Every Thursday, I apply my mind to issues at hand as an excuse to engage with members of the Biznews.com Community. The weekly newsletter, which includes a reference to our 10 best read stories of the week, is distributed on Friday morning. In the hope that it will provide some food for weekend thought. These letters are later republished on the site. If you want them fresh, subscribe by clicking here – it’s easy and free. Not surprisingly, last week’s letter focused on the National Budget. But approached it a little differently (don’t we always?) by putting the country’s economy into global perspective; and considering who waits in the wings should the much admired Pravin Gordhan decide to step down after the election. Â In the piece you’ll also find a video explaining the Budget in pictures. Many of us find it easier to understand that way. – AHÂ
In 20 years of democracy, South Africa has had only three Ministers of Finance –including Derek Keys who inherited the post in Nelson Mandela’s Government of National Unity. Talk in the markets is we’re about to get our fourth. If that’s indeed the case, many will lament the departure of 64 year old Pravin Gordhan almost as much as they did when Trevor Manuel moved on.
Gordhan, as the most senior member of cabinet, led the South African delegation in Davos this year. As with everything else the former pharmacist puts his hand to, it was a job well done. Chatting informally over there, he left the impression this week’s Budget would be his last. If so, he is bowing out at the top.
You may have heard criticism from the usual coterie of instant pundits that this was a “boring” Budget with “nothing” of relevance. My perspective is different. It was one of the most significant Budget Speeches in 30 I’ve witnessed as a journalist. Not because of what was in it. Rather, for what was not.
In President Jacob Zuma’s State of the Nation address last week we seemed to be lined up for some voter-friendly financial adjustments. Zuma banged on about the need to accelerate redistribution, to broaden the economic participation of those disadvantaged by Apartheid. The kind of thing certain to win votes of wavering supporters.
Confirming the mood, at the RMB Fixed Interest conference in Cape Town last week Planning Minister Trevor Manuel reminded money managers this is an election year. And warned them to expect the kind of things politicians do and say during such periods.
Surely I wasn’t the only one expecting the worst? A betting man might have taken a punt on an increase in Capital Gains Tax and perhaps top end property transfers. Maybe even a Super Tax on stratospheric earners. Or a company tax rate increase.
That there was nothing of this kind in the Budget is noteworthy. In fact there was much for the economically astute to applaud.
Despite what poorly informed trade unionists and feisty populist politicians propagate, South Africa is a like a cork on the global economic ocean. It simply cannot afford to misbehave. Like Caesar’s Wife, SA only keeps trigger-happy London and New York money desk pilots quiet by maintaining the highest fiscal integrity.
For perspective, South Africa accounts for 0.38% of global GDP, one fiftieth of the US. California’s economy is seven times bigger; Texas five times. Ranked against all US states, SA would come 17th, just behind Indiana. Need more? How about the fact that Google’s market cap is 120% SA’s GDP.
With that backdrop, last week Pravin Gordhan did as much as possible to keep our cork bobbing the right way. The country’s Budget deficit dropped from October’s projected 4.1% of GDP to 4%. Many of the country’s trading partners are running deficits double that.
And despite all that Presidential talk of redistribution, Treasury is projecting a declining Budget deficit, falling to 2.8% in February 2017. That target is within the idealistic Maastricht Treaty’s 3% for entry to the EU. A benchmark which, if enforced today, would leave that Union with virtually no members.
That planned drop in the Budget Deficit is result of revenue remaining at around 29% of GDP (ie NO tax increases in the next three years) with spending projected to fall from 33.2% to 31.9% of GDP. Cynics may point out it’s no more than a projection. Perhaps. The intention, however, is clear. And that is what matters to the world’s spreadsheet jockeys.
If Pravin Gordhan does throw in the Finance towel after the May 7 election, Zuma has a couple of excellent options. Deputy Minister Nhlanhla Nene possesses the required experience having been in the post since 2008. He would be a popular choice with the ANC caucus. Mention of his name raised a big cheer during Gordhan’s speech. And most have forgotten his unfortunate episode with that faulty SABC chair.
But with Finance Ministers, appointments need to consider the global audience. Given the effort Jacob Zuma made to get Tito Mboweni elected onto the NEC, the recently retired chairman of Anglogold Ashanti is surely earmarked for more than serving as an example of a cadre succeeding in the business world.
Mboweni is a known entity for the international financial community. He was a respected Governor of the SA Reserve Bank. He has a well-deserved reputation as a fiscal hawk such that his appointment as Finance Minister would add a few cents to the currency. Putting him there would remove any doubt of this developing country’s commitment to conservative financial management. And reinforce the intent of protecting its proud financial record.
