Old promises turned into new promises — with implementation detail and financing left to Mboweni’s Budget
President Cyril Ramaphosa’s State of the Nation Address showed how good spin can make an old idea sound new. But the devil is in the implementation detail — that is none too clear — and the money, which Finance Minister Tito Mboweni must find in the Budget.
President Cyril Ramaphosa’s SONA 2020 contained a lot of detail — much will be dissected during the two-day parliamentary SONA debate that starts on Tuesday — but three areas touted as key policy interventions bear greater scrutiny.
On a State Bank
The governing ANC has been talking state bank since at least 2010 when talk at the Durban General National Council (NGC) proposed linking government service delivery with postal infrastructure to a Postbank, aka State Bank.
In 2012 the Mangaung ANC conference resolutions formalised this:
“… (O)wnership of the Post Office and the Post Bank by government should be linked to efforts to ensure that the two institutions are sustainable. A State Bank should not only be defined in terms of ownership, but in terms of the services that are delivered by the Postbank.”
But the pace of implementation has been slow and the 2017 Nasrec ANC conference seemed to express frustration:
“The Postbank must be licensed and capacitated to play a meaningful role in providing banking services before the end of term of the current government administration.
“The use of state banks to promote economic development must be stepped up. The Postbank should be registered as a bank as a matter of urgency. The NEC must receive reports at each sitting on progress in this regard.”
To date, the government has registered a Post Bank Company — and noted that the state-owned Postbank has the limited financial capacity, crucial for paying social grants, but well short of a full transactional banking bouquet.
According to adverts in the Sunday papers of Sunday 16 February 2020, the Postbank is now looking for a general manager of strategy. While the advert doesn’t talk about the salary package, it hits other notes: “If you are interested in a career where you can become part of building a nation…”
Expectations that the Postbank would be a state bank with full banking capacity by early 2018 failed to be realised. And that means the government’s push for a state bank has been left behind as three private-sector banking initiatives were able to turn plans into reality.
Discovery Bank got going alongside Bank Zero. And billionaire businessman Patrice Motsepe, also the presidential brother-in-law, introduced his Tymebank, as Daily Maverick recently reported, to church.
But it’s not all stalled on a state bank.
On 11 July 2019 Finance Minister Tito Mboweni said in the National Treasury budget vote debate that his deputy, David Masondo, is starting the process of forming a state bank.
“We’ve got a huge responsibility… It’s a matter of responding to a crime amongst our people and that crime fundamentally has to do with the discriminatory nature of the established banking institutions. So, there has to be a response. It is big tasks that he has there.”
And so Ramaphosa’s announcement of a state bank with details to be announced in the Budget on 26 February 2020, actually have come a long way.
On a sovereign wealth fund
This is better known as an EFF idea the party pushed as part of its policies — and at the previous SONA in June 2019 following elections. EFF Chief Whip Floyd Shivambu said during that SONA2019 debate that the party would introduce legislation for a sovereign wealth fund modelled on Norway’s fund, that is boosted by the Nordic county’s oil and gas incomes.
It’s unclear where such a private member’s Bill is, but as all’s fair in politics, the governing ANC is appropriating the concept as its own.
A sovereign wealth fund, briefly defined, is a state-owned investment entity that gets its money from a country’s reserves — garnered from, for example, trade surpluses or budget surpluses and natural resource sales — and invests those for the benefit of the whole country.
That’s the difference from the state-owned Public Investment Corporation (PIC), which manages assets of just over R2.1-trillion of government employees’ pensions and social savings on behalf of only the Government Employees’ Pension Fund and funds such as the Unemployment Insurance Fund (UIF).
But getting those surpluses to launch a sovereign fund is tricky.
South Africa has not had a Budget surplus in more than 13 years — in 2007 when the national coffers not only balanced, but also bulged with an extra R9.3-billion.
None of the state-owned entities (SOEs) are making money: not Denel on the armament front, or the state diamond miner Alexkor, and definitely not SAA, now in business rescue. The less said the better regarding financially crippled and governance-troubled Eskom, which due to rolling power outages cost the South African economy R118-billion in 2019, according to a recent CSIR study.
And given the low-growth, high-unemployment economy marked by business failures and retrenchments, tax revenue collection has also been revised downwards.
And this is where it gets interesting as Ramaphosa again left the details to his finance minister.
Mboweni, who at the January 2020 World Economic Forum in Davos sidestepped questions on taxes by saying that would have to wait for the Budget, is understood to be looking at tax changes.
Central to this would be the free carry in pending legislation on oil and gas exploration and petroleum resource development. In a Norwegian-style model, reserving some of the income of such a free carry — effectively an equity interest to the state which is given free of charge by the licence holder — for a sovereign wealth fund could be seen by some in the governing ANC as killing two birds with one stone.
However, all this is long-term planning, possibly as distant as 10 years, given the necessary legislation is not yet in Parliament. Never mind any actual oil exploration or production.
On youth employment
Jobs for young people seems close to Ramaphosa’s heart. And the Presidential Youth Employment Intervention — capacitation, including flexible courses in specific skills, making information readily available, work readiness training, support networks with a focus on entrepreneurship and self-employment — are praiseworthy, laudable and urgently required.
But a fundamental distortion remains. The majority, or 55.9%, of unemployed are without matric — and in every 12-year schooling cycle to matric, about the same number of young people who sit to write the school-leaving exam has dropped out of the education system.
To put it differently: while 790,405 learners wrote the 2019 matric exams, a similar number dropped out between Grade 1 and 12.
Available research shows a range of reasons: pregnancy, girls more likely to take on roles of caregivers to elderly or sick relatives, and poverty. It seems officialdom is more concerned with system issues such as grade repetition than with stemming drop-outs.
To reiterate what the Statistics South Africa unemployment statistics showed on 11 February 2020: of the 6.7-million unemployed South Africans on the narrow definition of unemployment — joblessness balloons 38.7% on the expanded definition that includes those simply too disheartened to even try to look for a job — 55.9% are without matric.
Not only can the labour market not absorb new entrants, without a matric the likelihood of getting a job, any job, plummets.
While Ramaphosa announced the construction of nine new TVET (Technical and Vocational Education and Training) Colleges in 2020, none of this or the five parts of the Presidential Youth Employment Intervention, including a presidential youth service programme, appears to be costed.
Part six of the SONA 2020 announcements to stem the crisis of youth joblessness, a youth employment initiative, has got a rands and cents tag — 1% of the Budget. Again Ramaphosa left the details to his finance minister, but this time not to the Budget later in February 2020, but the Medium-Term Budget Policy Statement (MTBPS) in October 2020.
Intellidex analyst Peter Attard Montalto said this is an indication of the challenges to realise this level of spending.
An allocation of 1% of the Budget would amount to about R20-billion in the 2021/22 financial year — up from R523-million presently allocated for national youth development, he argued in a post-SONA 2020 brief:
“How this will be achieved is far from clear and National Treasury really gives no proper statistics on youth unemployment-related spending at all… There is a nod to fitting this in by belt-tightening elsewhere, but this will mean cuts doubling down elsewhere given wider restraint,” wrote Attard Montalto. “It is not clear throwing money at the problem will work. We watch keenly however”.
And so what SONA 2020 has done in key respects is to kick for touch to the Budget when Mboweni will have the unenviable task of trying to make the already stretched rands and cents in the national purse go even further. DM
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