A minimum wage is aimed at broadening income distribution
The ANC does not have a common appreciation of the economic challenges that face the country, according to Enoch Godongwana, the head of the party’s economic transformation committee.
Speaking to the Mail & Guardian on Monday morning — before the economic transformation deliberations got under way at the ANC policy conference — Godongwana said some of the “ridiculous” policy proposals from members suggested there was a poor appreciation for the economic situation South Africa was in.
This year South Africa’s credit rating was downgraded to sub-investment grade, or junk status, and recent gross domestic product figures show the country had already sunk into a recession in the first three months of the year.
“The proposals that are coming in [from members] are not saying, ‘How do we avoid this downward spiral?’ The proposals operate as if we don’t have this challenge,” Godongwana said, adding that one such proposal, put forward by party members, was for the banning of all mineral exports.
At the weekend, Finance Minister Malusi Gigaba alluded to the future need for a bailout from the likes of the International Monetary Fund. Speaking at an event on the sidelines of the policy conference, he said government needed to implement radical economic transformation policies and turn the economy around urgently before the country was forced to seek “assistance from quarters we have thus far avoided”.
Asked when such a drastic measure would become a reality, Godongwana said the country’s ability to service its debt was key.
South Africa had been there before in 1985, he said, when PW Botha’s Rubicon speech failed to announce meaningful reform. There was a run on financial markets and the country was at risk of defaulting on its debt.
“People do not understand that now, if we continue going into a recession and if revenues continue to decline, our fiscal space is more limited to finance anything and forcing our debt levels to go up.”
Debt levels alone are not a “magical figure” indicating an imminent bailout, but a government’s ability to repay the debt was the critical issue, Godongwana noted.
South Africa’s debt as a percentage of GDP is not as high as some other, developed, nations but the country’s debt-servicing cost is the fastest-growing item in the budget.
Failure of state-owned entities to repay their debts presents a real risk to the economy as a whole.
“Rating agencies say the governance of SOEs [state-owned enterprises] is such that the balance sheets are becoming weaker by the day. We are then faced with these contingent liabilities in the sense that guarantees may be forced to be called and may translate into your cash situation,” said Godongwana. “SAA is a case in point.”
Treasury announced on Saturday it would pay R2.3-billion so that South African Airways would not default on a debt for that amount that had been called in by Standard Chartered bank.