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Can Mboweni walk his fighting talk?

New finance minister in a fighting mood to change SA’s growth trajectory.

There could be a significant “reconfiguration” of National Treasury in the weeks and months to come, if new finance minister Tito Mboweni gets his way.

Mboweni was in fine form during a press conference prior to announcing his medium-term budget policy statement (MTBPS) in parliament on Wednesday, promising more decisive action to fix government problems and more partnerships with the private sector to increase investment and improve service delivery.

Read: Mini budget in a nutshell 

Barely three weeks on the job, it was clear that Mboweni is still adapting to a new political life, even proclaiming that despite being the Minister of Labour many years ago, he is “still battling to get use to government protocol”.

It therefore remains to be seen whether he will be able to walk his fighting talk to fix South Africa or whether he will be reined in by the political infighting in the ANC and the other alliance partners.

However, his fighting talk is exactly what is needed. As the very first sentence in Chapter 1 of the MTBPS states: “South Africa find itself at a crossroads”.

Read: What your tax bill will look like next year

The document then proceeds to paint a grim and dire picture of state finances, which will become even worse in the years to come.

The most notable example is the prospect of South African debt. In the 2018 budget – published only eight months ago – the ratio of debt to GDP was expected to hit a peak of 56.2% in 2021/22. The new MTBPS projection is even higher at 59.6% in 2023/24 after which it will remain at around 59% for the next few years.

This is as close as damn it to the 60% mark, which is seen as a significant danger zone by rating agencies. (I am willing to wager a fine bottle of wine that we will hit this mark prior to 2022.)

This rising government debt also affects government’s interest payments, which is set to increase to 15% of total expenditure by 2022. (This would mean that between the total wage bill and interest payments, government will use more than 50% of its total budget to pay interest and its employees.)

Read: Bailouts for SAA, Sanral’s e-tolls and more 

But it was evident that Mboweni wants to tackle problems decisively. He used an example of how he has already roped in the army to tackle the pollution problem in the Vaal River system.

“If you live in Gauteng you cannot drink tap water as it is polluted. We need to deal with this problem decisively,” he said.

He added that an inter-ministerial committee would not achieve this.

In his prepared speech, Mboweni added: “We are dealing decisively and urgently with the water crisis in the Vaal River System… I have asked the president and the Minister of Defence for the military to assist with engineering and other expertise to resolve the crisis in the Vaal River system. I am happy to report that approval has been granted. The generals in charge have already started working on solutions.”

Business friendly

Mboweni used the word “partnerships” on numerous occasions, referring to a closer working relationship with the private sector to increase investment and improve service delivery.

He referred to the N3 and N4 highways as examples where the private sector not only built the infrastructure, but are also the operators. “For these projects to operate efficiently, we have service level agreements in place with our private sector partners. These kinds of partnerships will be accelerated.”

Read: Move to improve infrastructure project outcomes 

He also referred to the tomato producer ZZ2 in answering a question on land reform. “We need to partner with them as they know how to grow tomatoes. Rather than take their land, which will be the worst outcome, we need to allow them to help us.”

In reference to the dire state of state-owned enterprises, Mboweni said government should be “open minded” to equity partnerships and to the notion to close some state-owned businesses that are not performing.

“The Swiss closed Swiss Air and the launch of Swiss International shows it can work. We need to be open-minded to such options,” he said.

He added that such partnerships can play a significant role to improve efficiencies at Eskom. “Such partnerships are possible and the private sector will help if asked. We need to look at these options and this must result in actions to which the market will react.”

Read: These are the items that will be zero-rated 

Stimulus package

Infrastructure development and increased investment were also key themes. Total public infrastructure expenditure will amount to R855 billion over the next three years, of which only R370 billion will be from SOEs.

Mboweni belaboured the point that private sector involvement will be pivotal, not only for investments of their own, but also to ensure public projects are executed efficiently.

Can Mboweni survive politics?

The question now is whether Mboweni, after being in the Treasury hot seat for less than a month, has the authority to implement the changes he proposes.

We have seen several Ministers of Finance in recent years making promises of implementing urgent reforms, most of which did not materialise.

Mboweni clearly has the support of President Cyril Ramaphosa, as is indicated by the roping in of the army to deal with the pollution crisis in the Vaal. It also remains to be seen whether Ramaphosa has the political authority to back Mboweni all the way.

Mboweni will also face significant resistance within the various factions in and partners of the ANC alliance, where the private sector is often seen as an exploitative stakeholder in the economy.

He is also not going to make friends in Ramaphosa’s extended cabinet, especially not after stating in the press conference that if asked by the president for his opinion, he would advise that the cabinet should be reduced from more than 70 ministers and deputy ministers, to fewer than 25.

Hopefully Mboweni is not “corrupted” by party politics. His decisive approach is critically needed to pull our economy back from the precipice.

Read the complete MTBPS here

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Tight monetary policy with real interest rates above GDP , tight fiscal policy with a squeeze on the public sector wage bill, and no real prospects of higher growth…..something will have to give…either a weakening rand bails them out, or the Ramaphosa administration will get the boot from voters.

The Ramaphosa administration are brave men taking brave measures under theses circumstances. Only strong politicians can afford to be brave, and with the divisions in the ruling party, our brave president is not strong. It will take an exchange rate of USD/ZAR 20 to bail him out. Let’s hope that growth (from a weaker currency) arrives in time, before populism takes over.

My money is on Ramaphosa, and an exchange rate of 20 to the USD.

Sensei,

Wouldn weaker exchange rate be inflationary on everything including wage bill?

Also, is most of our debt rand or USD denominated?

South African external debt is 45% of GDP. Turkey is at 69% and Brazil is at 37%. Our current account deficit is 4% of GDP and will grow, as the price of imports (oil) rises faster in dollar terms than the value of exports (iron-ore, platinum and gold). Fiscal consolidation implies below-inflation wage increases. This is what Mr. Mboweni promised today.

Look, I don’t want a weaker rand, but nothing else will help our industrial companies and mining companies to become more competitive. It is my task to position myself for where I think the rand is going, and I believe it is going to weaken substantially. If I am wrong, I will pay the price, my money is where my mouth is….

The situation at Eskom is like a concrete block around the neck of the rand. The cost of electricity will force the rand to sink, in order to lower the dollar-price of electricity for the mining and agricultural sectors. Eskom basically ensures that either the rand will crash, or the mining sector, industrial sector and agricultural sector will crash.

We will have to choose between Eskom as a SOE in its current form, and the value of the currency. We can’t have both.

We shall hyper-inflate our way out of this – a la Zimbabwe.

Your “exchange rate of 20 to the USD” with oil at $80 a barrel will kill the economy even deader than it is now. And can not be saved by cheap exports because our mining and manufacturing industry has been destroyed by
the trade unions and corruption.

South Africa’s economy is about .50% of the global total. We are a blip and essentially unimportant.

Creating an infrastructure fund is one thing, but the more important thing is to spend the money wisely, efficiently and with the multiplier effect that is most optimum.

Suspect Tito’s biggest fight is going to be with

* The EFF and other socialist elements in ANC
* The defunct SOE’s
* The Unions and Labour

Wish him well!

Unfortunately, Tito’s walking the talk is not what brings success. He does not spend the money, he can only allocate what is available.
As in the past, those who manage the departments control the spending and if they keep on spending without discipline, Tito is helpless. (Remember Pravin’s: Though shalt not buy expensive cars – and even Blade, the communist, went out and bought a couple of BMW’s).
The ANC government, collectively, is accountable.
But do they understand the meaning of the concept and can they change?
I have seen nothing that supports any change in ANC behaviour.

I have this image of a man standing in the path of an oncoming runaway train. A part of him feels that he has the wherewithal to save the day,but another part, his alter ego,would have him manning the controls of the train in glorious pursuit of socialist utopia. I am not sure how this finally ends up but reckon that it is going to be pretty messy.

Now that we have the outlook what does that say about investing offshore? And some seem to think that the US has problems and that we are better off!

We can’t walk the talk. We just can’t.

These speeches make me feel yes, this must be heaven. Until the speech end.

What real progress did even a good oak like Gordon achieve with the SOE’s thus far? Seemingly nothing.

If we can’t even fix a pothole how can we get to the real issues?

The cancer is too deep for even Dr Mboweni or Dr Ramaphosa

“South Africa find itself at a crossroads”. No Sir, we were at the crossroads in 1994. That was when the morally bankrupt ANC took the wrong turn. Today we find ourselves well down the way to a failed state – irreversibly so.

We have been at the crossroads since LONG before the ANC became the official government.Having a white skin does not make one ethical.

“We may have a prospering country or we may have the ANC – but we cannot have both.” Dunno who said this, but it rings truer everyday.

The single most important factor in any economy is “animal spirits” ….. natural exuberance, which is spurred on by confidence and trust in national leadership. When this is buoyant the nation can do almost anything.

Remember winning the rugby world cup? And the 2010 FIFA World Cup? And to go even further back the JF Kennedy and Churchill speeches?

But here we have leadership incapable of actually running the nuts and bolts of an economy, without basic ethics yet consumed with their arrogance and hubris to the extent that they are blind and deaf to the advancing avalanche of social chaos.

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