The irony of ANC politicians clinging to the Springboks’ triumph like the smell of last night’s curry the morning after — given that they are the very reason these Boks have to provide hope — is both laughable and stings, again like last night’s curry. Thankfully there is still one adult in President Cyril Ramaphosa’s executive — finance minister Enoch Godongwana.
Delivering his medium-term budget policy statement last week the state of the national balance sheet cut a deep furrow across his brow. The rabbits have succumbed to RHD [rabbit haemorrhagic disease], and none were forthcoming from a threadbare hat. If indeed a primary budget surplus materialises in the outer years of the medium-term expenditure framework it will be a close-run effort, akin to three single-point victories in successive weekends in Paris.
There were more hints at the blueprint to achieve this unlikeliest of miracles: a new mechanism to crowd in the private sector to help build, own and transfer key infrastructure projects; no more bailouts for Eskom interest-free if it doesn’t stick to its end of the bargain in disposing of noncore assets such as housing books; no money for Transnet, at least until it shows tangible progress in opening up to the private sector; and cadres are on notice that the size of the state patronage pool will be shrinking as work is under way to reduce the size of the civil service.
But given the distinct lack of urgency in unbundling Eskom, Transnet’s outright hostility towards welcoming the private sector as partner and 2023 ’s broken promises on the public sector wage bill, I was a little surprised by the bond market’s enthusiastic reaction to the minister throwing down the gauntlet to his cabinet colleagues. You see, the good words and intent from the Treasury are measured on the altar of political reality, and for the past 10 years this has revealed precious little in the way of fiscal credibility.
To underpin fiscal policy, the government imposed a cap on non-interest spending in 2012. However, budget deficits and debt have continued to rise, owing in part to the fact that the cap was not legally obligatory. The goal of debt reduction and stabilisation has been repeatedly pushed back owing to lower-than-expected economic and revenue growth as well as major expenditure constraints such as state-owned enterprise bailouts and compensation expenses.
Consequently, during the past two years primary budget spending has remained stubbornly high at more than 29% of GDP. Godongwana knows this. He offered a bone to bond investors, saying his government is considering new policies to establish a foundation for budgetary sustainability, with the meat to be added in the 2024 budget. But other than simply keeping your commitments, nothing else could possibly restore budgetary credibility.
I understand the desire to cling to hope that things can change; to lean into the intoxicating, heady euphoria that is washing over the nation due to the exploits of Siya Kolisi and his world beaters. But the dispassionate reality is far removed from yet another litany of promises built on the foundation of a million broken promises before.
Take the unbundling of Eskom as exhibit A. Eskom’s board resolved to align with, and implement, legal separation as set out in the department of public enterprises’ road map for Eskom in a reformed electricity supply industry, issued four years ago in October 2019, by implementing business separation and forming separate wholly-owned subsidiaries to house the generation, transmission and distribution functions. This was based on the revised timelines adopted at the intergovernmental steering committee.
Functional separation has been completed for all divisions, but Eskom is hamstrung by Godongwana’s cabinet colleagues, who superintend various entities responsible for the unbundling of tariffs before separation; the development of policy and government-approved market rules; a legal framework for the restructuring process; and a regulatory framework and licensing requirements. Most of which sits with Gwede Mantashe’s department of mineral resources & energy and subsidiaries.
These are not the actions of a government serious about reform and growth.
Transnet is exhibit B. In breach of debt covenants and its debt service costs of R13bn annually, it doesn’t have the capacity to borrow from the markets any more. The new board has produced a turnaround plan in its first 100 days. The plan’s objective is to improve the availability and reliability of critical equipment as well as enhance the quality of assets.
While Transnet chair Andile Sangqu said at the unveiling of the turnaround plan that the board is now pinning its hopes on the government agreeing to the bailout to enable it to execute the turnaround plan, no money was forthcoming, or even hinted at, during the mini budget.
I understand that Godongwana isn’t happy with the board trying to negotiate through the media. Granted. But money will have to be found, and Stellenbosch University logistics professor Jan Havenga tells me it will require about R20bn. Meanwhile, the private sector is clipped onto Transnet Freight Rail’s tracks in 2024.
I want SA to succeed just as much as we all do. But, as Rassie Erasmus has taught us in dealing with transformation honestly and up front, we won’t achieve anything if we keep avoiding the hard truths. This was also captured by Sibanye-Stillwater CEO Neal Froneman in an excellent interview with Vrye Weekblad last week:
“The government has now become emasculated. They’ve lost any ability to make a difference. They’ve been denuded of capacity. I don’t say there’s anything the government could implement on its own at the moment. Part of it is through state capture and organisations within the government having lost capacity. But it is also deeply rooted in the government’s ideology that does not embrace business and capitalism.
“We must stop treating the symptoms; we’ve got to deal with the root cause of where SA is. I don’t belong to any political party, but if we want sustainable change in the national interest we all have to vote and we have to make coalitions work.”
• Avery, a financial journalist and broadcaster, produces BDTV's Business Watch. Contact him at badger@businesslive.co.za.
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