/ 6 March 2015

Nene falls in with big business

Finance Minister Nhlanhla Nene bent over backwards to meet the demands of big business, bank economists and the ultra rich – and not to answer the anguished calls of poor and working-class people and those seeking ecological sanity.

As budget day dawned, rating agencies Moody’s, Standard & Poor’s and Fitch were ramping up their periodic threats to downgrade the rand to junk status. On Business Day‘s front page, Iraj Abedian – the economist who, with two World Bank staff and another banker, were the main coauthors of the failed Growth, Employment and Redistribution (Gear) programme – said Nene would only be taken seriously if he cut back on public sector salaries and granted nominal social grant increases “way below inflation”.

Nene appeared happy to follow that advice, with the “consolidation of government personnel numbers” and making substantial cuts to the real social wage. The child grant was up a nominal 4.8% from 2014’s average monthly R315; the old age and disability grant rose 4.4% from last year’s R1 350; and the foster care increase was just 3.6% from R830.

But the inflation last month for the lowest fifth of South Africans was 5.6% (and for all of us just 4.4%), as a result of the downward spike in petrol prices, which probably won’t continue. If you take 2014’s average inflation of 6.1% and lower-end inflation of more than 7%, then Abedian can indeed celebrate that poor people took a whack, with Nene’s grant increases “way below inflation”.

Chopping the wrong part
As for the bloated bureaucracy, Nene is chopping the wrong part, according to the United Front’s interim secretary, Mazibuko Jara, who said: “Previously frozen posts of teachers, healthcare workers, technicians, etcetera, have now been done away with. This will seriously undermine the delivery of basic and essential services such as water, sanitation and electricity.”

What about National Health Insurance funding? Nada, once again.

Although I have challenged World Bank staff in Pretoria about a dubious but often reported 2014 claim that our world-leading inequality has shrunk substantially, thanks to state social spending, and, although World Bank staff say cuts to social grants should be avoided, they certainly helped create the austerity mood. A Moneyweb article last month was headlined “A fiscal tightrope: World Bank warns South Africa to cut spending”.

On the other hand, for the first time since 1995, a finance minister imposed a 1% personal income tax rise on those of us who enjoy an above R15 000 monthly income. Still, it’s so small it can almost be brushed off – aside from those whose overindebtedness has reached the point of credit impairment – that is, nearly half the borrowing population, according to Nene and the National Credit Regulator.

But, as United States interest rates begin to rise in coming months, South Africa won’t be far behind, given how vulnerable we are to capital outflows, in turn thanks to the treasury’s steady exchange control liberalisation. That began in earnest 20 years ago and, since then, the largest corporations and richest individuals have moved vast shares of national wealth abroad.

Nene seems to realise that the economic slim disease is now approaching the full-blown stage. But with no supporting data or examples (Lonmin’s Bermuda platinum marketing scam, implicating the deputy president? Or De Beers’s missing diamond invoices of R30-billion from 2004 to 2012?), he claims “progress is being made to reduce both capital leakage and tax evasion”.

Yeah, right. Tightened exchange controls and nationalisation are the only durable solutions, but they’re not on his agenda.

Big corporations celebrated the reduction of top primary tax rates from 48% in 1994 to 28% five years later. These were not touched in Nene’s 2015 budget because so many other countries’ corporate taxes have been ratcheted down during the neoliberal era. To illustrate this, in September 2010, the International Monetary Fund (IMF) advised Tunisia to implement “a reduction in profit tax rates offset by an increase in the standard VAT rate” affecting venders such as Mohamed Bouazizi, who set himself on fire in protest.

Deterred from hiking corporate taxes
Luckily, the regressive VAT wasn’t raised from current (already high) levels this week. But Nene has apparently been deterred from hiking corporate taxes, thanks to our excessive reliance on foreign capital inflows. That vulnerability is reflected in our foreign debt, which has doubled to $140-billion since 2009, in large part to pay for profit outflows.

It is now at the same level it was just before PW Botha’s Rubicon speech-and-default 30 years ago: 40% of gross domestic product (GDP). Exchange controls could halt the rot but would alienate Nene’s banker mates. As for his construction industry mates, Nene at his most benevolent permits the stampede of white elephant infrastructure projects.

Grand claims about the developmental state were made in Parliament last week, mostly on behalf of coal-mining house Exxaro, by Ebrahim Patel. He’s best remembered for arranging sunshine eNews coverage for President Jacob Zuma just before the 2014 elections – hyping megaprojects in exchange for apparent regulatory favours.

Instead of serving the poor, Patel’s first strategic investment project is already sinking what will be hundreds of billions of rands into climate-frying Transnet subsidies to lubricate coal exports from Richards Bay, which boasts the world’s single largest export terminal.

Uh oh! China shrank its demand for thermal coal imports 5% last year and the price crashed from $140 a tonne in 2011 to what Citigroup estimates will be just $55 a tonne this year. Transnet apparently didn’t get the news, so, in 2013, it borrowed $5-billion from the Chinese government to buy mainly Chinese-built locomotives for the Waterberg-Richards Bay run.

White elephant
The single biggest site-specific white elephant on Transnet’s agenda is the South Durban dig-out port. Last week, an international shipping consultant, Jamie Simpson, invited by the municipality to deliver the keynote speech to a packed workshop, recommended it be suspended indefinitely because of weak demand.

Transnet’s group strategy general manager Irvindra Naidoo was furious. But he did confirm that there’s no serious road-to-rail planning underway for the millions of containers leaving the Durban harbour on trucks – again thanks to the 1990s’ deregulatory spirit that has left so much Transnet capacity idle.

The three languishing megapower plant projects – Medupi, Kusile and Ingula – illustrate the risk of Patel’s expensive obeisance to the minerals-energy complex. Repaying the World Bank its $3.75-billion for its largest-ever loan – mostly for Medupi, already five years late – should be rethought, given lender liability on manifestly corrupt projects. With the rand’s crash from R6 to the dollar to R11.5 since 2011, the effective interest rate is wicked, but Nene was diplomatically quiet.

To his credit, Nene at least avoided any commitment to the R1-trillion worth of nuclear energy reactors likely to be bought from Russia.

Nevertheless, KwaZulu-Natal continues to be trampled by white elephant infrastructure, what with the cost of Transnet’s Durban-Johannesburg “pipeline to hell” replacement soaring from R6.5-billion in 2006 to R24-billion today, and still not complete; the R9-billion farcically below-capacity King Shaka “aerotropolis”; two mostly empty world-class sports stadiums that even World Cup local organiser Danny Jordaan apologised for (this amid reports this week of a R6-billion 2022 Commonwealth Games bid); and ongoing municipal subsidies to the continent’s largest convention centre and the uShaka water park.

Nationally, the treasury’s sloth is exemplified by Nene’s gift of R23-billion to Eskom, urgently required to buy diesel fuel to generate electricity costing R3 a kilowatt hour (kWh). But 5% of the grid feeds BHP Billiton’s smelters, for which they pay just R0.12/kWh. For that we can thank apartheid-era deals cut or condoned by the leadership of the treasury, Eskom and the National Energy Regulator of South Africa – three of whom (Derek Keys, Mick Davis, Xolani Mkhwanazi) ended up with the top BHP Billiton jobs.

Poverty rate at 54%
The latest Statistics South Africa report recalculates a basic basket of food and essential services and puts our poverty rate at 54% of society, not 46% as the state previously claimed. Contrary to the banker buzz, South Africa’s social spending is extremely low – just half of what Brazil spends in relation to the size of the economy.

On that standard measure, we’re actually fifth from the bottom of the top 40 economies, although our inequality is by far the highest, and getting worse. Even more troubling, the treasury’s deputy director general, Michael Sachs, plans to cut welfare grant expenditure from 3% of GDP to 2.3% by 2040, according to his presentation at a World Bank seminar last November.

At such low levels, such as free basic electricity of just 50kWh a household each month, these social policies are at best tokenism.

Was there more wealth for Nene to tap at the high end? The top 10 South Africans alone have shareholdings worth a conservatively estimated R205-billion. In addition, 58 South Africans, including the notorious arms deal adviser Fana Hlongwane, have accounts worth a total of R23-billion in HSBC.

In his meant-to-be-soothing State of the Nation address, Jacob Zuma admitted that, last year, police counted a record 1 907 violent protests (although activists say intolerant police initiate the violence, not them) and more than 13 000 incidents under the Regulation of Gatherings Act.

No surprise then that the police force got a major budget boost.

But is this really the right moment for Nene to cut R1.6-billion in 2015-2017 funding for municipal water supplies, urban settlements and rural household infrastructure?

Nene may now be setting the stage for a more profound political crash. At some point these protests may aggregate into something akin to the Tunisian uprising, which, at least temporarily, kicked out an unaccountable ruling clique and their crony-capitalist and unreformable IMF allies.

Commentator Moeletsi Mbeki once projected that South Africa’s “Tunisia day” will come in 2020. But Nene could have sped up that by whacking the poor and allying himself so closely to bankers and the unpatriotic bourgeoisie.

Patrick Bond directs the University of KwaZulu-Natal Centre for Civil Society