#FeesMustFall demand reflects sound fiscal logic, not ‘ultra-leftism’
- Patrick Bond
- 24 Oct 2016 01:26 (South Africa)
The medium-term parliamentary budget, to be presented by Finance Minister Pravin Gordhan on Wednesday, would need to include at least R25 billion extra for 2017-18 to meet the demand for fee-free university education, according to Treasury staff.
If it doesn’t, higher education institutions could continue to suffer disruptive protests.
According to Gordhan’s February 2016 budget speech, R4.8 billion in additional funding was allocated to university education after the October 2015 protests culminating at the Union Buildings. This year the students seem to have sensed the need to fight at least five times as hard.
Does that high expectation make the students and their supporters (amongst whom I count myself) “ultra-left”, as Ivor Chipkin charged in the Daily Maverick defence of the Treasury last week?
If Gordhan does not allocate funds, it will be immediately evident that the simplistic deficit-cutting dogma of international and domestic financiers – as mediated by credit ratings agencies (e.g. Moody’s) – remains unchanged: South Africa’s budget deficit must fall dramatically. In February, Gordhan promised a drop from 3.9% of GDP last year to 3.2% this year to just 2.6% next year.
It’s a clear choice for Gordhan: either make university education affordable for young people who are gatvol with broken ruling-party promises and state repression; or instead, keep driving the deficit ratio to unreasonably low levels (given the extent of the social crisis), and in the process maintain indefensible status quo patterns of spending, taxation and externalisation of corporate profits.
Bear in mind that the latter choice still won’t save South Africa from the ratings agencies’ anticipated junk-bond rating next month. The agencies well understand the dangerous antics of President Jacob Zuma, National Prosecutor Shaun Abrahams, a few wild members of Cabinet, ungovernable parastatal managers and the Gupta family.
Also remember that South Africa already suffers de facto junk status, for the international interest rate on state bonds is now nearly 9%, higher than Russia and just below Turkey and Brazil – all of which are junk rated. Though Gordhan will factor in the students’ desperation, the financiers’ pressure on him seems stronger.
Chipkin’s most obvious mistakes should be corrected right away. First, it was an unpleasant surprise to read Chipkin’s allegation that I would support Gordhan’s axing. Nothing could be further from the truth and on October 13, my BRICS review in the African e-zine Pambazuka lamented that Abrahams’ attack on him is “surreal… This gambit is generally understood as a crude excuse for the crony capitalist faction of the African National Congress to insist Zuma fire Gordhan.” I identified with “democrats worried about the slide into a corrupt dictatorship” if Gordhan continues to be hounded by Abrahams, the Hawks and other Zuptas.
Yet three days later, Chipkin accused me of providing “an ideological fig leaf to an anti-democratic assault on the state.” According to me (Chipkin surmises), “In this Manichean world of opposites, the removal of Gordhan and the weakening of the National Treasury is cast as ‘progressive’.” No, it’s reactionary.
Second, Chipkin is just as reliable when transmitting Wits anthropologist Kelly Gillespie’s appeal to Gordhan, and the reason appears to be simple arrogance: “There is often little point engaging such claims on the basis of their evidence or on the coherence of their arguments.”
Third, Chipkin’s paranoia is revealed when enquiring why student activists are considering a protest at the Treasury (as they did last October 21 in Cape Town, when Gordhan’s predecessor Nhlanhla Nene presented his medium-term budget in parliament): “In the statement from October 7, the SRC only called for a march on ‘national and provincial sites of government’. Why was National Treasury the target? It would be too easy to see in the position of the SRC the cynical manipulation of Zuma-aligned agitators.”
Smearing student critics of Treasury’s fiscal austerity in this way should be beneath a Wits academic, especially if he lacks convincing proof about alleged Zupta manipulation. Chipkin likewise ignores the Wits students’ thoughtful suggestions for financing fees-free education, including a long-overdue apartheid-windfall wealth levy and a 2% rise in corporate taxes.
Fourth, Chipkin claims, “There has not been austerity in social spending but, rather, in economic infrastructure.” In reality, the February 2016 budget suffered deep (after-inflation) cuts in social grants, housing, municipal services and even the water budget in the midst of the worst drought in memory. In the category of social spending, South Africa has the fifth lowest rate amongst the 40 largest economies (half that of Russia and Brazil), yet still by far the worst inequality.
Over the longer term, the main social grant (for children, tokenistic at R340/month) was the equivalent of $1.23/day in 1996, before it was reduced to $0.90/day so as to accommodate many more recipients. With most of the grants’ subsequent shrinkage occurring during Manuel’s reign, to $0.72/day, it is tragic that both Nene and Gordhan reduced it further, leaving the black woman-headed household facing worsening austerity.
Meanwhile state spending on infrastructure has increased from 4% to 7% of GDP over the past decade (with R865 billion allocated in the current 3-year budget). But the specifically irrational ‘economic infrastructure’ must be distinguished: unjustifiable mega-projects that Gordhan should now cancel.
One urgent example is the Durban Commonwealth Games 2022, with its R6.4 billion budget request, which should be defunded in part because of hapless preparation that next month may result in disqualification in any case.
What lessons were learned about wasteful, fruitless mega-project spending during the 2010 soccer World Cup? “When the South African Government woke up, we were footing most of the bill. When there were returns, the Government did not get its fair share,” lamented Department of Sport and Recreation spokesperson Esethu Hasane.
After having in 2010 denied the FIFA stadium infrastructure would become ‘white elephants,’ a year later, Danny Jordaan admitted they were: “We should have done more planning.” The main plan for Gordhan should include shooting white elephants until they’re finally extinct, and use the funds for #FeesMustFall and other worthy causes.
The biggest of the current infrastructure mistakes are the Medupi and Kusile coal-fired power stations, costing around R200 billion each. The cost over-runs are at least triple the original estimates, they are seven years behind schedule, and carry both local and global ecological damage.
Instead of the alternative strategy – a rapid roll-out of cheaper, decentralised renewable energy – Gordhan’s advocacy role for fossil-centric mega-projects included begging the World Bank for a Medupi loan of $3.75 billion (its biggest ever) in 2010. At the time, opponents of the corruption-riddled project included not just environmentalists and Waterberg communities but even Business Day. Earlier this year, the US Securities and Exchange Commission fined Hitachi Power Africa $19 million for bribery relating to its R38.5 billion Medupi/Kusile contracts for Eskom (chaired at the time by ANC finance committee member Valli Moosa).
Even bigger mega-projects are anticipated in coming years, for nuclear (more than R1 trillion), including white elephants that will contribute to climate change and hence the destruction of the next generation’s life chances. Designers of the main Transnet rail project intend to export 18 billion tonnes of coal through Richards Bay, and to facilitate an eight-fold increase in the Durban port’s container capacity by 2040.
The fantasy targets in these two Transnet plans made them the top priority Presidential Infrastructure Coordinating Commission projects endorsed within the National Development Plan. They were planned when, respectively, the coal price was $170/tonne (it’s now closer to $60) and the Baltic Dry Index measuring shipping activity was at 12,000 (it is now under 1,000).
The main Transnet spending intended for Durban – a Dig Out Port at the old airport site meant to be constructed this year – was in August quietly delayed by 16 years, to 2032, following the shipping industry’s collapse and intense resistance by community activists. Nevertheless, leading Transnet official Zeph Ndlovu, who is also head of the Durban Chamber of Commerce and Industry, objected: “We have to press ahead, and if we are to unseat our competitors up north, we can’t win this battle if we pull back every now and then and look at accounting principles.”
Treasury is meant to ensure Transnet does not ignore accounting principles, but in 2013 the parastatal borrowed $5 billion from the Chinese during the Durban BRICS summit, to pay for locomotives to drag 3km-long trains full of coal across the provinces of north-eastern South Africa.
But Transnet’s prior top management – Maria Ramos followed by Brian Molefe – failed in implementing their largest fossil-centric mega-project to date: a R24 billion oil pipeline expansion from the South Durban refineries to Johannesburg (originally meant to cost R6 billion but costs soared with rerouting the pipe away from Durban’s white suburbs where there is an existing oil pipeline, to low-income, black communities like Umbumbulu).
By 2012, still four years shy of the pipeline’s completion, Public Enterprises Minister Malusi Gigaba acknowledged “systemic failings… The project management setup within Transnet Capital Projects lacked sufficient capacity and depth of experience for the client overview of a megaproject of this complexity.”
Chipkin’s reply to widespread concerns about systemic failings in the state’s pro-corporate mega-projects is therefore disingenuous: “Many of their large, capital projects, including fossil-fuel ones, are financed off their own balance sheets – except when they need Treasury bailouts because of mismanagement.”
That’s the whole point of looking at the state holistically: Transnet and Eskom pass on the costs of systemic failures to consumers (while offering discounts to multi-national corporations with more bargaining power) and the environment (i.e. to be paid by our children), and even then they get recourse to Treasury’s loan guarantees: currently a mind-numbing R467 billion (of which by February 2016 55% had been drawn down).
Eskom also needs fresh funds, so Molefe is also now arranging a $5 billion loan from the Chinese Development Bank, and he claims Eskom can therefore afford nuclear power acquisitions, probably from the Chinese and Russians.
As a result of such reckless borrowing, South Africa’s foreign debt/GDP ratio has just hit 44% ($132 billion), which is now higher than the ratio when PW Botha defaulted in 1985.
The public good is not served by Treasury over-funding damaging mega-projects, or providing massive loan guarantees to the likes of Molefe, or underfunding universities and the rest of society, or letting the corporates and ultra-rich escape paying their fair share of taxes.
How sensible is the state’s on- or off-balance sheet financing of carbon-intensive economic activities (coal, petroleum and airplanes in the cases above), especially without taking into account the climate damage being done to future generations? Revealingly, Old Mutual’s R170 billion Futuregrowth fund last month put itself “on the right side of history” by announcing it would no longer finance coal projects (not to mention dodgy SA parastatals). Why can’t Gordhan use his visionary capacities and follow that lead on Wednesday?
For the parastatals’ annual spending of more than R100 billion on infrastructure is funded ‘off their own balance sheets’ only at first (if one looks at the state in the narrowest way), but the poorest consumers and taxpayers ultimately pay for the systemic failings.
Gordhan at least seems to understand the trade-off. In July after returning from the G20 meeting in China, he warned a business audience, “What’s very clear is that austerity, which we in some parts of the G20 thought was absolutely necessary … is no longer the answer.”
In addition, to Gordhan’s great credit, he’s finally taken on the Zuptas – and hopefully other ‘closet pals’ will soon follow. But will he also stand up to international financiers and credit rating agencies on Wednesday, and end the country’s #FeesMustFall agony? DM
Patrick Bond is professor of political economy at Wits University and honorary professor at the University of KwaZulu-Natal Centre for Civil Society.