Mboweni misses the big picture

Comment

The myopia of a finance ministry battling forces of fiscal degeneration here and financial volatility in the international markets was witnessed in the R0.50 currency crash (from R14.16 to R14.56) within 12 hours of Finance Minister Tito Mboweni’s maiden mid-term budget speech. This wasn’t supposed to happen, given Mboweni’s excellent reputation among global investors, for example, winning Euromoney’s “Central Banker of the Year” in 2001.

READ MORE: Mboweni’s medium-term budget a bitter pill 

But things have changed since the early 2000s economic upturn, which had resulted from looser consumer credit and the commodity super cycle. Mboweni’s lackadaisical attitude was expressed on Wednesday when he remarked on the world context: “Rising interest rates in the United States of America and a stronger dollar reflect a strong US economy. In the medium term, strong US growth will support export growth.”

First, he has mistaken what first-hand observers term a “sugar high” in US growth rates and in the inflated 2018 values of US firms, recently fattened by President Donald Trump’s huge corporate tax cuts. For example, artificially premature purchase orders were boosted in September because corporates anticipated trade-war tariff increases on $250-billion of Chinese goods. (South Africa received minor relief from these, on the grounds of low levels of US steel and aluminium imports mainly from ArcellorMittal’s local operations — but Trade and Industry Minister Rob Davies so far remains unsuccessful in negotiating a full country exemption from Trump’s trade tariffs.)

READ MORE: China sets retaliatory tariffs on $60bn in US goods

Can Mboweni really count on “export growth” in these circumstances? On top of an anticipated Trump rethink of the Africa Growth and Opportunity Act, there has been a reversal of globalisation trends, led by the Brics countries, whose 2017 trade/ gross domestic product ratios fell rapidly after record highs: Brazil dropped from its historic peak of 30% in 2004 to 25%, Russia from 68% in 2000 to 45%, India from 56% in 2012 to 40%, China from 68% in 2006 to 38% and South Africa from 72% in 2009 to 61%.

Moreover, Wall Street stocks crashed over the two weeks before Mboweni’s speech, when S&P 500’s record early-October high based on a 10% gain for 2018 was simply erased because 13 out of 15 trading days had been loss-makers.

But Mboweni did in passing recognise the risks of what he termed “monetary policy normalisation” — that is, the gradual winding down of the US Federal Reserve’s 2008-2018 low interest rate regime after the West’s $27-trillion in bailouts required by banks and corporations during the financial meltdown.

Contagion from tighter monetary policy, he noted, included emerging markets: “Turkey and Argentina have experienced sharp currency depreciation, rising credit spreads and large capital outflows.” Could South Africa be next on the list, given the $183-billion foreign debt and much looser exchange control policies? If so, isn’t protection needed? The past 23 years witnessed more than three dozen liberalisations of capital controls, most on Mboweni’s watch as 1999-2009 Reserve Bank governor, and most notoriously including permission given to the largest JSE-listed companies to relist in London. Even as recently as Malusi Gigaba’s February’s 2018 budget, treasury gave institutional investors permission to allow R500-billion to exit South Africa.

But at a time when Mboweni reintroduced the state’s hated Gauteng e-tolling dogma and promoted further public-private pilfering for infrastructure, his gifts to poor and working-class people are surely appreciated, even if financially they are tokenistic. These include value-added tax-free flour and sanitary pads, although he dashed hopes of adding nappies and poultry because they would cost more than R5-billion in state revenues.

The ruling party’s Cosatu trade union allies were scathing: “marginal programmes and projects. The statement was a reminder that we still lack a developmental vision, do not have a comprehensive development strategy and totally lack the necessary co-ordination of activities of various economic agents”.

Of the R50-billion in reprioritised spending supposedly for an economic stimulus, the details remained vague. For example, only R16-billion in reorganised spending will partially restore what Business Day termed “savage” cuts (about R42-billion) made to basic infrastructure budgets by Gigaba eight months ago, at a time when the townships and commuter train stations are aflame with anger because of inadequate state services.

READ MORE: This is what the 2018 Budget says

Perhaps most disappointing in this era of corruption revelations linking multinational corporations to the Zupta empire, the biggest chunk of wasted money in the budget, procurement corruption, was barely mentioned by Mboweni. Although he noted that “SAA procurement has unlocked annual cost savings of R400-million”, just two years ago, treasury’s main procurement official observed that, of R600-billion in 2016 state procurements, R240-billion was fraudulent expenditure.

As former finance minister Pravin Gordhan admitted, treasury long abetted systematic “rent-seeking. It means every time I want to do something, I say it is part of transformation. But in the meantime, it means giving contracts to my pals in closets.” Those contracts persist, even if a few high-profile abusers are busted.

It is in failing to consider the big spending commitments that too many commentators lose the plot. For example, fossilcentric mega-projects remain on the National Development Plan’s books, led by the R800-billion required to dig coal mines and put in new rail lines, so as to export 18-billion tonnes of coal from the Waterberg to Richards Bay.

That remains the presidency’s first-priority infrastructure mega-project (Cyril Ramaphosa was a former coal company owner), and the second is another R250-billion for port-petrochemical complex expansion in Durban, with the fantasy aim of raising annual Durban container throughput capacity six-fold in the next 21 years, to 20-million.

These huge spends anticipated by state, parastatals and fossil fuel companies put paid to South Africa’s United Nations climate change commitments. Mboweni announced yet further delay in treasury’s carbon tax.

The best news is that, unlike Zuma-era budgets, there is no provision for nuclear energy, which may well have cost future taxpayers R1.4-trillion. Former finance minister Nhlanhla Nene was compelled to resign because of Gupta-related dishonesty, but the abiding memory we have of his late-2015 firing is that it was as a result of resisting Rosatom’s charms and former president Jacob Zuma’s orders. Ironically, in contrast, when Mboweni was made a director of the Brics Bank in 2015, he told Bloomberg that financing nuclear energy “falls squarely within the mandate of the bank”.

READ MORE: Nene out: Tito Mboweni appointed new finance minister

So the green-red watchdogging of treasury will have to ratchet up in preparation for next February’s budget, when repeated labour and social movement expressions of disappointment will sound hollow if not matched by mass action.

Patrick Bond is distinguished professor of political economy at Wits School of Governance