Sunday, October 26, 2014

Taxes roll in while all else in the public service fails. Ever ask why?

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26 Oct 2014 | Tony Leon | Sunday Times

THERE were no laughs in Wednesday’s sombre medium-term budget speech by Finance Minister Nhlanhla Nene. But, given its grim context and the pain inflicted on South Africa by the markets, it evoked the gallows humour of Samuel Johnson: “When a man knows he is to be hanged, it concentrates his mind wonderfully.”

The “fiscal space” in which government vanity projects can be indulged and hard choices can be ducked has disappeared. Nene donned the hair shirt — even if he dared not whisper the word “austerity” — although some of his more ideologically inclined colleagues seem committed to their bling ways.

Like a faded suntan, the sunny tales of the “development state”, 5% annual growth, “countercyclical spending” and “a good story to tell” have been replaced by the more frigid world of tax hikes and spending cuts.

 After Wednesday’s speech, I thought the following snapshot might be an accurate summary of the state we’re in, with a post office which can’t deliver letters but whose directors award themselves 25% pay rises; a dozen turnarounds at South African Airways which cannot fund its way and other delights of a failing state:

“These things are the result of rotten government. To this very day, the government is pouring money down rat holes, and the people know it. The police are underpaid, the hospitals understaffed, the roads are disintegrating, the people left to build shacks for themselves on stolen land; yet there is no end to the minister of finance’s demand for more money.”

Actually, this paragraph of vivid vitriol was penned on January 26 1992 by the then editor of this newspaper, Ken Owen, on the ills of the dying National Party government.

His words are a reminder today that it has never been the fate or luck of South Africa to enjoy sustained periods of good governance, whether the administration is National or African National.

A week ago, President Jacob Zuma underlined this point when he compared his “persecution” over Nkandla with the lack of criticism for the PW Botha airport in George, although one suspects the public benefit of the latter will outlive that of the former.

Zuma’s point of comparison is striking: when you set the bar at ankle height, even my dachshund can leap over it.

An antidote to our rather depressing economic situation was provided on the same day as Nene’s speech by the insightful, down-to-earth Investec boss Stephen Koseff. He reminded a Cape Town audience that the National Treasury and revenue service have immeasurably improved in the past 20 years, both in terms of performance and transparency.

He also provided a clue as to why taxes are so better collected, even though there is a R15-billion hole in revenues — a reflection on low growth and not a failure of collection: “When Pravin Gordhan was in charge he hired a bunch of old whitey CAs to help with the collection.”

So for our efficient and communist tax collector, now minister of local government and traditional affairs, pragmatism, not ideology, prevailed.

I was struck by this point about why the collection of taxes seems to be an ideology-free zone of admirable efficiency and not the dumping ground for the friends of the famous and the centre for semi-unemployable cadres that seem to be the hiring principles on the boards of so many failing state enterprises.

I found the answer buried in the pages of a remarkable book written in 2007 by Paul Collier, then director of the Centre for the Study of African Economies at Oxford University. In a library of tomes about bad governance in poor countries and some useful solutions, The Bottom Billion stands out.

On the puzzle of good revenue collection in a sea of state dysfunctionality, he offers this insight: the function of raising tax revenue was taken out of the traditional civil service because there was no realistic prospect of making the traditional system work. But as to why so many governments in the developing world, along with South Africa, went for the radical option on revenue but not on service delivery, he says the answer is “depressingly obvious”.

“Governments benefit from the revenue, whereas ordinary people benefit from basic services.

“Governments were not prepared to let the traditional civil service continue to sabotage tax revenues, because governments themselves were the victims.

“They were prepared to leave basic service delivery unreformed because the governing elite got its services elsewhere.”

The FW de Klerk administration did not reform the revenue service, the ANC did. But De Klerk certainly reformed the political space back in 1990 because he alone, in comparison with his five NP predecessors, could both read the writing on the wall and not assume it was addressed to someone else.

His government had essentially run out of money and its ideology could no longer be sustained, let alone funded.

Now, 24, years later, the successor government is also running out of money. Here’s hoping this tight space leads to another “wonderful concentration of the mind”.

  Leon is the author of Opposite Mandela (Jonathan Ball) Follow him on Twitter: @TonyLeonSA OR on Facebook:



Thursday, October 23, 2014

The Big Reads: JZ's 'Groot Krokodil' tears

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23 Oct 2014 | Tony Leon | The Times

Never mind those pesky "clever blacks" who so irritate His Excellency the President. We have our share of "clever whites" as well, both local and exported.
"Apparently in the land of the rising sun Zuma means 'running horse'"

Kevin Pietersen, the supremely talented batsman lost to these shores and from 2005 the key man in the English cricket team, has recently switched from on-field fame to retirement notoriety by dishing the changeroom dirt on his enemies in his team with his apparently explosive memoir, KP: The Autobiography.

But whatever his prowess in front of the wicket, he is apparently less nimble in a media interview. At the weekend he bagged the premier interview column in the Financial Times, whose "lunch with" series is the gold-standard platform for celebrities. Our Kev chose the restaurant for his interrogation with journalist Matthew Engel. Quite unselfconsciously he selected Zuma, which the sharp-elbowed Engel described as "contemporary Japanese almost opposite Harrods, but without anyone Japanese in sight. The waiters are English; the clients wealthy wanderers."

Apparently KP is not as quick with repartee as he is with the bat. The interviewer records: " 'Zuma'," I muse. "'So it's a KwaZulu-Natal restaurant?'

"It takes him time to remember South Africa's president.

" 'Oh, Jacob!' " Then he decides that's funny. He is not very hot on politics, including the politics of everyday life," Engel notes.

But we can be grateful for KP's restaurant selection as it led me straight to Google translate since, until then, I had no idea that Zuma had a Japanese provenance. Apparently in the land of the rising sun it means "running horse". This seemed very apt and localised since weekend reports suggest that our homegrown Zuma is running away from parliamentary questions, although he must have been relieved - in a universe of bad headlines - that the C word chosen by the Sunday Times was only "coward".

But both evasion of parliamentary interrogations (which, to be perfectly fair, the presidency describes as "grossly misleading") and unfair enrichment lead us back again to that once obscure KwaZulu-Natal village, now a byword for state-sponsored profligacy, Nkandla.

Since parliament has never had a proper presidential explanation for the R246-million expenditure there - either because of the tactics of disruption of the enfantes terribles of the Economic Freedom Fighters or some other undisclosed reason - we have to read the tea leaves elsewhere (perhaps this is appropriate since this president's tipple is nothing stronger than Rooibos tea).

Apparently the most powerful man in the land feels "persecuted" by the media over the expenses. On Sunday, he advised that "there was no outcry over an airport built in former president PW Botha's home town".

His reference to the airport at George is both accurate and instructive. Indeed, during the long tenure of the former strongman of apartheid and MP for George, a modern airport was built in his constituency. Doubtless, the identity of the local parliamentarian and consideration of the ease of his travel counted for a lot in green-lighting its construction. But 25 years after Botha's forced exit from public life and office, the airport still serves as a huge and necessary gateway for tourism into the southern Cape region, which long after the reign of Botha still attracts thousands of visitors. More than 600000 arrive there every year.

Any tourists visiting the former home of the "Groot Krokodil" in Wilderness might also be surprised by its modest scale, not the palace of splendour one might expect.

But this is really beside the point. Things have reached a pretty point when a post-apartheid democratic president uses as his standard of justification the excesses and outrages, or lack of them in this case, of the brutal and undemocratic system he and his party vowed to replace and improve upon.

The old struggle phrase "never again" seems to have been replaced by one that says "well, sometimes when in a corner, we will dust it off".

The PW Botha defence at least has some form, as they say in cricket. Less helpful to Zuma's cause was his invocation of geography the other day. He apparently shrugged off the mushroom clouds engulfing his administration when he suggested that corruption is a crime only in a "Western paradigm".

He might want to have a word at the next Brics summit with his opposite number in China, Xi Jinping. He doesn't have the inconvenience of being heckled by opposition MPs but, in the eastern corner of the world, he has unleashed a campaign against corruption described recently by The Economist "as the most sweeping for decades".

Since we apparently bow to China in matters of foreign policy, we might want to borrow domestically from this campaign, although in China the drive is apparently led by "party investigators and the feuding factions they serve".

We have no shortage of feuding ruling party factions in South Africa. But we are blessed with an independent public protector, one of the real gains of the post- Botha years. A pity we don't celebrate her work and not curse her existence, as some in the seats of power do.

Leon is the author of Opposite Mandela (Jonathan Ball) Follow him on Twitter: @TonyLeonSA OR on Facebook:


Monday, October 13, 2014

We need leadership willing to make tough calls

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Patrick Cairns | 13 October 2014 | Original Publication:  Moneyweb

South Africa can't just drift along.

CAPE TOWN – Of all the criticisms levelled against President Jacob Zuma's handling of the economy, perhaps the worst indictment is that he has failed to provide South Africa with decisive leadership. He has been unable to inspire the country towards a cohesive vision of where we need to go.

There are many reasons for this, not least of government's inability to produce and stick to a clear economic plan in the first place. But the president ultimately has to bear the responsibility of not being able to provide the guidance that the country has needed.

At a recent panel discussion hosted by Sanlam Private Wealth, political commentators Justice Malala and Tony Leon pointed to exactly this fact. They highlighted how although there has been some outstanding leadership in South Africa's economic spheres of government, its reputation is at risk of being undermined by the incompetence elsewhere.

“In South Africa you have the Revenue Service, Treasury, and the Reserve Bank, which are three fantastic institutions that seem to work pretty well, and then you have the rest of government,” Malala said. “You have this bipolar world and unfortunately, if the world of sloth overwhelms the world of efficiency, then we have a problem.”

For Leon, where South Africa's leadership needs to come to the fore is in tackling the country's current account and budget deficits. The present situation means that South Africa remains vulnerable and another credit downgrade will have serious repercussions.

“There are a number of money managers who, given another credit downgrade, will pull the plug on us,” he said. “Then our current account and budget deficits will become unaffordable and we're in a deep crisis. So whatever the leadership does or doesn't do, there are a whole lot of external factors barrelling down the highway that are inescapable.”

Leon said that while the Minister of Finance, Nhlanhla Nene, has a very informed appreciation of how little is in the cupboard, he doesn't believe that the rest of government necessarily shares the same understanding.

“The head of the government prevaricates between the national development plan, which is a good thing, and the national democratic revolution, throwing out concessions to unions and everyone else,” Leon said. “But leadership is about making tough choices. When you have good leadership the tough choices are made and you move forward. If you don't, then you drift along. But you can't just drift along when you are so dependent on external financing.”

Leon noted that his three years as the ambassador to Argentina gave him a solid understanding of how a country is able to destroy itself both economically and politically. The case of nearby Venezuala, which is one of the richest oil producers in the world yet still has to import food, is another example.

However, other Latin American countries like Peru, Colombia and Chile have managed to avoid such disaster. And their policies are worth taking note of.

“Each used the crisis years to repair their balance sheets, improve their governments, and create more business-friendly environments,” Leon said. “And today they are among the high-performing emerging market economies. So it’s no secret. Either we take those examples and apply them, or we don't.”

Malala expressed that one of the vital parts to achieving this is forming a new understanding between government, business and labour. And that also means that each of the three entities has to provide better leadership than it is currently doing.

“In a country where we have a 25% unemployment rate by the narrow definition, you cannot say we're okay growing at 1.9%,” Malala said.

He said that while political leadership has been most prominently lacking, business and labour have equally failed to offer direction.

Malala believes that there has to be a push towards a conversation where these three critical role players in the economy can talk without being afraid to voice any opinion.

Most of all though, what is needed is implementation. Those at the top need to make firm decisions about what has to be done and then there must be a cohesive drive to do it.

“At one stage we were an emerging market darling and now we are a laggard. Emerging markets themselves are less than the flavour of the month,” Leon said. “When we had credit coming into this country, we didn't use those good times to take advantage and now, in more challenging circumstances, we are going to have a hard landing. I just hope we will have the leadership to make the tough calls that are necessary.”




Thursday, October 9, 2014

The Big Read: Only government to blame for Nobel fallout

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09 Oct 2014 | Tony Leon | Times Live

As a detribalised attorney, I am pleased that, thanks to the Oscar Pistorius trial, so many lay people are now on nodding terms with such esoterica from the realm of criminal law as mens rea and dolus eventualis.

“Folk in Hong Kong protesting for democracy? Ukraine wanting Russia to leave it alone? Not on our agenda”

But it is from our civil law that we can take a concept that goes some way towards finding the truth in the accusations and counter-accusations flying between the mayor of Cape Town, Patricia de Lille, Archbishop Emeritus Desmond Tutu and former president FW de Klerk (an interesting alliance) on the one side, and the presidency on the other.

The most recent verbal mortars were fired after the announcement last week that the 14th World Summit of Nobel Laureates had been canned in Cape Town and would relocate offshore. This unprecedented sanction, at least in our post-apartheid brave democratic age, which was meant to end isolation, has been imposed on us by some of the most admired people in the world. They have done this because of the government's refusal to grant the Dalai Lama a visa to attend the summit.

The Roman Dutch mouthful eceptio doli generalis simply means that a defendant can raise the defence that the plaintiff has not acted in good faith, or that he cannot set up his own bad conduct, such as intimidation, to prosecute a claim against someone.

For technical reasons back in 1988, the Supreme Court of Appeal ruled that it did not apply in South African law. But it is a handy term to divine the truth around the Dalai Lama saga, perhaps the final nail in our claims to be a country that acts as an independent sovereign, not as a client of China.

It might also answer the question: do we still practise, not breach, the famous Nelson Mandela 1993 formula that pinned our foreign policy to the mast of "human rights"? On all current evidence, we do not, but let's see who is telling the truth on this issue, not just relying on prior bad conduct to assert a claim.

In the Dalai Lama case, the president's spin doctor (by now he must be a specialist surgeon in the dark arts of communications), Mac Maharaj, was furiously unequivocal.

He slammed the mayor's statement (and by implication De Klerk's as well) as "inaccurate and misleading" and stated that the government had been informed by the Dalai Lama's office that he would not be attending the summit. This meant the holy man was "thus effectively cancelling his visa application", Maharaj triumphantly proclaimed.

Well, as they say in the classics "you can't bulls**t a bulls****er".

Entering the row next was Dave Steward, who knows a thing or two about government communications, having headed the "Bureau for Information" when PW Botha imposed his states of emergency in the 1980s.

From his current perch as head of the FW de Klerk Foundation, Steward said Maharaj was guilty of a "terminological inexactitude" and pointed out a simple fact: On September 4, the Dalai Lama's representative had been contacted by an official at the Department of International Relations and Cooperation [by telephone no doubt, and thus no danger of a paper trail] who "had informed her that the Dalai Lama would not be granted a visa".

Only after this unwelcome news did he withdraw his visa application.

Talk about the exceptio doli, or relying on bad conduct to perfect your claim, and there you have it.

The letter that 14 Nobel laureates sent to President Jacob Zuma asking that the visa be granted received no response, and certainly not the "terminological inexactitude" cooked up later by Maharaj.

Case closed. Except of course, we do apply a human rights, rather than a realpolitik, standard elsewhere.

The ANC and the toy-town revolutionaries of its youth league are in full cry sanctioning, boycotting and disinvesting from any organisation that dares to stock chopped herring, or whatever, sourced from the gardens of "apartheid" Israel. And if, as its ally Cosatu maintains, this should include sanctioning the most cost-effective and medically reliable Israeli circumcision device (after all, which country has practised this longer?) then so be it, even at the cost of saving our own lives. Ideology comes first. Folk in Hong Kong protesting for democracy? Ukraine wanting Russia to leave it alone? Not on our agenda - wrong places, wrong opponents, wrong ideology.
But thinking back on the high place in the world we occupied under Mandela, this simply proves, as Christopher Hitchens noted, that when you fall from a great height, the descent can be very swift.

Leon is the author of Opposite Mandela (Jonathan Ball) Follow him on Twitter: @TonyLeonSA OR on Facebook:


Friday, October 3, 2014

Nene cannot rely on parallel universe to balance books

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03 Oct 2014 | Tony Leon |  Business Day

Many of the new finance minister’s ministerial and party colleagues seem to derive their assumptions from realm of science fiction, writes Tony Leon

WHEN former finance minister Trevor Manuel presented his medium-term budget policy statements in Parliament, he used to adorn his speeches with literary bells and whistles, quoting the likes of Ben Okri, before presenting his numbers and forecasts.

New Finance Minister Nhlanhla Nene is a decent and conscientious man but far plainer spoken than Manuel. Financially, he also has a far worse set of books to contend with. If so inclined, he could draw from a rich seam of quotes, from Shakespeare to the Bible and even the unmentionable (for African National Congress ears at least, in the post-Mbeki era) Margaret Thatcher to spice up his prose when he presents his medium-term budget policy statement in Parliament this month.

Nhlanhla Nene. Picture: TREVOR SAMSON
Claudius’s lament in Hamlet that "when sorrows come, they come not single spies but in battalions" is as good as any starting point for a description of the bleak economic canvas on which Nene has to paint his projection for the next three years.

Our terms of trade have deteriorated sharply, and much worse than expected, with the August trade deficit widening to R163bn (double the market expectation), explicable by a sharp drop in exports of R77bn against a surge in imports of about R93bn. SA is caught in the classic "double whammy", in which currency weakness — the rand has been on the slide since 2009 — has not led to export growth. As we import inflation, and financing the current account deficit has become crucially dependent on foreign flows, the interest rate needs to be competitive to compensate on both fronts, hence the rise in rates in a year of very low growth.

Wage rises not tethered to productivity increases hardly help, nor does the surge in public sector jobs, which do nothing to allow us to export our way out of difficulties. They simply increase Nene’s difficulties in balancing the books with an unhealthy 5.4% current account deficit. This places us second only to Turkey of the 45 countries whose economic and financial indicators are published by The Economist. Further spending will just pile on the misery, and tax increases are hardly an option, when economist Dawie Roodt recently forecast a revenue shortfall of R15bn-R30bn, measured against the projections in this year’s budget estimates.

Actually, the higher figure in Roodt’s estimate coincides almost exactly with the figure the auditor-general identified as lost to unauthorised or wasteful or irregular spending by government departments, which suggests state failure of a vast magnitude, the rectification of which would go a long way to assisting Nene in his balancing act.

In the unvarnished warning of Investec chief economist Annabel Bishop, the once beneficent global economic environment has turned sharply against us, especially the Chinese economy, that traditional anchor of our resource exports: "As economic growth in China has moderated, commodity prices have eased…. Should China experience further slowdown, the rand will likely weaken further as commodity prices ease once again.

"Quite aside from tear-gassing pro-democracy protesters in Hong Kong and ensuring that its client states like ours keep the Dalai Lama out, the Chinese are involved in a massive attempt to reorientate their economic model away from manufacturing and saving, towards consumption and services, causing a very hard landing for economies such as our own. Especially when, as the Financial Times advised recently, the most vulnerable emerging markets, in the wake of the removal of quantitative easing (QE) and anticipated uptick in US interest rates in the US … are those ill-prepared for the change in the economic weather."

Here’s where the Bible comes in handy, although quoting Hebrew prophet Joseph might be career-limiting for a minister given the anti-Israel rhetoric of the ruling party. Still, back in the land of the pharaoh, Joseph famously could interpret his master’s dream of seven lean cows devouring seven healthy ones to mean that seven years of famine would follow seven years of abundance. His prudent suggestion to fill the granaries in the boom times to compensate for the lean period to follow not only made him the second-most powerful man in ancient Egypt but also provided a clue for today’s policy makers. SA went in the opposite direction, trying to spend its way out of its difficulties, not saving for the proverbial lean years that are now upon us.

The smart money, so to speak, is now following emerging market economies such as Mexico, Peru and Colombia, which were recently cited as having used the resource boom and the QE years, which coincide with the biblical seven, to increase their savings and reduce public debt. Our savings rate (about 13.5% of gross domestic product) and public debt (more than 40% of GDP) mean we are not in their company.

Enter Thatcher. She once famously said: "The problem with socialism is that you eventually run out of other people’s money to spend." Here, Nene is spoilt for choice. South African Airways has guzzled at the taxpayers’ feeding trough and now cannot publish its results unless it gets further state aid. This is despite, perhaps because of, its addiction to bail-outs. In the estimates of opposition MP Natasha Michael, the airline has received, over the past two decades, "R16bn in bail-outs and has been subject to nine turnaround strategies in 13 years". Further state assistance, she suggests, would be tantamount to "madness". Perhaps professional aviation and commercial management would be the ticket, but, like Thatcher, any suggestion of reviewing or cancelling the ruinous cadre deployment strategy is off limits. There was something rather touching, were the track record not so disastrous, in the proffered solution of Public Enterprises Minister Lynne Brown to the almost across-the-board rot and ruin at state enterprises. "An interministerial task team has been meeting for months," she said. Well, that should help.

I went this week to visit Nene in his Pretoria office. I was reminded that he is down to earth, has a realistic appreciation of the enormous challenges, surrounds himself with smart advisers and actually goes around the country, from boardrooms to the factory floor, to get a proper appreciation of the real economy and its ailments.

But if Nene is admirably grounded, many of his ministerial and party colleagues seem to derive their assumptions from the realm of science fiction. In the movie Star Trek, the laws of nature are different, and its citizens inhabit a parallel universe where the laws of motion and gravity do not apply. Our local inhabitants of this charmed planet are to be found everywhere. ANC policy head Jeff Radebe has decreed that the most important issue facing SA is the "power of monopoly capital". Given that the Post Office has not delivered letters for the past month and Gauteng residents are crippled by water and power cuts, evidence here on planet Earth suggests he could look closer to home, and inside his government, for the real challenges.

Another star of the parallel universe is ANC secretary-general Gwede Mantashe, who advises that the lack of investment by the private sector is evidence of a "lack of patriotism". Back in the real world, it relates to a lack of confidence and the failure of the government to provide investor certainty. The least vulnerable emerging market countries are those that used the fat years to improve poor business climates. We have gone in the opposite direction.

Nene’s speech will perhaps reveal that, contrary to sci-fi movies, the laws of gravity do apply, and you can’t defy them forever.

• Follow Leon on Twitter: @TonyLeonSA