On Wednesday all eyes will be on Pravin Gordhan – “South Africa’s new economic saviour” – when he presents the national budget in parliament.
The events of mid-December last year have elevated Gordhan to a status akin to a knight in shining armour leading the charge to resurrect the slowing economy and save South Africa from a ratings downgrade.
Like the fabled knight, that is fantasy. One man cannot fix the core economic problems facing our country.
Only the beginning
In many ways president Jacob Zuma’s underwhelming state of the nation address has added to Gordhan’s pressure. Zuma does not know what to do to avert the downgrade. His “we-need-to-work-together-to-get-through-this” message just didn’t cut it, especially within the context of the dark clouds hanging over his integrity.
The president did not offer any new plans for a short-term economic revival and his token austerity plans to cut government expenditure on banquets and overseas trips are simply not enough.
The expectation has now shifted to Gordhan to say the things Zuma didn’t and to lead the drive to prevent a ratings downgrade.
I hope Gordhan will attempt to demonstrate that he has the authority and the mandate to guide SA in the right economic direction and that he will announce more aggressive austerity measures than the token measures president Jacob Zuma announced in parliament.
But of course he doesn’t have this policy changing authority. The ANC rules as a collective, and the country is yet to be convinced that the entire cabinet is behind the recent business and ratings agency-friendly overtures. He may say the right things, but the ratings agencies will be waiting for evidence of their implementation before they act.
No silver bullet
So in all fairness, South Africa’s expectations of Gordhan may be too high. There isn’t a silver bullet to re-ignite economic growth and to improve confidence in the economy. After all, growth remains the master key to soothe the concerns of the rating agencies’ and SA’s social problems. It will take much more than a budget speech to turn around the economy. Economic growth of 3% to 5% will only return if there is a significant departure from current ANC policies. It will require aggressive labour market reforms and a more investor-friendly economic environment.
This could take years to achieve and undoubtedly require new (and trustworthy) political leadership.
What can we expect to see in the budget? It will have to focus on the reduction of the budget deficit, which of course means higher taxes (to raise revenue) and aggressive cuts of expenditure. To raise revenue will be the easier of the two, and it is almost certain that taxes will rise, especially for the rich. There could also be a few other surprises, to boost tax revenue, but we will have to wait and see.
The reining in of state expenditure will pose a harder challenge and will require some innovative fiscal engineering – something Gordhan is pretty good at. He will have to cut to the bone and address the growing public wage bill, parasitic state-owned enterprises, rapidly rising government debt and curtail wasteful expenditure (read corruption).
And that will be much easier said than done. As I’ve said, he is one man after all and this will require political will and the support of the entire cabinet and the ANC alliance partners.
Recession is looming
One positive is that Zuma’s mid-December lack of judgement may have afforded Gordhan a little more clout than Nhlanhla Nene would have had if he wasn’t fired. This was certainly the perception during the first few weeks after his reappointment and the leading role he played to facilitate the engagements with business leaders.
Unfortunately, virtually all of the plans Gordhan may announce on Wednesday will have a delayed affect on the economy. The short-term prospects are dire and even if we avert a ratings downgrade, sub 2% growth over the next five years will not be sufficient to address the core problems of unemployment, poverty and inequality.
So the best we can hope for on Wednesday is that Gordhan shows a bit of muscle and conveys a message such that the political leadership truly understands the dire position of the economy, and that unpopular decisions and reforms are required to reverse the growth trajectory.