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Gordhan gets it right

Dec 17 2015 07:24
Leopold Scholtz

MANY words have been devoted to the political aspects of President Jacob Zuma’s unexpected flip-flop on Sunday night, when he sacked his newly-appointed minister of finance, Des van Rooyen, in favour of the old stalwart, Pravin Gordhan.

The broad consensus seems to be that Zuma has done himself considerable - perhaps irreparable - harm, and that this might be the beginning of the end of his presidency.

All of this may be true or premature. Time will tell. What interests me more for the purposes of this column is the financial direction Gordhan has indicated in his first public appearance at a press conference on Monday morning.

The new (old) man made an excellent impression on the reporters, people who are notorious for their cynicism towards politicians. What he reportedly had to say also impressed me as an analyst.

He made several interesting points:

• His basic point of departure was summarised in these words: “Our expenditure ceiling is sacrosanct. We can have extra expenditure only if we raise extra revenue. We are going to redouble our efforts to ensure efficiency of expenditure in the public service.”

• In fact, if the economy – and therefore, the state’s income – does not improve, it will have to either cut spending or raise taxes.

• He warned “anybody who thinks that the state machinery is there for their own personal pockets” that this would not be tolerated.

• He said that “individuals or groups of individiduals” should stop “playing with public entities”. His message to “state-owned entities” (read: Eskom and South African Airways) was harsh: Any support to them would be given “in a fiscally sustainable manner”.

They would not be allowed to dictate to government how they should be assisted. He pointedly added that he would soon be talking to SAA chairperson Dudu Myeni, thereby making it very clear to whom he was referring.

READ: Stop using public institutions as personal toys - Gordhan

• Nevertheless, he also hinted that government would not cut social grants. (After all, he would not want to lose poor people's votes for the ANC!)

Gordhan’s sparkling performance, as some of those present described it, has to be seen in the light of an ongoing international debate about the question whether – oversimplified – a government should exercise fiscal discipline and not keep on spending money it has to borrow, or whether it is wiser actually to spend its way out of an economic crisis.

As economics is far from an exact science, this debate will not be resolved anytime soon. My own – probably uninformed – belief is that financial prudence is the better way to go, but that common sense might dictate spending in specific circumstances. I have already devoted several of my columns to this matter.

Gordhan has now clearly come down on the same side. He wants to put the state's finances on a sound footing again, and not hand out money on all sides.

Two fields in particular require his immediate attention.

One of them is SAA's highly irresponsible unilateral change of a contract to buy several Airbus A320 passenger aircraft. Myeni wanted a third party to buy the aircraft and then lease them to SAA.

Obviously, I do not have inside information about this matter. Nevertheless, it seems that this roundabout way will cost much more, which inevitably raises suspicions of corruption. It is logical to surmise, shall we say, that someone is bound to end up somewhat richer than he or she would have been without this convoluted transaction.

At any rate, the SAA's mismanagemen has led to its asking government for a bail-out for the umpteenth time.

The second is the proposed nuclear power plant deal with Russia. According to news reports, Russia could be tasked with the building of eight nuclear power plants. The price tag is not clear, but estimates range between $37bn and $100bn.

Whatever the correct amount, it is an open question whether South Africa can afford that kind of money. We will have to borrow it, making the country’s debt burden even higher.

Nhlanhla Nene, who used to be finance minister until last Wednesday when he was unceremoniously sacked, blocked the SAA and Russian deals so that greater clarity about the financing could be reached. It is widely thought that this was his undoing with the president.

It was also interesting to note that the presidency last week gave out a statement denying a romantic relationship between Zuma and Myeni.  Whether they are in a relationship or not, there is a justified concern that these deals may be oiled with corruption, similar to the Arms Deal of 1999. A sword of Damocles is still hanging over Zuma, who is alleged to have been the beneficiary of bribes in this regard. We may expect the matter to reach court after Zuma gives up the reins of power in 2019.

Whatever the case, Gordhan certainly played the right melody at his press conference. Now we will have to see how much political clout he has gathered in the last days.

* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.

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