Six months ago, Colin Coleman, a former regional Goldman Sachs CEO, annoyed SA’s economic orthodoxy by punting a R100bn basic income grant (BIG) of R800 a month for SA’s unemployed, and further fiscal stimulus measures, funded partly out of windfall commodity-based revenues.
The National Treasury rejected this line of thinking when it opted in February for a temporary 12-month extension of the R350 a month social relief of distress (SRD) grant at a total cost of R44bn. It said the commodity boom was likely to wane over the medium term and it would be imprudent to fund a permanent increase in expenditure off cyclical commodity revenues.
For a while, though, it seemed Coleman was onto something. Certainly, few predicted that commodity prices would soar during a global pandemic followed by a war, allowing SA to enjoy a R100bn revenue overrun in 2020, topped by a further R200bn windfall in 2021.
This has hugely strengthened SA’s fiscal position and the rand, enabling the government to provide billions in pandemic and unrest-related relief and repeatedly extend the R350 grant while still bettering its fiscal consolidation targets. It also explains why the economy has recovered faster from the pandemic than anyone initially believed possible.
Though the Treasury has taken flak for choosing to spend only half of the commodity windfall while saving the rest, its cautious stance has been vindicated by the recent pullback in commodity prices.
With the rand breaching R16/$ last week as commodity prices tumbled, I was curious as to whether Coleman — who had forecast a structural, medium-term commodity boom driven by the refitting of developed economies for climate change — was beginning to waver.
But he has only slightly softened his stance. He believes that while the Ukraine invasion and China’s renewed Covid-19 lockdowns have complicated the picture, they “have not changed the fundamentals”.
While the war has driven commodity prices higher, China’s lockdowns have had the opposite effect. Both have dimmed the global growth outlook while the risk of stagflation has risen. Coleman now expects commodity prices to moderate, but off such a high base that the net result remains a fiscal tailwind for SA.
Of course, it depends on how far commodity prices fall. SA’s net terms of trade deteriorated in April and all the rand’s gains against the dollar this year have been wiped off the board, with worrying implications for monetary policy at a time when the Reserve Bank’s finger is on a hair trigger.
While Coleman concedes that global risks are rising, he says SA’s biggest risk remains low growth and high unemployment, “a poisonous cocktail that threatens domestic stability”.
This is why he still urges the government to “use the fiscal space provided by the fundamental forces driving commodities higher for longer, albeit lower than may have been the case due to global factors, to drive economic stimulus”. At the same time, he agrees that SA’s fiscal sovereignty must be protected. Essentially, his main point is that “doing one without the other is a losing proposition”.
I agree that without a return to rapid growth, SA will not achieve its fiscal or social transformation objectives. Where we differ is that I don’t believe more inefficient, debt-fuelled government spending, or a R100bn BIG, will get us there.
My view is that the only way SA achieves rapid growth is if the government changes its approach to managing the economy. The solution is to reject further deficit spending in favour of accelerating private sector participation in everything from running rail and ports to generating electricity and building infrastructure. The government is groping towards this understanding — as even the ANC’s new draft economic policy document attests — but progress remains agonisingly slow.
Hopefully the April market correction will drive home the importance of saving tax windfalls while speeding up economic reform. If we’re lucky, Coleman will be right about the commodity boom having legs. But if he’s wrong, at least the Treasury will have kept some of its powder dry.
• Bisseker is a Financial Mail assistant editor.
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