Gordhan’s Rubicon moment awaits

Finance Minister Pravin Gordhan. (Waldo Swiegers,

Author: Daniel Silke.

Cape Town – To say that this is South Africa’s most important budget since 1994 is an understatement. The reality of a declining economy deeply entrenched in a seemingly endemic inability to break out of downfall mode has left both domestic and foreign investors despondent, demoralised and downright depressed.

Frankly, to expect the proverbial rabbit to be pulled out of the hat to prevent the dreaded ratings agency downgrade seems unlikely. It may just be too late.

And for once, economists and their related species, political analysts, should take some credit for the many warnings issued over as many years. If you fail to address policy paralysis – and also fail to encourage a diversification of your economy to the demands of the future – you will simply be left behind.

So here’s the rub: President Jacob Zuma (and Finance Minister Pravin Gordhan) have set budget 2016 up as the critical speech to watch. It’s almost Rubicon-esque in importance. If it fails to deliver, expect the depression now to cascade to disaster mode.

‘Big Man’ politics

South Africa’s economic woes have been a long time coming. With the complex and confused ideological approach (and structure) of the ruling ANC alliance, policy paralysis and populist experimentation has long contributed to the precipice we currently face. Not to mention the creeping cronyism and patronage network of ‘Big Man’ politics that not only creates immense wastage, but also denudes the country of efficient service delivery and management skills.

When you look at these factors, there are few signs that the big picture malaise can be turned around in the short term. Indeed, the political structure of the ANC and the power politics as practised by Zuma largely prevent this. These are deep-rooted structural and largely political issues that have placed access to power and resources first and put economics deeply in second place.

So, just how much ‘rescue remedy’ can be applied on Wednesday? The signs are already clear from Jacob Zuma’s SONA address. At the very least, we are witnessing a budget at a time when Zuma is at his political low point. His SONA speech seemed to defer most of the economic authority to Gordhan. At least we can expect a budget that will touch on the critical challenges facing the country, even if the deeper structural issues can simply not be rectified in the short term.

So Gordhan walks the proverbial political tightrope. But he has it easier since the negative effects of a continuation of the current ruinous road is patently clear. The budget looks as though it will call for a drastic revision of the state-owned enterprise (SOE) model. It will extol the virtues of public-private partnerships to reel in the battered business sector desperate for any lifeline thrown by the state.

It will address spending cuts and proposed large-scale government austerity. It will try and find a common ground between labour, the state and business. It will talk about a looming debt crisis in the country and warn South Africans of the dangers thereof. It will attempt to deal with the twin deficits and it will warn of the dangers of inflation and the extreme knock-on effects of inflation and public sector wage pressures. And it will hopefully try and reverse that very dangerous debt to GDP slide that can spiral out of control.

Above all else, it will be a budget that not only blames the outside world for the larger macro-environment but will look with greater introspection at what South Africa itself can do to attempt a recovery.

So, it’s going to sound good. On paper that is. The key question is whether the identification of what’s needed can be translated into action. And ultimately, unless that aspect penetrates all key government departments and ministries and is equally effectively communicated in unison by all senior officials, little will come of a good piece of speech writing.

Put differently, it’s time to ditch the ideological antipathy towards the market. Yes, you might not like the inequalities and social dislocation that often is associated with the private sector. But the deep lack of understanding of the market and the equally deep suspicion for it dampens confidence.

The ANC also needs to understand that South Africa’s own business community – when they feel better – will express this globally and will be only too keen to ‘talk up’ the country’s prospects.

Make no mistake though; the political constraints on allowing Gordhan to really implement remain intact. The heavy hand of state interventionism; deep entrenchment of politically-connected individuals; an antipathy to the market and a failure to understand what it means to be globally competitive in a volatile world runs deep.

And if you’re going to increase the tax burden on an already-stretched middle class, these four key aspects have to be ameliorated to build any confidence in the future.

Politics in play

But wait – politics is there too. A jittery ANC facing a poor poll performance in looming local government elections does not endear itself to a tougher approach on trade union wage negotiations or the pruning of a bloated public sector.

So Minister Gordhan can but set the scene with the right language. He can make some immediate gestures like the cost-cutting already mooted, and he can commit to a broad range of improvements.

However – despite his apparent power – can he translate his words into a longer-term script, to be followed rigorously and religiously from ministries to department to the legislative environment?

It’s a tall order for any minister of finance – especially for someone forced to sit in economy class as a result of his own government’s performance. Gordhan, though, is likely to cross his own Rubicon – the question is who will be brave enough to follow him.

* Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator.

 

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