S&P sees the budget deficit staying high, at about 7% in 2022 — similar to what the IMF expects for SA — down from 11% in 2021.
Much of the commentary in SA is dominated by how to spend an unexpected bonanza from a surge in commodity prices and glosses over the “fiscal challenges”. People also have seemingly forgotten that the “revenue overshoots” are only in relation to worst-case scenarios that were taken to be the baseline after the Covid-19 outbreak. An economy that runs deficits of 7% everywhere and only manages sub-par GDP growth is only headed one way.
Finance minister Enoch Godongwana gets this, but it’s not clear if many others in the government do, and his budget speech on Wednesday will reveal what political compromises he’s had to make. President Cyril Ramaphosa has already pre-announced a 12-month extension to the Covid-19 relief grant, at a cost of about R40bn. The question is what else Godongwana is going to have to find extra money for.
Eskom, Land Bank, Denel and even SAA could all be expecting a bit more money. The IMF has already hinted that we won’t be seeing as much tough love as promised 12 months ago. We can also assume former SA Post Office CEO Mark Barnes’s offer to buy a stake and return to the helm is a non-starter for the government.
Zambia’s situation is different to SA’s, not least the proportion of debt held in foreign currency, but it does hold important lessons. Hichilema may be able to bask in the glory of an upgrade, but Zambia is still in a group nobody wants to be in with its CCC+ rating.
Falling into that “vulnerable” set of countries might seem unthinkable for BB-SA. But then, when Trevor Manuel handed the Treasury to Pravin Gordhan a mere 13 years ago, SA was just one notch from joining the strong “A” club in S&P’s ratings. The slide to also-ran has been quick. On the plus side, there’s no reason we can’t go in the opposite direction with the same speed.
Godongwana will have to act with half an eye on his legacy. He wouldn’t want one of his successors to be in a position where they are celebrating SA’s partial rehabilitation after actions he takes today have turned us into a default country.
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