SA heads for financial armageddon

2017-02-26 06:02 - Justin Brown
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State finances face stormy times as the private sector braces itself for a possible switch in finance ministers amid spluttering tax collections, low growth, tax hikes and deep suspicion regarding the nuclear build.

Prince Mashele, a senior research fellow at the University of Pretoria, said at a PwC post-budget speech event on Friday – where Finance Minister Pravin Gordhan was conspicuously absent – that, depending on which ANC faction dominated, the next two to three weeks would be crucial in determining what would happen in the finance ministry.

Following the swift swearing-in of former Eskom CEO Brian Molefe as an ANC MP this week, Mashele pointed to the possibility of his becoming either finance minister or deputy finance minister.

Explaining his non-attendance at the PwC event, Gordhan said he was leading a National Treasury delegation in a meeting with Nedlac – the national consensus-seeking body comprising business, government, labour and civil society – to discuss the budget.

Mashele said that once Molefe was installed at Treasury, he was likely to sign off on a nuclear deal with Russia that would mean South Africa would never again enjoy the benefit of cheap power prices.

“Your grandchild and great-grandchild will pay through the nose [for the nuclear deal],” he added.

The plan by the Guptas, who are close allies of President Jacob Zuma, to install their preferred candidate as finance minister was put on hold – but not abandoned – when former finance minister Nhlanhla Nene was replaced by Des van Rooyen, whom the president reluctantly axed after pressure from the business sector, before Gordhan was placed in the position.

“They want Molefe to enter Treasury,” Mashele said, adding that Gordhan was “under siege” from Zuma and the Guptas, who were fighting court battles with him.

“Something has got to give. Either the minister’s group has to give, or the president’s group must give.

“If the minister’s group gives, then all of you here are going to be in serious trouble ... It must be the president’s group that must give. They are not going to give without a fight,” Mashele said.

Iraj Abedian, CEO of Pan-African Capital Holdings, said neither the rich nor the poor were happy with the latest budget speech.

“This is a reflection that the South African economy has, for the past 10 years, been allowed to slide,” he said.

At the PwC event, the audience was asked if anyone was happy with the budget speech. No hand was raised.

Nedbank chief economist Dennis Dykes said there was potential for the local economy to grow at 2.5%, given the global circumstances, but it was only expanding at 1% because of low business confidence and extremely “weak policy” in many parts of government.

“Some of the policies on the table are absolute show stoppers. There is no way that anyone is going to invest because they know they are going to lose money,” Dykes said.

Mashele said Zuma’s definition of radical economic transformation, as expressed in his State of the Nation Address, differed from Gordhan’s definition in his Budget Speech.

“If you look at what Zuma defined as radical socioeconomic transformation vis-à-vis what the minister said, these two definitions are worlds apart.

“Zuma’s definition seems to be the kleptocratic one, which says that we need to have black people getting wealthy from white folks in the country. But the minister says that is not the definition investors want.

“The definition that investors want is growth because if you do not grow the economy, then it is too small for all to share.”

Kyle Mandy, PwC’s tax policy director, said: “If you do not get the growth that will bring the tax revenues with it, you cannot continue to extract further taxes out of the economy without doing significant damage to it.”

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