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The curtain rises on the Gordhan era

The curtain rises on the Gordhan era

Presenting the Medium Term Policy Framework, finance minister Pravin Gordhan steps out into the limelight today, becoming the public face of economic policy at a critical time.

Gordhan delivers the speech in Parliament against the backdrop of the most decrepit world economic situation since the advent of democracy, a testing environment for the most adept of politicians. On top of this international headache, he faces a crucial local political high-wire act: how to balance fiscal prudence against the big-spending protagonists within the SACP and Cosatu now much more dominat in economic decision making than ever before.

Gordhan is already being encouraged by the opposition to become Trevor Manual Ver 2.0 – the sceptical and punctilious gatekeeper through whom departmental spending plans must pass before they reach fruition. Arguably Manuel’s greatest achievement was his ability to avoid plunging SA into an Argentine-esque debt trap, and ultimately balance the books.  But the cost of doing so for Manuel has been painful, politically and reputationally. He is now typecast as the chief planner of the “neo-liberal 1996 class project” – a description that massively overstates the true position of the Mbeki government during which taxation and spending increased substantially.

The former head of the SA Revenue Service, Gordhan has to achieve a new spending balance in a structural position that is much weaker than Manuel’s was. He does not have the strong support of a centrist president, nor does he have the dominant position in economic planning.

Yet he also has some advantages over Manuel.

Firstly, South Africa’s position as a credit-worthy nation has now been cemented – ironically another of the legacies of the Manuel era. When Manuel first stepped on to centre stage, SA’s financial reserves were net negative and borrowing was reaching debt-trap levels, whereby government is forced to increasingly borrow more to pay off its existing debts, thereby inexorably increasing the overall debt load. SA’s net general government debt is now only about 20% of GDP, in line with other countries such as Thailand and Mexico with a BBB+ debt rating, down from 50% in 1996.

Secondly, the global position of countries such as South Africa is much improved, with investors now sceptical about the potential of substantial growth in first-world economies. Unlike the situation at the start of the Manuel era when the term “emerging market” was a synonym for “risky”, the same term now means “high growth” in investors’ lexicon.

Thirdly, although it often does not seem like it, the overall state of how government finances work in practice is much improved. At the start of his term, Manuel had to deal with new provincial and municipal structures, many of which had to be built from scratch. Although hundreds of municipalities are now effectively dysfunctional, the overall structure of government spending as a whole is much improved and more regularised.

And, Gordhan has his own achievements as tax commissioner to thank for the fact that SA’s tax base is much wider and more solid than ever before.

What is not yet known about Gordhan is exactly how he intends to position himself in the left-right debate. He has yet to pin his colours to the mast. As tax commissioner, Gordhan has his own formidable legacy, but it’s a legacy built around effectiveness and modernisation rather than around political posturing. Based on this history, his approach seems likely to be much less vocal and perhaps less confrontational than Manuel, whose occasional outbursts suggest a more belligerent approach underpinned his cool veneer.

Gordhan however seems no less fastidious about spending control than Manuel was, although his instincts might be more left-wing than those of his predecessor.

All of these unknowns will begin to resolve themselves in the public mind view, starting today.

By Tim Cohen


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