The people who get key economic posts in the new Cabinet will have a really tough job on their hands.
Even before the ANC’s decisive election victory, speculation over who might take up key economic posts in the Cabinet was already rife.
Whoever fills these roles, the realities of South Africa’s economic constraints – including lacklustre growth, high unemployment and twin deficits – will leave them with little wiggle room to do things such as take on more debt.
A media report last year intimating that Finance Minister Pravin Gordhan might be mulling over his future prospects – which the treasury swiftly denied – has helped fuel speculation about a possible new finance minister.
Former South African Reserve Bank governor-turned-businessperson Tito Mboweni has been touted as a possible candidate, along with others such as Gordhan’s deputy, Nhlanhla Nene. Given that Reserve Bank governor Gill Marcus’s contract needs to be renewed this year, markets will be eyeing her position too.
For years, the ANC’s alliance partners have pushed for a more expansive fiscal and monetary policy at the treasury and the central bank. This has not changed, with trade union federation Cosatu reiterating calls for a new mandate for the Reserve Bank and its nationalisation, as well as criticising the state’s National Development Plan (NDP) in the wake of the elections.
Kristin Lindow of ratings agency Moody’s said that, with the ANC’s clear majority win, the incoming administration will be less indebted to its alliance partners such as Cosatu. This would enable Zuma to disregard his partners’ views and “reiterate his new administration’s commitment to the NDP”.
Moody’s expected to see a partial reshuffling of the Cabinet to install ministers who agree with the broad macroeconomic framework “including government spending and deficit restraint, inflation targeting and a free-floating exchange rate, and the general direction outlined in the NDP”.
‘Room to increase the budget’
According to Ed Parker, managing director for sovereigns at Fitch Ratings, an important signal in Cabinet’s composition would be whether it is “made up of people who are in favour of policies in line with maintaining fiscal discipline and pushing forward structural reforms to increase the growth rate of the country”.
The agency did not believe there was “a lot of room to increase the budget deficit”, running at around 4% of gross domestic product (GDP) while the government debt to GDP ratio was also rising, he said.
Fitch projected only a weak improvement in real GDP growth, to 1.6% in 2014 and 2.2% in 2015, from 0.77% last year, reflecting that the government may continue to struggle to boost growth.
Key to addressing the challenges facing the economy would likely be to “find ways to stimulate growth and tackle the economy’s structural constraints”, said Ravi Bhatia, director for sovereign and international finance at ratings agency Standard & Poor’s.
This would include “improving conditions in the mining sector and combating the culture of confrontational strikes as well as diversifying South Africa’s export portfolio”.
“Debt levels, although not very high, remain sizable, and the government relies to a significant extent on foreign buyers in the rand-denominated debt market,” he said.
The chair of the ANC’s economic transformation committee, Enoch Godongwana, told the Mail & Guardian that the NDP had identified key structural features constraining the economy. These were low levels of competition, labour market challenges, such as high unemployment and a skills deficit, low savings and infrastructure bottlenecks.
These issues were identified in the party’s manifesto, and the ANC had stated that moving forward it would deal “concretely” with them.
“All those issues are part and parcel of our programme of implementation. The political will [existed] to give content to it,” he said.
Regardless of the individuals tasked with spearheading the economy’s management, they would be guided by established policy framework, including the NDP, Godongwana said.
Other key economic cluster jobs to watch included economic development and trade and industry, according to Gary van Staden, senior political analyst at NKC economists.
“The man to watch, I believe, is Rob Davies who, despite his left-wing pigeonhole, is an extremely smart man with clear vision on how to develop industrialisation policies, boost exports and create employment,” Van Staden noted.