President Cyril Ramaphosa’s government was meant to sweep out corruption but Finance Minister Tito Mboweni is financing ever more of it, at the cost of worsening climate change, lower-than-promised social grant spending and even tertiary education funding.
The main pressures on Mboweni were to fund sufficient electricity supply so that load-shedding ends and to avoid a final junk rating on securities, which Moody’s has been threatening for two years since Standard & Poor’s and Fitch punished the Zuma regime for firing one of Mboweni’s predecessors, Pravin Gordhan.
Mboweni may not avoid a Moody’s downgrade, as the deficit-to-gross domestic product (GDP) ratio rises to 4.4%, but taxpayers’ contributions of an extra R23-billion in annual interest payments will keep Eskom’s bankers happy — undeservedly so, given their lending malpractice.
A central reason for the fiscal squeeze not mentioned by Mboweni is corporate and tenderpreneur corruption of his outsourcing contracts, which amount to more than R700-billion of the total R1.83-trillion budget. Overcharging on outsourced goods and services, according to former treasury procurement chief Kenneth Brown (who quit his job two years ago because of death threats), represents a 35% to 40% mark-up, or more than R250-billion. Procurement investigations and prosecutions received a brief mention in other finance ministers’ budget speeches but not in Mboweni’s.
This is especially troubling with the two biggest parastatal corporations, Eskom and Transnet, which were responsible for 83% of all state capital spending last year. If their mega-projects remain corruption-riddled, then it’s reasonable to ask for a halt to them, and also to query the interest charges on loans being repaid to their lenders, led by the World Bank and China Development Bank.
As the treasury Budget Review conceded: “Most of Eskom’s expenditure was on the Medupi and Kusile power stations. Transnet reported that 40% of expenditure was for acquisitions of locomotives and pipelines.”
In all such cases, extreme forms of graft have been exposed, especially at the two coal-fired power plants, whose construction costs rose from an average of R75-billion a decade ago to R220-billion each now (and for which Eskom has budgeted R20-billion for the next two years).
In 2010, the World Bank’s $3.75-billion loan for Eskom to build Medupi was its largest ever in spite of the plant’s Chancellor House infamy, but the bank’s “vice-president of integrity” Leonard McCarthy (of Jacob Zuma spy tapes fame) wrote to Democratic Alliance leader Mmusi Maimane in 2015, refusing to penalise Hitachi or put it on the debarment list. Lender liability should now be forcefully invoked, as well as on the China Development Bank for last year’s $2.5-billion loan for Kusile.
Meanwhile, Eskom has just announced yet another R15-billion borrowing spree, along with the spending of R10-billion to R12-billion for new coal mine digs.
Transnet’s locomotive purchases (needed for the largest National Development Plan project, which is the R800-billion export of 18-billion tonnes of coal from Limpopo to Richards Bay) were corrupted by the Gupta link (via Salim Essa) to supplier China South Rail. Although a small portion (R618-million) of the graft was repaid by the railroad firm last month at the insistence of the new chairperson, Popo Molefe, the rot continues. Indeed, last November Transnet had to halt work under way on the latest phase of the second-largest NDP project — the R250-billion port-petrochemical expansion in South Durban — when a whistle-blower pointed out the notorious fingerprints of
Shauwn Mpisane on a fraudulent Italian-led port-deepening project.
And Transnet has not yet punished those responsible for the cost escalation in the Durban-Johannesburg new multi-product pipeline, from R5-billion to R28-billion, of which more than R2-billion is still to be spent in the next two years.
These corrupt white elephants all have something else in common — carbon intensity — at a time when South Africa’s responsibility for climate change is out of control. For example, last week’s celebrations that a billion barrels of oil-equivalent gas (20 times more potent than carbon dioxide) were identified by Total for extraction off the Western Cape coast, with more deposits soon to be announced by United States and European multinational oil corporations offshore KwaZulu-Natal.
Carbon conflicts of interest burn hot here too. Mboweni until last year chaired SacOil, a firm mainly owned by the crony-capitalist Public Investment Commission, with oil assets in two wretchedly resource-cursed countries, the Democratic Republic of Congo and Nigeria.
Ramaphosa ran his private Shanduka coal-mining firm until compelled to divest when he became deputy president in 2014, and Energy Minister Jeff Radebe and Ramaphosa have immediate family connections to African Rainbow Minerals, which is heavily committed to coal. Is any of Pretoria’s rhetoric about fighting climate change to be believed?
Against these vast fossilised investments, a puny nine-cent petrol price increase is attributed to a new carbon tax coming into effect in June, which will raise just R1.8-billion for the state. This is a small part of the 29c a litre price increase, itself well below the 5% inflation rate. Hence there’s no incentive to cut back on private transport. In any case, this is the most regressive way to impose a tax — hitting the people who commute from faraway apartheid-era townships.
That tax should supposedly translate into a per-tonne carbon fee of R120, according to a law Parliament passed this week. But it’s a scam because, not only will offsets and carbon trading (which are also notoriously fraud-riddled) be introduced, but also tax-free allowances until 2022 permit a 95% discount, which is dropping it to a level of $0.42/tonne — desultory compared, say, with Sweden’s carbon tax of $130/tonne.
There is similar Trumpian fibbery about the commitments the state makes to its neediest citizens. The 12-million recipients of a puny R410 a month grant to raise a child are not only victimised by a R1-billion “delay in implementing extended child support grant”; in addition, the Budget Review claims that “social grants are adjusted in line with inflation projections to maintain their real value” ignore recent research on differential rates by income.
According to an International Monetary Fund study released in July, the poorest 40% of South Africans suffered a 2009-2017 inflation rate that was between 0.7% and 2.5% higher than the top 20%’s inflation rate (depending on the year, at worst, 7.65% compared with 5.1%). Given rising prices for maize and other staples because of the ongoing drought in the country’s breadbasket regions, this represents a significant shortfall in poor people’s budgets.
But because the word “inequality” is mentioned in passing just three times in the Budget Review, in spite of South Africa having the world’s highest rate, the treasury is not much interested in this.
Until last October, Mboweni’s employment also included high-level advisory services to Goldman Sachs, a bank whose leadership, according to The Washington Post, “personifies” this global crisis.
It’s thus no surprise that South Africa’s corporate tax rate is still just 28% — half the 1994 rate of 56% — with no prospect of raising it, mainly because of Donald Trump’s US corporate tax cut from 35% to 21% last year, causing a global race to the bottom.
Although in nominal terms corporate tax contributions to the state rose by just 6% (from R217-billion to R230-billion) over the past two years, the revenue from value-added tax (15% on purchases of all goods aside from a few exempted foods) soared by 21%, from R298-billion to R360-billion in the same period.
Although the state’s biggest spending category is education at R375-billion, of which 28% is for tertiary education, it’s nowhere near enough to ensure that #FeesMustFall actually do. As Higher Education Minister Naledi Pandor explained in last year’s higher education budget vote, “government has planned to increase subsidies from 0.68% of GDP to 1% of GDP over five years”.
Even though this item gets the highest increase, at 9.3% in the coming three years, it beats inflation but is still nowhere near enough to keep the free-tuition promise.
In sum, it’s a budget driven by the ANC’s black employment equity billionaires to serve not the society or the environment but the corrupt status quo power-brokers and their irresponsible bankers. There will be a profound price to pay for it, perhaps including a costly down-payment when the ruling party’s voting share continues to fall on May 8.
Patrick Bond teaches political
economy at the Wits School of