Mortgaging the future – Minister Gigaba's debut

26 October 2017

There is a rich irony when Finance Minister Gigaba quotes at length from one of Africa’s foremost poets and novelists, Ben Okri, followed a few lines later in his speech with a quote from Nobel Laureate, Amartya Sen.

Both Okri and Sen are fierce critics of corruption, misrule and neglect of the poor and downtrodden. The Minister might have missed the irony.

Minister Gigaba lurched into a speech which was broadly anticipated to outline a dismal economic scenario, but even the most cynical of watchers were caught off-guard - the outlook is way more dismal.      

Key takeaways from Minister Gigaba’s speech can be summed up as follows:

Revenue Shortfall: R50.8 billion

Growth: down to 0.7% from 1.3%

Spending: higher than anticipated at R3.9 billion

Deficit: 4.3% from a target of 3.1%

Strategy:

1. Sell the family silver (Telkom shares) to bail out non-profitable SOEs (SAA and SAPO).

2. Establish a President’s Committee to make recommendations to Mr Zuma on expenditure reprioritisation and asset sales.

The markets of course spoke loud and clear - the rand fell 27 cents during the Minister’s speech - followed by a further slide in the rand/ dollar exchange, accompanied by a weakening of the bond markets.

For most South Africans, the economic future is bleak. Rising debt, debt cost and debt re-servicing will become common parlance. For the current financial year, the country will spend R163.3 billion on interest alone to service gross debt. This picture will become bleaker still with debt rising to 60.8% of GDP in 2021-22. In layperson speak, there will be diminishing amounts of money available in the future for education, social services, healthcare and infrastructure. The President, caught dozing on camera at the Budget Speech, does not seem perturbed. His successor will have to deal with the problem.

Absent from the Minister’s speech was any notion of the “how”:  how to fix the ever-mounting slate of problems, suffice to kick the can down the road to the February 2018 Budget Speech, when tax hikes and selling the family silver may address his problems. Absent too, was the elephant in the room - corruption and state capture.

Fleeting reference to unemployment and poverty found their way into the speech. Lest you forget Mr Minister, unemployment, while officially at 27.7%, is realistically closer to 40%, while 30 million South Africans live below or close to the poverty line on R1 000 a month.   

However, the Minister no doubt felt obliged to mention seven expenditure priorities for the Medium Term Expenditure Framework (MTEF), including job creation and small business; youth development; infrastructure expansion and maintenance; land reform; comprehensive social security; education and skills; and a plan to fight crime. The vagueness of his list was matched by a cynical response from the markets. Where will the money come from Mr Minister? You have already mortgaged the future. There is no harvest and no new fruit, contrary to your quote from Ben Okri. 

Issued by Zohra Dawood, Director, Centre for Unity in Diversity, 26 October 2017