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.
No comments:
Post a Comment