Gordhan must say the things Zuma didn’t…

But be aware that expectations may be too high.
Pravin Gordhan...How much can he do?

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.

Austerity

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.

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while Zuma might be a heavy weight in the ANC, corruption, scandal, ducking and diving, and also in the ‘jobs for pals’ sectors, he is unfortunately a lightweight when it comes to intelligence and problem solving. This has then placed a heavy burden on those who are expected to rescue his ar$e constantly. Pravin Gordhan knows this and he will have to hop skip and jump through hoops and loops not only to get the country on track but also to keep his butt in a job and his pathetic bosses fat butt in the gravy train seat.

No matter what Pravin does, he will be condemned as having done the wrong thing, so as a starting point, let him take the initiative and force cut government expenditure right down to the bone. He should also do the unpopular move and increase VAT by 1% or even 2% while also removing some essential items and prescription medication from the list of VAT free products. He should also start the process to sell of all state owned enterprises that have continually shown losses for a period of 5 years or more without any exceptions. If any of these moves are unpopular then so be it. It is in the interest of saving the country and its people from downgrades and it will result in job creation when private enterprise build those corporations into viable profitable concerns.

Once order has been disrupted into a chaotic state, to bring it back to order again takes considerable time and effort (and is costly). There is no silver bullet remedy. Just we must apply hard work and be prepared to take the suffering.

The older generation may remember the term Reaganomics referring to the monetary policies of President Reagan, so the term Zumanomics may well be appropriate in view of the dire economic position South Africa find itself.
We are all waiting for the budget speech to see if there is any light at the end of the tunnel. We are all aware of the corruption and mismanagement at all tiers of government as well as parastatals, such as SAA, but with the problems besetting South African universities the following may be of interest.
Based on an article in the latest WitsReview entitled University funding in South Africa the annual estimated average cost per student is R175 000 made up of government subsidies university fees and student living cost.
With one million registered students the total cost amount to R175 000 000 000. The pass rate Googled suggest only 15% will graduate compared to an international 85% in the developed world. As a business of producing graduates R122 500 000 000
can be viewed as a loss to the country.
With this in mind the government plans to spend 3.2 billion on two new universities and 10 .5 billion on infrastructure improvements to existing universities with the aim of increasing the student population to 1.5 million and increasing the loss by 50%
This looks like a bad business decision and as an alternative the pass rate should be improved without dropping educational standards.
So my advice to the finance minister cut R13.7 from the budget for this budget, but I guess this may cost you, your job

Damned if you do and damned if you don’t.

Isn’t it time to think outside the box too? The reality is that I see a number of US states legalising dope. I have no comment on that other than believing that it is probably a wave that will eventually become global. In that I see a new source of tax revenue that may be exploited by our country in the future. I have no clue what the numbers are, but hear that a lot of the stuff is grown in SA. For all I know the numbers may be large enough to consider legalising the cultivation (for legal local consumption and export) of dope. In this fashion jobs may be created and sin taxes levied. This coupled with the VAT earned from the new job earners might be quite substantial

End of comments.

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