South Africa


Tito Mboweni’s tight juggle, with private sector partnership emerging strongly and SAA set for a R5bn bailout

Finance Minister Tito Mboweni delivers his maiden Medium Term Budget Policy Statement in Parliament, 24 October 2018. Photo: Leila Dougan

Finance Minister Tito Mboweni on Wednesday said South Africa is at the crossroads, with government having chosen to take ‘the difficult path of redemption’. The Medium-Term Budget Policy Statement firmly linked economic recovery to private business investment, and public-private partnerships. For South Africa’s poor and vulnerable, R32.4-billion over three years was the magic figure: those are the funds reprioritised for education, health, social and infrastructure spending to 2021. But the immediate beneficiaries of Mboweni’s maiden MTBPS were: SAA with a R5-billion bailout by March 2019; South African Express, and the Post Office’s extra R2.9-billion.

That Finance Minister Tito Mboweni’s hands were tied had always been clear: economic growth had been revised down to 0.7%, from 1.5% in the February 2018 Budget, and the unemployment statistics showed joblessness up, to 37.2% on the expanded figure that includes those too hopeless to even look for work.

Right now the outlook remains weak, according to the 2018 MTBPS documentation: economic growth may rise to 1.7% in 2019, and breach the 2% the year thereafter. One of the biggest growing costs is government’s debt servicing, rising an average of 10.9%.

The expenditure ceiling set in February’s Budget remains in place: the gross debt-to-gross domestic product (GDP) is set to stabilise at 59.6% by 2023. That effectively means borrowing is not an option, leaving cuts to non-performing programmes and savings, or what’s known as reprioritisation. And the contingency reserve, meant for emergencies, is stripped down to R27-million.

Still, the 2018 MTBPS announced a just above inflation, real term growth in spending, or R5.9-trillion over the next three years. That includes R1.9-trillion on health and education, R911-million on social development and R855.2-billion on public infrastructure, of which State-owned Entities (SOEs) accounted for R370.2-billion.

To get there, government has skimped, saved and reprioritised to make R32.4-billion available over the next three years. Of this amount, R15.9-billion is allocated to “faster spending infrastructure programmes”, clothing and textile incentives and the Expanded Public Works Programme (EPWP), according to the 2018 MTBPS.

In the current 2018/19 financial year, R1.7-billion is added to infrastructure spending, including school infrastructure – R800-million is allocated for what’s called “sanitation”, effectively the eradication of pit latrines – and R3.4-billion is earmarked for drought relief, predominately through upgrading water infrastructure.

Some of the additional revenue just over R22.6-billion generated through the hike of value-added tax (VAT) to 15% since April is being let go of. Three additional items – bread and cake flour and sanitary products – are being zero rated from 1 April 2019. It’s not the six items, including school uniforms, proposed by an independent panel, and will spark criticism as civil society has lobbied for a greater number of zero-rated goods to mitigate the devastating impact not only of higher VAT, but also petrol and thus transport costs.

And the MTBPS documentation strongly hints that, for now, tax increases are not on the cards in Budget 2019.

But it’s tight. And Mboweni knows it.

Speaking to journalists ahead of his maiden MTBPS, the finance minister said partnerships with business would be central, and so would having an open mind.

The approach of building partnerships with the private sector is really very important,” said Mboweni, later indicating he did not like the term “service delivery” and would move to change that.

Service delivery, it’s like people sitting at home waiting for the delivery of bread, instead of participating in the baking of the bread. That (baking) is development. That’s what must happen – development.”

It’s a deeply political statement, but one that Mboweni has the gumption to pull off as he is taking self-depreciating digs at how his Cabinet colleagues tell him to “adjust” from the private sector to public service.

In the 2018 MTBPS South Africa’s economic recovery has been intrinsically enmeshed in private sector business. Or as the MTBPS documentation headline puts it “restoring confidence and strengthening investment”. That the so-called mini-Budget comes in between the Jobs Summit and the two-day investment conference from Thursday is politically important.

While the Jobs Summit effectively produced little more than what the social partners of government, labour and business are meant to do at the National Economic Development and Labour Council (Nedlac), the investment conference has been touted as one where firm announcements would be made. Politically, President Cyril Ramaphosa needs such concrete and detailed declarations and commitments – to date South Africa’s private sector has been widely accused of an investment strike, preferring to sit on an estimated R1.4-trillion – but so does Mboweni.

Government is banking on turning this around by investment-led growth, as corruption is being addressed and policy certainty restored by, for example, finally clinching agreement on the Mining Charter after several years of tempestuous relations between state and industry.

And then there is government’s drive to modernise, rebuild and enforce the “necessary structural reforms” with a particular eye on what’s now called “network industries” such as energy, water, transport and telecommunications, while lowering the barriers to entry to allow a greater number of small and medium sized enterprises.

Or as Mboweni said in the 2018 MTBPS foreword in reference to the presidential stimulus and recovery package:

A crucial component of this package is our intention to partner with the private sector to increase investment in public infrastructure… Over the longer term we require reforms to change the structure of our economy, raise productivity, increase competition and reduce the cost of doing business…”

Right now, the biggest immediate beneficiary is the national airline, SAA, which will receive R5-billion through a special appropriation. That money has been found within the expenditure ceiling, through reprioritising unspent funds and savings, meaning government does not have to sell off assets such as, for example, its money-making Telkom shares. It is reliably understood that if SAA is not recovering, proceeds from the sale of spectrum, part of the telecommunications driven push for better broadband and date access, could also be allocated to the national airline.

The controversy over the governance of the financially troubled national airline has dragged on for years – in 2017 SAA received over R12-billion in bailouts – with talk of finding a strategic equity partner not having visibly moved from word into action. South African Express, which at one time was mooted for a merger into the national airline, is getting R1.24-billion get in the air, and flying without further risk of being grounded for lack of safety approvals as happened earlier in 2018. Co-incidentally, neither airline has filed their 2017/18 annual report and audited financial statements with Parliament as required.

On SAA – and S0Es generally – Mboweni again called for an open mind, in the briefing ahead of the MTBPS.

We want the SoEs … to have the capacity to approach the markets, and not rely on government (for funding). The conversation in the country must accept the ‘user must pay’ principle…” he said, adding that SoEs also needed to be open-minded about options, be it equity partners or closures.

The South African Post Office, now in charge of social grant payments, received R2,973-billion “to defray debt and fund operational requirements”, according to the Adjusted Estimates of National Expenditure (AENA).

That document outlines the adjustments made to departmental allocations determined in February’s Budget, some of which are quite interesting: R30-million in additional funding is given to Public Works for three official state funerals, Home Affairs is self-funding the additional R1.3-billion generated “from the issuing of official documents”, while Defence boosted its coffers by R728-million, the reimbursement from the United Nations for participation in various peacekeeping and other missions. Health gets R166-million for preparation towards designing a new academic hospital in Limpopo – and R547-million to fill some 2,200 critical posts.

There are a few hicccups. The infrastructure facility talked about in February’s Budget is still being discussed; it would be announced at the 2019 Budget. Aside from the funding for the EPWP, job creations appears to rely on private sector driven subsidies, be it the employment tax incentive or the skills levies.

Much of what Wednesday’s MTBPS talked of what has been said before, often as it has become the mantra of the Ramaphosa administration.

Rebuilding state institutions is under way as illustrated by the State Capture commission of inquiry chaired by Deputy Chief Justice Raymond Zondo and the inquiry into the South African Revenue Service (SARS) by retired Judge Robert Nugent. Reforms at the State-owned Entities (SoEs) is under way as boards and executives have been and are being replaced, and with a renewed determination to uncover past dodginess that has helped the auditor-general uncover an additional R27-billion in irregular expenditure at several of these entities.

There remain “serious challenges” as the 2018 MTBPS called it: some departments “are in disarray”, the auditor-general’s latest findings raised “significant concerns about the level of irregular spending across government”. And, as the documents put it, “The independent VBS mutual bank report, including the reported large-scale theft of public funds, reinforces those concerns.”

Some initiatives are under way to rebuild institutions like the tax collector, the South African Revenue Service (SARS) – it receives R1.4-billion over the next three years to implement reforms and improve capacity – where the 2018 MTBPS document opens a window to what appeared to be diddling with VAT returns to manipulate collection statistics. That is being addressed now, says the document. Acting SARS Commissioner Mark Kingon sidestepped direct questions on the manipulation of VAT refunds, saying what happened was “not correct” and that he had been “uncomfortable” about it, but whether it was intent or incompetence remained an open question.

But the MTBPS did not mince its words on the impact of institutional manipulation, mismanagement and corruption.

South Africa’s budgets for social and economic services are substantial, but the quality of spending is in many areas unacceptably poor, undermining (and in some cases collapsing) service delivery. Poor governance – reflected in inefficiency, corruption and financial mismanagement – reduces the impact of spending and increases pressure on the budget.”

Mboweni had a slightly different way of putting it.

Is some heist gang waiting somewhere wanting to put a tender there? We have bank heists, State Capture heists, water heists…. We want to guard against that.”

And so it’s on. DM

Read the full speech here


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