25 Feb 2014 | Tony Leon | Original
Publication: BDlive
Finance Minister Pravin
Gordhan has to reassure a much wider audience in his budget speech, writes Tony
Leon
MORE than 30 years ago, then US secretary of state Henry Kissinger asked
a famous question about whom he should speak to if the world caught fire:
"Who do I call if I want to call Europe?"
Economically speaking, at the democratic dawn of South Africa in June
1994, then president Nelson Mandela knew exactly who to call when he needed to
obtain the buy-in of the local business community.
Mandela surprised guests at the first banquet he hosted for a visiting
head of state, France’s François Mitterrand, by retiring after the first
course. It became known only the next day that his early departure was
occasioned by the need to make four or so telephone calls. He wished to inform
Anglo American’s Harry Oppenheimer, Sanlam’s Marinus Daling, Rembrandt’s Anton
Rupert and Liberty’s Donald Gordon that his finance minister, Derek Keys, would
announce his retirement the next morning and that the government intended to
appoint Nedbank’s Chris Liebenberg in his place.
 |
| Finance Minister Pravin Gordhan, delivers his budget speech on behalf of the Treasury in May last year. |
That vignette tells us a lot about the South Africa of 20 years ago: the
economic power was overwhelmingly and tightly held by four or so
megacorporations, all led by white men, and that the first black head of
government, so serenely self-confident with his sure touches and grand
gestures, still needed the stamp of approval from outside the government in an
economic realm quite outside its control back then. Undoubtedly the government
thought that replacing one business titan from outside politics — although,
very notionally, Keys was a National Party member appointed by FW de Klerk —
with another respected leader from the private sector in the form of banker
Liebenberg, would quieten the markets, which indeed it did.
There was good reason for the first African National Congress (ANC)
government’s deference to business and the market-makers. Its election
manifesto consisted of large promises embedded in its Reconstruction and
Development Programme (RDP), but the reality on entering office spoke of a
different universe. One of Mandela’s biographers, Martin Meredith, provided a
sombre snapshot of the situation: "Mandela discovered that South Africa’s
economy was in dire straits. The ANC expected to inherit an economic
cornucopia; its ambitious development plans were based on that notion. But the
coffers … were nearly empty."
The RDP might have been inspired by the red glow of socialist thinking
but it was the country’s balance sheets that were truly red: the previous
government had run up a record budget deficit of 8.6% of gross domestic product
(GDP) and gross foreign reserves had fallen to less than the equivalent of
three weeks’ worth of imports.
Proving that even the most ideologically inspired administration could
be pragmatic and adaptive, then transport minister Mac Maharaj, a communist,
explained the limits of the new reality: "There was simply no money to do
what we had planned…. We had to dump our plans and start from the
beginning."
Longer in the tooth, Maharaj today presides over President Jacob Zuma’s
spin operation and is much involved in drafting his major speeches. Strange,
then, that in his response to the state of the nation debate last week, Zuma
said the number of black people in senior management, at more than 40%, was
"not enough". In terms of simple quantitative ethnic transformation,
it’s a remarkable turnaround. But, as Finance Minister Pravin Gordhan might
reveal in the subtext of his budget speech on Wednesday, there are real limits
in pumping up the demand side, while the supply side issues are not addressed.
But as Investec Group chief economist Annabel Bishop noted in her budget
preview, the lower than estimated fiscal deficit, expected to come in at about
4% of GDP, could be the standout item of good news, and this, more than cosy
phone calls, could quieten the restive and increasingly alienated investor
community.
Because while the makeup and control of our economy has undergone a
dramatic change, an iron law, which dates back more than 100 years or more in
South Africa — remains true: with low rates of domestic saving (at just 16% of
GDP, half the figure set by the National Planning Commission and last attained
here more than 30 years ago), we remain reliant, ever more so these days, on
foreign investment, crucially short-term flows to fund the deficit. And then
there are those pesky rating agencies, which are unsentimental or uninterested
in racial bean-counting when determining the sovereign’s creditworthiness, and
thus its borrowing costs.
Gordhan has had his work cut out for him — to fund an expensive public
sector wage bill, an expanding welfare state funded by a relatively tiny tax
base of just more than 6-million personal income taxpayers.
So while Zuma had the luxury last week of addressing a domestic
constituency, Gordhan has to reassure a much wider and less forgiving audience
on Wednesday.
• Leon is the author of The Accidental
Ambassador (Pan Macmillan). Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA
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