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It seems a long time ago, now, that Finance Minister Tito Mboweni presented his 2020 Budget.
In the week that has followed, the country has confirmed both that it is now in a recession (for the second time in consecutive years) and that there is a case of the coronavirus in Kwa-Zulu Natal.
Both issues present serious challenges to the economic (and physical) well-being of South Africans.
The dismal fourth-quarter GDP figures were largely factored into Mboweni's address to Parliament. But, given the broad-based depth of the contraction across all major sectors of economic activity, the Budget now has to been seen in the contact of whether it offered enough 'meat on the bones' to counter the GDP decline.
Unfortunately, Minister's Mboweni's Budget now just seems too shallow to take on the magnitude of the problems faced. Technically, the speech attempted to shift the burden of paying for State ineptitude and graft from the over-taxed middle classes to incorporate those employed in the public sector through cutting the public sector wage bill.
It was a bold suggestion, politically risky and long overdue. But, there were two problems. Firstly, it simply was about wage adjustments rather than payroll cuts. It was baby steps when something more dramatic was required. Perhaps it's all that could be negotiated, given the adverse reaction of the unions that were expected and have been realised in recent days.
Predicating your budget on a R160 billion yet-to-be-negotiated wage adjustment just seems risky, given the lack of anything else to stimulate the economy. And, should government buckle under the weight of the trade unions, another revenue under-recovery for 2021 can be expected with a predictable effect on taxes at that stage.
Which leads us to the second major problem directly related. If you are going to begin a long process of wage cuts, you also should be offering a constructive stimulus plan that is not just a moratorium on personal taxes and VAT hikes.
With vague promises of foreign direct investment and some impetus to prioritising infrastructure spend from President Cyril Ramaphosa in SONA 14 days earlier, there was little evidence that state-led projects were 'oven-ready' to roll. If they were, tens of thousands of new jobs could be created in reinvigorating our rusty installations – from roads to dams to energy.
Lacking firepower
Mboweni presented a very narrow set of interventions which simply lacked the big-thinking firepower required to drastically alter the course of economic decline. If you're going to put public servants under pressure, you really ought to offer something else – the creation of meaningful job opportunities led by the state – especially if you regard yourself as the champion of the developmental state.
Which brings us to the third problem. There simply wasn't enough in SONA or the Budget that would really encourage the private sector to unlock the cash-pile they may be sitting on and invest locally. The policy environment remains far too disjointed and uncertain. And it boils down to this: Just who will have the capacity and will to rescue South Africa – the State or the Private Sector or both in a social compact?
Of course, the correct answer to the question is a new spirit of co-operation between the State and Private Sector. But was there enough indication of a willingness to supress market-unfriendly policies (and rhetoric)? Probably not.
The ANC will have to clear the hurdles of Land Expropriation, Prescribed Assets and State-Capture prosecutions before credibility and confidence in the State is restored. Similarly, there now seems to be a complete pause on discussing even moderate privatisation options for key SOEs. Without clarity on these issues, it's just piecemeal band-aids.
All these issues – in a climate of recession – really offer very little. And, in a climate of the coronavirus now within our borders, it is even more concerning.
South Africa has very limited weaponry in her policy arsenal to combat a major global downturn. The increasing reliance on China as a major trading partner will put pressure on our exports to that country. Global fears of the contagion will restrain tourism and its potential job multiplier. And, weak corporate results are likely to shed jobs as the domino-effect intensifies.
Between SONA and the Budget, both the domestic GDP decline and COVID-19 seems issues bigger than the solutions on offer. President Ramaphosa has suggested that the country should be 'realistic and not dogmatic' in its way forward. Indeed, reducing excessive state expenditure is critical to our debt position.
But there has to be more than just this. South Africans will require a stimulus package beyond an interest-rate cut. And, while stimulus can come from unleashing the productive side of the State, it also requires government to be pragmatic in policy and rhetoric. The jury is out as to how we might handle this.
