Editorial: Economic winter of discontent

 

 

We are a country that has had far too much of Big Man politics, yet there are growing calls for President Cyril Ramaphosa to fill these shoes, to take robust action to make his promised New Dawn happen.

His critics want him to bang the heads of ANC leaders, to call them into line, or to do whatever it takes to rule. Economic reform now. There is growing frustration at the slowness of institutional reform, despite the cleansing of key institutions such as the South African Revenue Service and the National Prosecuting Authority, as well as clearing out the state capture crew from state enterprises. But the new brooms, such as in the case of the NPA, are yet to sweep the manifestly corrupt into convictions.

Rather than wading into the economic rucks and mauls, we’ve been kicking for touch: buying time, instead of making the hard tackles and game-winning yards. We’ve also been borrowing; hocking ourselves to the future, rather than making tough and unpopular but necessary decisions to get the economy going.

This week we found out just how awful the situation is. A bad economy, coupled with runaway debt mainly to feed insatiable state enterprises, means revenues are down and expenditure up, the gap between the two ballooning: R3-trillion in public debt now will become R4.5-trillion within three years if tough corrective action is not taken.

Finance Minister Tito Mboweni warned this week in his medium-term budget policy statement that if not corrected, the country could end up in a debt trap, borrowing to pay the interest on debt.

Mboweni ran into severe headwinds from organised labour earlier in the year when he released his economic transformation document, aimed at making it easier to do business. Some of these mooted reforms are included in his medium-term budget policy statement, but such is the size of the approaching — and building — debt tsunami, that these will do little in the time available to neutralise the clear and present debt danger.

Ramaphosa is showing leadership by agreeing to freeze — and possibly even cut — the salaries of senior government employees. Perks will also be capped and in some cases reduced or taken away.

Treasury sees wage restraint by public sector workers as key to escaping the debt trap and hopes to conclude moderated wage agreements in the February budget. But trade union federation Cosatu did not immediately give much cause for hope on this front, saying it rejects treasury’s “continuous attacks on the rights of nurses, teachers, police and correctional service officers, cleaners, doctors to earn a living wage”.

Treasury would like to see asset sales. Briefing journalists, Mboweni said that a household will sell an asset to reduce debt. Treasury had such a sale (or sales) in mind, but this did not have the support of Ramaphosa at this time.

The quickest fix could be to sell an Eskom asset, but the special report released this week by the department of public enterprises paints a picture of much work still needed to be done before there can be any valuation of what the constituent parts may be worth. Until then it is hard to see how any investor, public or private, could be brought in to fix its runaway debt problem.

“Difficult decisions” have to be made, said Mboweni, kicking this economic can down the road to the February budget. He’s asked that we prepare for spring. Will Ramaphosa lead an exodus from the present economic winter?

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