BUSINESS MAVERICK EXCLUSIVE
New Finance Minister Enoch Godongwana wants economic growth, not endless debate
Concrete action on economic growth, rather than endless certainty-sapping debate, is Enoch Godongwana’s mantra, the new finance minister told Business Maverick in an interview this week.
He swatted away murmurings that his office would be more open to calls from either side of the political divide to entirely overhaul the finely balanced fiscal plan of spending cuts and reforms National Treasury is pursuing to drag the country out of its worst recession in a century.
“Our economy has not performed well for a long time for a number of reasons. Even during the previous commodity super-cycle that ended in 2011, we didn’t do well, because during that period we had long debates about things like whether we should nationalise mines. We had that debate for two years, which undermined investment in the sector,” said Godongwana, less than three weeks into his new role after a Cabinet shake-up that saw him elevated from his role as the ruling ANC’s head of economic policy.
“Policy (uncertainty) has a big impact on growth. Business gets scared. Combined with the global financial crisis, and then State Capture which exacerbated the downward trajectory. And then came the coronavirus,” Godongwana said, adding that cementing growth-inducing policies to take advantage of the current commodity price upswing would trump politics and ideological point scoring.
After contracting by a record 7% in 2020 as Covid-19 lashed activity and tax revenues with it, the recent surge in commodity prices has so far cushioned South Africa against the impact of the coronavirus in 2021.
The trade and current account balances are at record surpluses and tax collections for this year and the last have beat Treasury estimates by a mile.
As a result, growth in gross domestic product (GDP) this year is expected to top 4%, according to the International Monetary Fund (IMF) and the Reserve Bank, although the outlook for 2022 and beyond is less rosy, with growth expected to slump back to about 2%, with a negligible reduction in government debt and a gaping budget deficit, unless painful policy action outlined in February’s Budget is sustained.
But with the better growth prospects have come louder calls, emblemised by the riots and unrest in July, for the government to shelve its austerity measures and spend more to support the jobless, mainly in the form of a universal basic income grant. Treasury has already ceded some ground on this score. In response to the July violence it reinstated the R350 Covid-19 unemployment grant along with other relief measures at a cost of about R38-billion. The grant is due to end in March 2022, but Godongwana has already come under pressure from civil society and trade unions to make it a permanent policy. And his contention that the focus should be on skills training and creating jobs has drawn sharp criticism, as well as unnerving some investors fearing that South Africa will follow emerging-market peers like Brazil and Peru by caving in to pressure to use the commodity windfall on welfare expansions rather than paying down debt.
Godongwana is adamant South Africa cannot afford to repeat the mistakes of the previous commodity boom.
“The weakness I see in the debate is there is more focus on how you support the unemployed. There is little attention on the long-term issue of growth,” he said. “If we manage to grow the economy and build the labour force that can be absorbed by that economic growth, then we can really grapple with the problems.”
Pieces of how he plans to incorporate a basic grant into the government’s longstanding skills training and public employment are already apparent, and it is likely to be a middle road between the two. Significantly, Godongwana wants wage income to top welfare payments, a balance markets are likely to cheer but likely to rile those calling for more radical measures.
“Whatever you pay to the unemployed cannot be higher than the public employment wage,” Godongwana said. In 2021, the government set the national minimum wage at R22 per hour, with the minimum wage for workers employed in the Expanded Public Works Programme set at nearly half that, at R12. That means a public works salary will top the Covid-19 grant and the lower-bound poverty line of just under R600.
Godongwana said he was aware of the political obstacles to his plans. “From a political perspective, saying let’s pay people grants makes you sound moral and correct. But when you are faced with the practicalities of running a government you must make hard choices. Sometimes you’ll take decisions you yourself don’t like,” he said.
In addition to the basic grant debate, Godongwana faces resistance to Treasury’s plan to wean state-owned entities off bailouts and sell off those that are chronically malfunctional. He believes he has the support of Cabinet, and the clout to nudge dissenters into compliance. Struggling SOEs like Denel, the Land Bank and South African Airways have already seen requests for bailouts rebuffed.
“I am a senior member of the organisation (ANC) and the National Executive Committee (the party’s highest authority). No one in the ANC does not take me seriously.”
Coaxing the recently revamped Cabinet into toeing the fiscal line won’t be easy. In addition to swelling fruitless and wasteful expenditure, plenty of good money has been thrown at questionable infrastructure projects, putting a spoke in President Cyril Ramaphosa’s grand plan to drive the economic recovery through building dams, roads and renewable energy sites.
Treasury’s much-touted Operation Vulindlela has given more power to the Presidency and Treasury to coordinate economic policy and force adherence to fiscal rules, but with local government elections and the ANC’s National General Council coming up, and the medium-term Budget due in late October, Godongwana’s clout and capacity to balance the bonfire of competing demands will be severely tested. BM/DM
Daily Maverick © All rights reserved