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Biznews founder Alec Hogg was interviewed by Lawrence Pollard on the BBC World Service’s Newsday programme this morning for perspectives ahead of South Africa’s Emergency Budget. He suggests that given the deep financial hole South Africa now finds itself it, finance minister Tito Mboweni has the best opportunity yet to channel his inner Deng Xiaoping – China’s great economic reformer.
Lawrence Pollard We start in South Africa facing like many countries around the world, unprecedented times. For the first time since the end of apartheid and the start of democracy in 1994, there is going to be the presentation of an Emergency Budget. The country, just to remind you, went into strict lockdown, initially fairly successful in limiting the spread of the virus, trying to prevent the huge loss of life. But it came at a heavy, heavy price for the economy that was already faltering. Alec Hogg is financial writer, publisher of BizNews, joins us on the line from Johannesburg. Alec, a Emergency Budget? I mean, that doesn’t mean that there’s any more money than there was before. And the demands are greater. So does an Emergency Budget square a circle?
Alec Hogg Definitely not. Lawrence, lovely being with you this morning. We have been in a hole for a while already. For those who don’t know South Africa, we have an electricity supplier which is a monopoly, Eskom, which has already cost taxpayers R400 billion, which has almost as much as going to be spent on the whole Covid-19 rescue package. So by Budget 2020 in February, this hole was apparent. It was already a worse deficit than we’d seen since the global financial crisis. And now add to that 500 billion rand of a new package to combat Covid-19 plus the evaporation of many of the taxes as a consequence of a lockdown of three months are very, very hard lockdown on the economy and we are in a hole with not too many ladders to get out with.
Lawrence Pollard And is the emergency budget such a ladder? What difference does it actually make? It comes out, we should just explain, of the, it’s sort of slightly separate from the regular year on year presentation of the Budget. It’s exceptional budget for exceptional times. But what practically can it do? How could it help?
Alec Hogg I think you have to see it in context of what the post apartheid government has tried to do in South Africa, which is to be as transparent as possible. In fact, the South African Budget is rated alongside New Zealand’s as the most transparent in the world. So this is an information session really more than anything else. We have the National Budget every year. The main one in February. There’s a mid-term budget that comes through in October. And I guess because of the crisis, this is a way of saying “Alright South Africa, everybody knows that we have really got into trouble because of the evaporation of taxes due to the lockdown and because of all the borrowings we are going to have to do. So this is how we going to manage it.” Pragmatism, I guess, is what most people are looking for today from the Finance Minister Tito Mboweni. He is a very pragmatic guy. He was a very good central bank governor. He then went into business but was pulled back into government without really wanting to be there. So he isn’t an ambitious politician. He’s more of a servant of the country. He’s got a very tough task. But he does have the full support of the president, which is a good thing.
Lawrence Pollard Yes, it’s a job that no one foot he could wish for, I suppose. Is there any sense that, you know, I mean, you mentioned at the very beginning, you mentioned the need for reform of things like Eskom, we also talk about South African Airways, big structural reform that’s always waiting. Is this an opportunity maybe in some way, or is that trying too hard to look for silver linings; that this could be a moment to level up and say, right, this is how we’re going to reform things? It’s an emergency?
Alec Hogg Well, it’s not coincidental that we got the latest unemployment figures out yesterday and listen to these Lawrence, because they are quite shocking. You’ve got South Africa’s unemployment rate officially is 30.1%. That’s much higher than America was during the Great Depression. But that excludes people who’ve given up looking for jobs. If you add them onto it, you’ve got a 39% unemployment rate. But then if you look at the youth, under 25 years, and you include the despondent’s (ie those who have stopped looking for jobs), the number is 70%. And in the past year, one million new people have joined the unemployment queues before Covid-19 hit, which is going to knock this economy by probably one tenth this year. If ever there was a Deng Xiaoping moment if you like, this is it – for pragmatism, for a reversal in and very aggressive restructuring of the economy. Because what’s being applied has not worked, everybody knows that. You can’t continue to expand social grants. That’s the only reason why we have relatively low social unrest in South Africa; 17 million people in a population of 58 million are on social grants. But the unemployment has now got to an untenable level and everybody knows it. So it’ll be interesting to see whether that pragmatism comes today or if we have to take more pain.
Lawrence Pollard Good grief, 70 percent youth unemployment before the virus hit. Alec Hogg, many thanks indeed. Financial writer, publisher of BizNews.
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