After an almost three-year tenure, half of which was spent in the throes of one of the worst recessions on record, Tito Mboweni has left the finance ministry. His successor, ANC heavyweight Enoch Godongwana, has the tough task of stabilising a pandemic-hit fiscus and clawing back investment after the country’s credit rating was downgraded again.
Mboweni, who President Cyril Ramaphosa said had long asked to be excused from his role as finance minister, was appointed in October 2018 after Nhlanhla Nene stepped down.
At the time, Ramaphosa noted that Mboweni’s appointment came “at a critical moment for our economy, as we intensify cooperation among all social partners to increase investment, accelerate growth and create jobs on a substantial scale”.
‘A critical moment’
Since then, South Africa’s fortunes have taken a turn for the worse — in no small part because of the Covid-19 pandemic, which knocked investment, flattened already low growth and sent the country’s unemployment crisis into a tailspin.
Fitch and Moody’s also unexpectedly downgraded South Africa’s credit rating. The downgrades, announced in November last year, saw South Africa reaching its lowest credit rating levels since 1994.
Fitch said its decision was based on high and rising government debt — exacerbated by Covid-19’s economic shock — as well as hurdles to the treasury’s fiscal consolidation efforts. In May, Fitch affirmed its BB- rating, three notches below investment grade.
Moody’s also cited the pandemic as influencing its decision to downgrade South Africa last year. Until March 2020, Moody’s was the only one of the three major ratings agencies, including S&P Global, to still have South Africa at investment grade.
In the month prior to Mboweni’s departure, the country was dealt another blow: violence and looting in parts of KwaZulu-Natal and Gauteng. It hit business and investor confidence, causing analysts to revise the country’s growth prospects for 2021. The unrest also stirred calls for a basic income grant, which would fly in the face of the treasury’s austerity programme.
Mboweni had been given the benefit of the doubt by ratings agencies for holding the line on fiscal consolidation. But this stance made him unpopular on other fronts and some have speculated that he was pushed out amid pressure from the governing ANC’s tripartite alliance members, labour federation Cosatu and the South African Communist Party (SACP).
Cosatu’s parliamentary officer, Matthew Parks, denied this, saying the speculation “is not based on any truth or facts”.
But he noted that Mboweni came up against labour in the public sector wage bill fight.
“It was not helpful how he sought to undermine, and even collapse collective bargaining by announcing the four-year wage freeze … That was a huge problem. Wage negotiations are always a tough thing. But Tito didn’t even bother to try that and just said: ‘I’m imposing a four-year wage freeze’.”
Ratings agencies have noted that fiscal consolidation efforts rely heavily on containing the public sector wage bill and have questioned the government’s mettle to hold strong on this front.
Parks said Mboweni needed to do more to stimulate the economy before and after the pandemic. “Besides the R350 Covid-19 grant, there hasn’t been much from the fiscus to cushion the economy and society. That is a huge problem … There are huge disappointments and we think [the] treasury could have done a lot more.”
The chief economist at Alexander Forbes, Isaah Mhlanga, said Mboweni did well to push back against “populist calls to spend on things that don’t boost growth in the long term”.
“I think he has been successful given the current economic environment,” he said.
“Even if you just look at the fact that he put together a budget that provided relief while staying on the fiscal consolidation path, I think that has been quite a big success.”
Sanisha Packirisamy, an economist at Momentum Investments, said Mboweni faced a huge undertaking during his time as finance minister.
“To navigate a fiscal deficit at a time when you are operating in a very low growth environment is quite a difficult task,” she said.
“And to stick to his guns of continuously punting the need for fiscal consolidation in the medium term, I think that is quite admirable, especially in an environment where you have a lot of pressure coming onto the budget.”
Mboweni also managed not to institute any big tax increases, Packirisamy noted. “This is again to the point that we have to look at the expenditure side of things rather than perpetually increasing revenues.”
Analysts expect that Godongwana, who served as the ANC’s economic policy head, will safeguard the treasury’s stance on containing public finances — but with the added advantage of not having spent his political capital.
Packirisamy noted that news of Mboweni’s departure had an immediate, though temporary, market effect, indicating that Godongwana is a known entity to investors.
“There is a relative calm in the markets because he is a known name with an economics background,” she said.
Mhlanga concurred, saying Godongwana “is not new and his views are generally known”.
“He will also be able to reach out to different groupings within the political spectrum, which is something that the former finance minister didn’t have because the likes of Cosatu and the SACP always pushed against him,” he added.
“They didn’t have good relationships. I think Godongwana has those relationships, which I hope is going to make the political side of things much easier.”
Fitch’s head of Middle East and Africa sovereign ratings, Jan Friederich, said the agency did not expect Godongwana to go against the treasury’s fiscal consolidation programme.
“Enoch Godongwana clearly understands the risks from the rise in government debt and is also unlikely to do anything that would jeopardise the credibility of the South African Reserve Bank,” Friederich said in an emailed note.
“One difference is that Enoch Godongwana seems more firmly anchored within the ANC and that could help him build alliances for [the] national treasury’s fiscal policies.”
The challenges to South Africa’s public finances, he added, stemmed from larger forces — “the very low-trend growth and the socio-political pressures due to very high inequality”.
Of Godongwana, Parks said the trade union federation’s stance was not to comment on individual personalities. “But we will give all the ministers the benefit of the doubt. They’ve just been appointed so we want to give them some space to find their feet.”
Parks added, : “We’re going to hold all of them to account. They may be friends, they may not be friends of ours, that is immaterial. But we will hold them to account. The minister has got a huge task on his shoulders. We need to stabilise the state fiscus, we need to increase tax revenue and deal with tax evasion, corruption and wasteful expenditure. We need to get the economy growing to reduce unemployment levels to reduce poverty.”
Packirisamy warned Godongwana against undoing any of the work done by the previous regime to consolidate government spending.
She said Godongwana will also have to push for structural reform in other government departments. “So areas such as energy and transportation — really where all the infrastructure bottlenecks are in the economy, because they have hamstrung growth in the past.”
Packirisamy noted that going into next year, when social relief in the form of the R350 grant is set to come to an end, calls for a basic income grant will probably heat up.
Although there is not much of an argument against the need for financial support, Packirisamy said “the debate will be around how we will sustainably finance it without damaging this push for fiscal consolidation”.
The public sector wage bill will also rear its head again in 2022, she said, noting that the current wage deal is only on the table for one year.
If no new deal on salary adjustments during the government’s 2022-23 financial year is reached by 31 March 2022, then the 2021 agreement would automatically extend beyond the one-year duration. “That amount is not factored into the budget, so that will be an expenditure overrun.”
Mhlanga said reviving the economy is a group effort and cannot fall squarely on Godongwana’s shoulders.
“What he can do is what is within his mandate at the national treasury, which is managing the fiscus and making sure money is spent prudently in a way that increases our debt service costs. He can also make sure that macroeconomic policies are well coordinated.
“And as far as that is concerned, I think he will be just fine.”