For all of finance minister Enoch Godongwana’s hard-talking bluster of late, he has trodden a careful line with a medium-term budget that has seemingly reassured markets that fiscal discipline still exists at the National Treasury while making concessions to anxious colleagues in the cabinet and in the ANC concerning deteriorating social conditions and entitled government workers.
Walking a tightrope is one thing, but walking a tightrope over a cliff is another. To a degree, the minister is to be applauded for holding it all together, but it is likely he is aware that while this medium-term budget feels credible, there is a small window of opportunity for the government to fix the structural issues that have blasted R57bn off the revenue line.
Godongwana has dodged some tricky issues and fudged a couple too. No South African fortunate enough to live in any comfort in the formal economy can fail to observe deteriorating social conditions in the country. It is of little surprise that the minister has chosen to extend the Social Relief of Distress Grant for another year. It is, however, very expensive to distribute R350 a month to 8.5-million people, and he is correct to warn, once again, that this is not sustainable.
Away from the strange terroir where the magic money trees thrive, it is common cause that the opportunity to work is the most effective cure for poverty, and while the minister is quite correct to demand a wide-ranging review of social protection — and to explicitly roll into that a review of labour policy in general — the reasons behind joblessness and diminishing tax receipts seem to be related.
His capitulation on the state wage bill — and the cost of the borrowing required to sustain it — is so egregious that it can only be political. He made a R68.2bn allocation over the expenditure framework for the 7.5% public sector wage increase in the education and health sectors, neither of which deliver anything approaching a fraction of an acceptable service. But, with elections next year and state employees constituting a large client electorate, the minister seems to have taken a politically pragmatic line.
The difficulty for Godongwana, and by extension all South Africans, is that the idea attributed to Peter Drucker, that “culture eats strategy for breakfast”, feels very true in the case of the SA state. Thousands of hard-working miners are losing jobs because their employers are unable to export their goods. That is because the state-owned companies that run electricity generation, railways and the ports — despite being overstaffed by many comfortably remunerated people — are in jaw-dropping operational decline. Small businesses cannot afford to mitigate against Eskom’s dysfunction and so they just don’t bother. Any attempt to build something that works runs into gangsterism that the police cannot seem to address.
A strategy for fixing these problems would help to address joblessness and the shortfall in revenue, and indeed a strategy for Transnet has been concocted by Operation Vulindlela and the team at the presidency. There is an Energy Action Plan for Eskom and a plan for crime and corruption, but the culture of our government is to move so slowly and to adopt public postures so hostile that it raises doubts about its seriousness on all these critical issues. And so, it is not only Futuregrowth — one of the largest institutional buyers of bonds in the country — that isn’t interested in funding Transnet’s turnaround. The minister isn’t either.
In refusing to discuss Transnet’s request for R100bn of support, the Treasury has first demanded to see evidence that Transnet is capable of reform before any bailouts or guarantees are even considered, including venturing into the ANC’s most contentious space — that of introducing competition and roping in the skills and capacity of the private sector.
There is a great deal to worry about in our finances. Public debt will balloon to more than R6.6-trillion by 2026/27 and the cost of servicing debt has risen to 20c in every rand collected.
But in the medium-term budget the minister’s firm line on the SOEs is a genuine sign of change, and probably the hook upon which the markets have hung their apparent comfort.
Foreign bond buyers don’t like our politics, that much is clear. They don’t like the woeful governance and the snowballing degradation of the state. They would prefer to see a focus on growth, service delivery and a genuine improvement in the capacity of the state. Godongwana knows there is no longer any appetite for throwing cash at gutted and broken institutions. That’s culture — not strategy — and we hope we can bid it good riddance.
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