Tomorrow, Friday February 28, the SA National Treasury, the people who almost brought you a 13.3% increase in VAT last week before their budget was cancelled, will make a six-monthly payment of the interest it owes on just four of the many bonds it has issued to the market to fund the state.
The payment will be a cool R46bn, almost more than all the state bailouts SAA was ever given; more than the Guptas ever smuggled out of the country; enough to have built more than 10 Soccer City stadiums for the 2010 World Cup final at the time.
It is a gargantuan amount of money and the Treasury makes these payments, and issues new bonds that will in time attract interest payments just as high, all the time. It is how we live.
It is why finance minister Enoch Godongwana wanted to raise VAT by so much (and can we please, on my knees, please stop calling it a 2% increase — that is just wrong and misleading: a 2% increase from the current 15% VAT would have taken it to just 15.3%, and the two percentage points to 17% were just huge).
Hooked on debt
It would have raised about R60bn, and if you consider that it would have been a permanent thing it would be R60bn year after year until, once again, it wasn’t enough. We’re hooked on debt. We borrow money to pay salaries. The fact is our state is bankrupt and almost entirely uninvestible.
The finance minister is due to present another budget on March 12, and in theory he has to do the entire thing again. Initial stories were not comforting — he was thinking about a single percentage point rise to 16% VAT, which would mean merely tweaking a few numbers here and there in the budget documentation.
But the DA says it won’t let that happen and has come up with a series of alternatives. It’s all a bit acrobatic, to be honest, given the short time available for a new budget, but the party reckons Godongwana could cut R60bn out of current spending by cutting state advertising by half, travel and catering by a third, freezing hiring in “non-essential” positions for a year, and weeding out dead or nonexistent employees from state payrolls.
It throws in some wider ideological reforms the ANC would argue harder about, but ignores the potentially serious consequences of our new near-pariah status with the US under President Donald Trump, who has attacked the country for passing a new land expropriation law that allows, in some cases, for no compensation, and for our legal attack on Israel and our friendship with Iran.
The DA for instance suggests we could “establish a $5bn concessional lending arrangement with the World Bank for high-impact urban infrastructure projects without adding to the national debt”.
Not so fast ... the World Bank is based in Washington DC, and the US is a powerful member of it. Just this week electricity minister Kgosientsho Ramokgopa worried that the US may not fund its part of the SA just energy transition programme. You’ll remember the $8.5bn originally pledged, which has reportedly since grown to about $13bn.
If SA is going to try to raise funding internationally and use the traditional international agencies (not to mention the IMF) it is going to have a hard time if the American attitude to us doesn’t soften.
But that’s $13bn of promises, and there’s no reason to believe the Trump administration is going to look kindly on an SA green energy dream. Trump has already pulled its flagship energy programme in Africa.
Research from OMFIF, a think-tank used by central bankers, shows the US has big stakes in a wide range of development finance institutions on whose doors we normally knock when we need money, including the African Development Bank, the European Bank for Reconstruction & Development, the Asian Development Bank, the International Bank for Reconstruction & Development (the World Bank) and the International Finance Corporation.
If SA is going to try to raise funding internationally and use the traditional international agencies (not to mention the IMF) it is going to have a hard time if the American attitude to us doesn’t soften. An American “no” at any of the agencies I’ve just listed would kill off any help.
We will soon put this to the test in discussions with the World Bank to raise $1.5bn for the energy transition and to kick-start reform of the transport and logistics sector, and $925,000 to help SA’s large metros better manage infrastructure services such as water, sanitation waste and electricity.
There’s reason to worry that we could whistle Dixie for these and other development funds the US has some say over, until we find a way to speak to Trump himself. Whatever we may think, he thinks we owe him an explanation for our ties with Iran and our high-profile case against Israel in the International Court of Justice for its bombardment of Gaza.
I have a podcast out now with Joel Pollak, the SA-born Trump supporter who will probably become the next US ambassador to SA, and he is in no doubt that Trump has us in his sights: “You may agree or disagree,” he says in our discussion, “but effectively SA sided with bloodthirsty terrorists on the world stage ... Americans were shocked by that; they’re shocked by SA welcoming Iran into the Brics. Americans want nothing to do with an SA that behaves that way”.
You’ll find the podcast on the Financial Mail online platform and on the Apple and Spotify podcast platforms, but Pollak left me in no doubt that we have our work cut out.
President Cyril Ramaphosa has sent teams out into the world to explain ourselves, but apparently not yet to Washington. Yet that is really the only destination that matters if we are going to expect life to continue more or less as normal.
• Bruce is a former editor of Business Day and the Financial Mail.
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