Tito Mboweni Mid-term budget speech

Minister of Finance Mr Tito Mboweni as he prepares to present his 2019 Budget Speech during the Plenary of the National Assembly , 20 February 2019. Parliament, Cape Town. Elmond Jiyane, GCIS

Ominous silence from ANC on South Africa’s economic rescue plan

Finance Minister Mboweni has a plan to save the country’s economy – but will a deeply divided ruling party agree to the terms and conditions?

Tito Mboweni Mid-term budget speech

Minister of Finance Mr Tito Mboweni as he prepares to present his 2019 Budget Speech during the Plenary of the National Assembly , 20 February 2019. Parliament, Cape Town. Elmond Jiyane, GCIS

As we enter the third day after the conclusion of this weekend’s ANC National Executive Committee (NEC) meeting, no feedback has been given on the whether the ruling party’s leadership is backing Finance Minister Tito Mboweni’s dramatic and contentious economic recovery plan.

Mboweni made a thorough presentation on the plan, which, if implemented, will represent the biggest change in economic policy since the ANC took power in 1994.

South Africa’s economy on a downward spiral

In his presentation to the NEC, Mboweni did not mince his words about the dire straits in which the country finds itself. Mboweni said that South Africa is so deep in trouble that choices are becoming tougher and fewer. The economy is barely growing. For the foreseeable future, Mboweni and the experts at Treasury do not see the South African economy growing by more than 2% per year, which is not keeping up with population growth.

The economy is not attracting anything near enough international or domestic investment, with major local investors preferring to either invest internationally, or to opt for liquidity (which means they sit on their cash).

Put simply, the country and most of its people are finding life harder and can afford less than last year this time.

The tax revenue situation is weak. Despite the VAT increase cash injection for the fiscus, at this stage projected tax revenue for the current financial year is not higher than last year, meaning that in real terms and taking into account inflationary aspects, government will have either cut costs or cut some state services.

Finance Minister Mboweni says its a race against time

In his presentation, Mboweni said time has run out. Decisions can no longer be delayed and if South Africa continues with its current economic policies, it will continue on its current trajectory, which is towards unmanageable debt and economic collapse.

The minister therefore proposes drastic, fundamental and immediate structural changes to the way the ANC has run the economy, the state, its entities and the civil service for the last 25 years. The proposals include painful immediate measures which will impact many jobs in the civil service and parastatals.

Although Mboweni did not say so to the assembled ANC leadership, his proposals will mean no less than the end of the developmental state as the centre of ANC developmental thinking.

In fact, Mboweni listed loss-making state owned enterprises, e-tolls, the proposed National Health Insurance (NHI) and the Road Accident fund as the major reasons why the South African state is not currently financially sustainable. The worst of the lot is Eskom, whose debt is now 9% of GDP, which means it is more than the total annual income of the South African mining and agriculture sectors combined.

Mboweni has recently mooted selling loss-making state owned entities, a move long urged by the DA but hitherto complete and utter anathema to the ANC, SACP, Cosatu and the EFF. He has also warned that the civil service salary bill is unsustainable. What he has not said, but which must follow as sure as night follows day, is that many civil service and parastatal jobs will have to be cut or not filled when they become vacant.

Trade unions blast Mboweni’s plan

Small wonder then that the ANC’s most important alliance partner, Cosatu, has shot down Mboweni’s plan in flames, without coming up with any sustainably priced alternative.

The proposed reforms will likely also be opposed by the EFF, which will be politically deeply tempted to claim that the ANC has abandoned unionised workers (these days, in a sign of the times, the vast majority of Cosatu members work in the civil service rather than in blue-collar working-class jobs), and that the EFF is now the only party of the Left. What that will do to ANC electoral support is a vexed question. Small wonder, then, that it is not a given that the majority of ANC career politicians will support Mboweni’s proposals.

The minister also warned the ANC NEC that the state cannot raise taxes any further – it is already counterproductive as the declining tax revenue proves.

The EFF, with its primary focus on redistribution and making as many jobs as possible permanent positions with benefits (so-called “insourcing”) rather than market-driven growth and investment, will certainly disagree with that tenet of the Mboweni doctrine.

A further blow to Cosatu and EFF fundamental thinking is the sea change proposed for ANC labour policy. In another move the DA has long fought for, Mboweni proposes relaxation of the country’s labour laws to assist small businesses.

The implication is a two tier labour system –  core DA policy since its inception –  with small businesses exempted from certain obligations to its workers. That will mean relatively lower pay for such workers, but more employment opportunities. Indeed, Mboweni made it clear that small businesses, start-ups and private enterprise is the only way to kickstart the economy – the state cannot do it.

He also warned against setting the minimum wage at too high a level, because fewer positions will be filled, fewer workers will be hired and unemployment will sky-rocket, especially amongst the youth.

What Mboweni was too kind to point out – or too strategic, given that the minimum wage has often been listed by his boss, President Cyril Ramaphosa as one of his government’s top achievements, is that the jobs bloodbath and steep rise in unemployment has already followed the onset of the national minimum wage.

South Africa’s unemployment is currently the worst it has ever been, and according to some measurements the country’s youth unemployment rate is the highest of all countries in the world with the ability to measure it.

Will the plan be supported by a deeply divided ANC?

Except for unpopular cost-cutting to curb the wastage of state resources, Mboweni did indicate growth areas for wealth creation and high volume sustainable employment opportunities. In addition to small business development, the state will also support agriculture, agri-processing and tourism, to name a few.

All of which is very interesting and in the minds of many South Africans long overdue, but it all depends on Mboweni being supported by the President, Cabinet, the governing party’s alliance partners and – crucially – ANC structures, from the NEC to the national general council next year and the elective conference delegates in 2022.

That is why all eyes are on the ANC and on its customary press conference to report on NEC decisions. The delay is causing some political pundits to start wondering whether the NEC’s reaction to Mboweni’s proposals was maybe not very supportive. If the NEC is divided, if the mandate is weak and if the unions wreak havoc, Mboweni may be toast, which will leave Ramaphosa weakened, the currency exposed, investors jittery, final and total sovereign junk status by next month almost unavoidable (and we were doing so well steering clear of it) and debt servicing even more expensive than it currently is.

So very much depends on Mboweni being supported. South Africans will be holding their breath until the ANC speaks.