Gordhan set to climb his highest mountainComment on this story
PRAVIN Gordhan is still standing, despite a gruelling stint as Finance Minister in the eye of an economic storm, says Craig Dodds.
He would have had to swallow hard when President Jacob Zuma first tapped him to take the reins – though the true scale of the global recession’s wreckage was yet to be revealed – but he could not have imagined just how many further shocks he would have to weather.
Perhaps his answer to Zuma would have been different if he had been able to see into the future.
On Wednesday he will present the last Budget of his tenure knowing exactly how hard the climb will be for the incoming finance minister – and he could be forgiven if it is true he is thinking of handing the baton to someone else.
Twin deficits, a wobbling rand and the risk of inflation that goes with it, a massive infrastructure programme to finance, and a jobless rate that has hardly budged since he first took office.
A troubled mining sector and labour turmoil that seems just as likely to intensify as it is to abate.
Government borrowing already near the limits of what is sustainable and growth too slow to cover any of these bases.
It’s a huge challenge and there is little room for manoeuvre.
But looking back at his Budget speeches it is clear that if anyone can detect the chink of light in a wall of menace, Gordhan is the man.
In his first Budget in 2010 he said of the changes likely to sweep the world in the wake of the recession, “South Africa and the world at large must and are looking for different answers and solutions”.
“A new engagement between government, the business sector and organised labour is being forged, through which we will mobilise our creativity, our determination, our sheer grit, to build a durable, developmental, just and prosperous nation.”
But one of his key proposals to “do things differently” – a youth wage subsidy – was to define the limits of this “new engagement” for the bulk of Gordhan’s term.
The unions, and ANC alliance partner Cosatu in particular, dug in their heels over the subsidy and it was ultimately only towards the end of last year, four years later, that the enabling act was passed, never having emerged from consultations at the National Economic Development and Labour Council (Nedlac) with the blessing of labour.
Gordhan made use of the country’s relatively healthy finances to lean against the wind of recession, maintaining spending on social goods and efforts to boost employment such as the expanded public works programme despite a huge fall in revenue.
But he noted the budget balance had swung from a surplus of 1 percent of GDP in 2007/08 to a deficit of 7.3 percent in just two years.
Higher levels of government debt came at the price of higher costs of servicing it, he warned, which could ultimately squeeze social spending.
As though he could picture the economy in 2014, he added: “As the world recovers from the recession, those countries with low levels of debt will be better placed to take advantage of growth opportunities. Those burdened with high debt levels will find it more difficult to invest and trade due to a substantial tax burden, high interest rates and perceived financial risks.”
From the start, he tried to set the tone for more prudent, cleaner governance, noting that “corruption is an ever-present threat to our ambitions”.
Reform of the procurement system would be a “key focus” and a revised Ministerial Handbook would help cut the frills, he said.
Four years later, he could not contain his frustration at the lack of progress on this front.
“Let me be frank. This is a difficult task with too many points of resistance,” he remarked.
There is still no sight of the new handbook, but Gordhan took the initiative in his Medium Term Budget Statement last year by announcing limits to spending on frills such as car hire, flights and hotel stays.
He has also created the post of a chief procurement officer to oversee and reference prices in state buying at all levels.
This should help combat the problem Gordhan described thus: “In the present system, procurement transactions take place at too many localities and the contracts are short term.
“Consequently there are hundreds of thousands of transactions from a multitude of centres. There is very little visibility of all these transactions.
“While our ablest civil servants have had great difficulty in optimising procurement, it has yielded rich pickings for those who seek to exploit it. There are also too many people who have a stake in keeping the system the way it is.
“Our solutions, hitherto, have not matched the size and complexity of the challenge.”
In 2011, Gordhan again tried to rally the troops with these words: “It is about recognising that now is the time to do extraordinary things, in dealing with our particular development circumstances. It requires new ideas and bold efforts from all: government, business, labour, communities and every family.”
It was time to “ignite the flame of higher inclusive growth, and sustain it”, Gordhan said, holding out the New Growth Path, with its emphasis on infrastructure and industrialisation, as the blueprint.
In 2012 he was able to say the country’s finances were in good health, with “tough decisions” having kept the fiscus on “a sustainable track”.
“Reprioritisation, savings, haircuts – these have been executed with singular determination,” Gordhan said, projecting a reduction in the budget deficit from 4.8 percent in 2011/12 to 3 percent in 2014/15.
Then came Marikana and wildcat strikes in the mining sector, against a backdrop of weaker commodity prices and slower than anticipated global growth.
This “economic turbulence” shaved R16.3bn off expected government revenue and unravelled the healthy position of the previous year.
Exports grew by just 1.1 percent in real terms as imports increased by 7.2 percent, bringing the deficit on the current account of the balance of payments to 6.1 percent of GDP.
“This means, in simple terms, that expenditure in the South African economy exceeded the value of production and income by about R190bn last year,” Gordhan said.
The blow to the national psyche following these events was severe.
“The challenge,” Gordhan said in his Budget last year, was that “people are asking if we can sustain our ‘miracle’.”
“They are asking whether we as a nation have the ability, the will and the wisdom to take another leap forward in reconstructing and developing South Africa.
“They are asking whether South Africans can still show the world how to overcome intractable problems that face the community of nations.
“In these trying times, South Africans too ask the question, ‘can we be a winning nation?’”
The unflappable finance minister’s response was a predictable one.
“Of course we can!” he declared.
But the jury is still out.