A confident and knowledgeable Pravin Gordhan told a room packed with reporters on Monday that government would maintain sound fiscal management and consolidate debt.
Flanked by Deputy Minister of Finance Mcebisi Jonas, Governor of the Reserve Bank Lesetja Kganyago and director general of National Treasury Lungisa Fuzile, Gordhan issued a stern warning to those who think State-owned companies are their toys.
He said SAA chairperson Dudu Myeni would get a call from him within the next 24 hours.
The briefing was held in the wake of President Jacob Zuma’s sacking of former finance minister Nhlanhla Nene late on December 9. He replaced him with relatively unknown ANC MP David (Des) van Rooyen.
This sent the currency into a tailspin and equity and bond markets lost billions in value. Late on Sunday night Zuma announced that Gordhan, who served as finance minister between 2009 and 2014, would be brought back and Van Rooyen would take over Gordhan’s former portfolio of local governance and traditional affairs.
Gordhan said since his appointment equity markets have regained 75% of their lost value and the currency 50%.
Gordhan called the decision to remove Nene a “miscalculation” and said, as Zuma did, that the president received various representations on the matter and listened. Sometimes one has to acknowledge a miscalculation and this is what the democratic government did and rectified, Gordhan said.
While Cabinet gave the green light for the start of a formal procurement process for nuclear power stations, this would be no exception to the policy of not spending money that government doesn’t have, Gordhan said.
The economy will however pick up again, he said. If something is not affordable now, it doesn’t mean it cannot be done at a later stage.
Gordhan did not rule out tax increases to fund the nuclear build programme. He said government could only spend more if it increases its revenue. That can be done by growing the economy, growing revenue, achieving savings by closing loopholes and leakages or by raising taxes.
In this regard, he said: “I want to be very clear: we will not cut pro-poor programmes, growth-inducing programmes and investment. Instead we will seek to increase investment in the 2017 Budget.”
Nene’s decision that South African Airways (SAA) should revert to the so-called swap transaction with Airbus – that was approved by National Treasury – stands, unless there is a need to change it, Gordhan said.
Airbus gave the airline until December 21 to implement the transaction, rather than the new deal proposed by the board that would have seen the insertion of a local middleman from whom SAA would have leased the aircraft. The board has not publicly accepted Nene’s decision yet. Failure to comply by December 21 could trigger cross defaults that could impact on the fiscus and spill over to Eskom, analysts have said.
Gordhan said SAA is a flagship for South Africa that plays an important role in the economy and on the continent. He said it is a vital asset and as soon as it is stabilised, it will be transferred back to a line department. “Treasuries don’t run airlines,” he said.
South Africa needs national reflection about how we manage State-owned companies and public resources, he said. “We are guardians of public resources. We are going to redouble our efforts to ensure efficiency of expenditure across the public service. New measures are being put in place to contribute to reducing corruption and enhancing transparency and these will be complemented by stern enforcement.”
He also expressed his full confidence in Fuzile as director-general and said the country should have deep appreciation for his skills and experience.
Regarding the progress with the preparation of next year’s budget, Fuzile said it is on track and the only thing that national departments don’t know yet, is whether their actual allocations vary from the preliminary allocation they got earlier. In most cases the variance won’ be material, he said.
Kganyago said no special meeting has been planned for the Monetary Policy Committee.
He said one should be careful in analysing the events since Nene’s sacking. He said at this time of the year market liquidity is low as many people are away on holiday. This results in market movements being amplified. He said it has to be noted that our markets were able to withstand a shock of this magnitude and have been able to recover since Sunday night. After a drop of 18%, the banking index has recovered and is now only 3% down from its levels before Nene was shown the door.
With regard to the outlook for the rand, he said the meeting of the US Federal Reserve on Monday would affect the currency. It is expected to re-align currencies worldwide, he added.