Opinion

Tito's task: undoing Zuma's undoing of Mbeki's fiscal prudence

SA was able to withstand the shock of the 2008 crisis because of sound policies, but Zuma was its beneficiary - and brought us to where we are now

17 February 2019 - 00:06 By RON DERBY

It took the custodians of our national purse some 13 years to rein in SA's debt to 23% of GDP from 48% in 1996 when Trevor Manuel was appointed finance minister. In bringing down those debt levels and easing the burdens of servicing it, there were many battles that had to be fought within the governing party - which Eskom can attest to.
Through those battles and economic plans doggedly driven by former president Thabo Mbeki and his equally determined Treasury team, the government achieved a budget surplus by 2008 - the first time the country had reached such a position since 1958. Those wounded by this unflinching fiscal prudence sometimes dismiss the achievement as mere luck. For them, SA, like other resource-rich nations, was swept away by the "super-commodity cycle" inspired by unprecedented investment driven by China.
LISTEN: What to expect from this year's National Budget:
But to be lucky, one has to be in the right position to take advantage. The receipts from rising commodity prices powered growth rates averaging 5% between 2003 and 2008.
Forget that mining is but a shadow of its former glory, the truth is that when miners feel rich it's an industry that more than most feeds into the feel-good chemistry of the entire country.
Fiscal discipline combined with a China on an infrastructure binge brought SA a fiscal surplus that naysayers in the mid-'90s said was impossible for a novice and black-led government.
And it was timely, given that the global economy would go into its deepest winter since the 1930s after the collapse of a US investment bank, Lehman Bros, in 2008 that would lead to a global credit squeeze.
When Manuel delivered his final budget speech at the beginning of 2009 during the fleeting presidency of Kgalema Motlanthe, he could speak of a nation in a much stronger position than most in Europe and indeed even the US. Here at the southern-most tip of Africa, you had a nation that could follow what economists term a counter-cyclical fiscal policy. In essence, the state had the space to spend in order to cushion it from the worst effects of a global recession.
The unfortunate beneficiary of this position was former president Jacob Zuma. And before him there was quite a grocery list. There was an energy crisis - which remains to this day - that required Eskom to embark on a build of two monster coal-fired power stations at the same time, ensuring stadiums were ready for the 2010 Soccer World Cup and an expanded public sector employment programme.
Other spending priorities laid out in Manuel's last budget were increased spend on education, health care and housing. The spend was indeed necessary and there's one positive one could attribute to Zuma - SA did spring itself out of a recession much faster than most of its emerging-market peers. The more than a million job losses in SA that occurred as the global economy slipped into a coma were cushioned by a jobs boom in the public sector.
Given that our debt-to-GDP levels sit north of 50%, we can assume that the Zuma administration got addicted to spending, and for the bulk of his nine years, it proved rather good at it. It's not until former finance minister Nhlanhla Nene delivered his first and only budget in 2015 that words such as consolidation of public finances were accentuated. On reflection, it was probably the speech that triggered his eventual midnight axing before that year was up.
In the four years after that speech, harsh realities such as twin deficits and ever-rising inequality have accompanied anaemic growth. On Wednesday, when finance minister Tito Mboweni delivers his budget speech, he'll be the third such deliverer in four years.
The books before him are nowhere close to the rudimentary health of Manuel's last delivery. However, he shares one similarity with his old boss; he is likely to hand over the state coffers to someone else after the May 8 election. Rumours of his lack of interest in the position grow by the day, and in President Cyril Ramaphosa's inner circle a few names are being thrown into the hat, among them outgoing Absa CEO and former Treasury director-general Maria Ramos.
Whoever takes over, or if indeed Mboweni finds another head of steam, they face the daunting project of reducing debt levels so the state is allowed to breathe without the piercing gaze of global ratings agencies. While two of the big three already have us in "junk" territory, it is Moody's that still has the country holding on to investment grade.
This will be made all the harder by the state of Eskom. A decade ago, faced by an energy crisis, its board had called for a R100bn recapitalisation. It wasn't conferred and today it has sky high tariffs, maintenance backlogs and debt of R440bn. It's a simple mathematical equation, its needs have grown.
Life is rather uncanny, in that current Eskom CEO Phakamani Hadebe may just have been privy to those discussions when the utility was begging for the funding a decade ago. Today, he is living with the fruits of the Treasury's decision.
Eskom's travails since embarking on its build programme have taken the country on quite an interesting ride. In the final years of the Zuma administration, it may have been the centre of a multibillion-rand corruption scandal around the Gupta empire, but its biggest cancer has been that it has stretched not only its own balance sheet but that of the country. Other state-owned entities such as SAA have proved damaging, but not to the extent of Eskom.
And this week, Mboweni is going to have to come to its rescue with a R100bn cheque, which will only widen SA's debt-to-GDP ratio. The corporate restructure of Eskom announced by Ramaphosa last week should only be read as a decision to soften the inevitability of this bailout. Were those intentions not announced, we could all but guarantee a ratings downgrade from our last remaining champion.
Over and above the bailout of Eskom, there remains a stubborn grocery list for Mboweni that only tough structural reforms can ease. We've all but forgotten about the stimulus measures Ramaphosa announced last year, and they aren't what the audience will be calling for this week. It's for this budget to instil confidence that state-owned enterprises will no longer be an albatross on this country's prospects.
The years of Zuma leave a difficult legacy for his successor after the May elections to undo. It seems ANC presidents undo the works of their predecessors - and in this case it's very necessary.
• Derby is Business Times editor..

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