SA's looming debt crisis
It does seem that for most of the past decade, we've had a host of finance ministers that have more or less told us the same thing time and again. The only difference being in the volume of their warnings.
It started with Nhlanhla Nene raising a red flag over the fiscal pressures of then Jacob Zuma-led administration. His term didn't last too long after that. But in the main his successors have told their comrades and the South African public at large that the cabinet is running bare.
Even when former President Zuma appointed a disgraced finance minister in Malusi Gigaba, whom he expected to be more compliant, the realities were too hard for even him to ignore.
Yet here we are, with Tito Mboweni needing to quite literally call for help in the religious realm to get his message across. Should growth not pick up over the next two to three years, the country is nearing a sovereign debt crisis.
Now that may just be words for his fellow cabinet ministers, but here's how this state manifests. At a point where a state is in a full-blown crisis, it is beholden to bondholders and international financial institutions such as the World Bank and the International Monetary Fund. The rules of the game change virtually overnight as they set the conditions for any future loans the state will desperately need to fund itself and pay its public sector employees. To meet its debt obligations, the country's finances are answerable to them before its electorate.
While the state and the governing party enjoy pontificating about all manner of economic policy, it will now be told which to follow. Privatisation of assets, strategic or not, will not be a political decision. Greece began a privatisation program in 2010 to appease its creditors. It's a plan that is still running and not one that would, in all likelihood, have come from its citizenry. But due to its debt load, what choices did the state really have?
Now South Africa isn't at Greece's levels as yet, and in earlier years I would have been confident that, just with the right policy choices alone, we'd be able to steer away from such a position. But because of the Covid-19 pandemic and its still-developing economic impact on the entire globe, I'm not too sure that even if the state could rein in expenditure we could miss the iceberg ahead.
We are going to have to all pray that the pandemic doesn't cut much further into global growth prospects, that Eskom becomes operationally sound within the year and that confidence rebounds into next year. It's a big prayer, which makes me understand Mboweni's spiritual state of mind.
I hope you will enjoy a read of Lameez Omarjee and Khulekani Magubane's take on our sovereign debt crisis, where they warn that if South Africa misses its Damascus moment, Armageddon awaits. Khaya Sithole also writes for us about what bailing out SA means for Mboweni's credibility.
Thanks once again for reading our Business Briefing, and I look forward to talking to you next week.
When Finance Minister Tito Mboweni tabled his 2020 medium-term budget policy statement MTBPS on Wednesday, he made no bones about the possibility that he may have had to draw strength from the Bible to tell South Africa of the grim realities the nation found itself in.The minister wrapped the speech up by citing the Gospel of John, Chapter 12, Verse 35 in the New International Version of the Holy Bible: "You are going to have the light just a little while longer. Walk while you have the light, before darkness overtakes you. Whoever walks in the dark does not know where they are going.
Rebecca Henderson, the Harvard professor and economist who authored the book Reimagining Capitalism in a World on Fire, says big business' desire to "stay in their lane" and not rock bad governments' boat when they don't have to, lose while society is bleeding. This, she says, cannot continue anymore. Speaking at the GIBS Business School webinar on reimagining capitalism, Henderson said while big business is increasingly decrying excessive regulation, it was perhaps time to "raise the floor" on the regulatory front, so that capitalism can finally begin to serve the society it is making its profits from.
As Mboweni rose to deliver his medium-term budget, the big question was whether economic and business logic would prevail over political dogma. Resisting the temptation to put more money into the SAA hole would have meant that Mboweni is a man of his word. Yielding to pressures, would have meant that the National Treasury's role - to temper the expectations of the many competing ministries and promote economic logic in relation to public finances - would be severely dented.