Finance Minister Nhlanhla Nene has many ways of finding funding to fill the money hole created by President Jacob Zuma's zero-percent fee increase promise to students last week. File picture: Bongani Shilubane
Finance Minister Nhlanhla Nene has many ways of finding funding to fill the money hole created by President Jacob Zuma's zero-percent fee increase promise to students last week. File picture: Bongani Shilubane

‘Spend on the poor, not flaky projects’

By Patrick Bond Time of article published Oct 28, 2015

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Cape Town - How does South Africa make good on President Jacob Zuma’s commitment to a zero percent university fee increase after the courageous student protests last week at the Union Buildings, ANC headquarters and Parliament?

South Africa’s R1.451 trillion state budget for 2016-17 must expand or be rejigged by 0.3 percent. True, in addition to the immediate R4.2 billion shortfall, much larger sums will be needed to subsidise free tertiary education for those unable to pay, as well as to end outsourcing of university workers.

Where can the state find the funds? According to some, Zuma’s government is broke. As my Wits School of Governance colleague Graeme Bloch claimed last week: “There are many problems for the government, including the state of the world economy, which ensures that there is not enough money for free university education.”

But if a 2012 government commission set up by Minister Blade Nzimande (and hidden away since), as well as the conservative South African Institute of Race Relations agree that free tertiary education is affordable, why the resistance?

The vast power of financiers and international credit-rating agencies means South Africa suffers a slow-motion version of austerity. The threat of a “junk-bond” rating always looms and, last Wednesday, Finance Minister Nhlanhla Nene’s freeze on new state programmes and civil service hiring revealed the Treasury’s paranoid fear of Standard & Poors, Fitch and Moody’s.

Even while South Africa’s world-leading inequality is generating unprecedented public debate, Nene chose to squeeze 17 million beneficiaries of state grants, including children.

“The old age, war veterans, disability and care dependency grants have each increased by R10 a month from October 1 this year to bring the annual increase in line with long-term inflation.” The goal, he said, was to “ensure that the value of grants keeps pace with inflation”.

Sorry, but it isn’t: a year ago, the main old age and disability grant was R1 350 a month. In February, Nene announced a rise to R1 410, and last week to R1 420.

The 2015-16 pro rata R65 a month increase therefore amounts to 4.8 percent, yet the national consumer price index inflation rate for the same period – according to Nene’s own budget document – is pegged at 5.5 percent, rising to 6 percent in 2016 and 5.8 percent in subsequent years.

However, food and electricity prices are rising far faster than the overall inflation rate, and since they are a much larger share of a poor person’s income, an inflation figure closer to 7 percent would be more accurate.

Nene, this year, effectively shrank poor, elderly people’s budgets by more than 2 percent.

Where is the money, then? A glance at the Treasury’s spending gives an indication of how to fund student fees, to end low-paid university workers’ outsourcing, and to raise poor people’s grants.

First, if South Africa were a more peaceful society as a result of higher social spending and lower interest rates, two items could be cut quickly. Security cluster spending – R184bn next year – is growing quickly in part because of the 20 percent rise in “violent” community protests last year, to nearly 2 300.

The state allocated itself R3.3bn extra for personnel and armaments against civilians, including high-pitch sonic sound cannons. The epidemic of self-destructive, extreme brutality suggests police weapons should be holstered, not amplified.

Another item desperate for a cut is payment of interest, which will cost R144bn next year. Instead of raising interest rates to a level, which is now the world’s fifth highest, the Reserve Bank should reduce rates and with them, repayment costs. (That would also require imposition of exchange controls to halt the resulting capital flight.)

In addition, the Treasury’s category “economic infrastructure” includes many ill-considered projects. Consider just two white elephants promoted in the 2012 National Development Plan (NDP) and Presidential Infrastructure Co-ordinating Commission (PICC).

As former chief executive Marcel Golding exposed in court a year ago, PICC projects were promoted on eNews by Economic Development Minister Ebrahim Patel in exchange for favours never delivered.

The first PICC project is Transnet’s proposed 464km railroad link from the Waterberg’s coal fields in Limpopo to Richards Bay. With funding of R40bn, the parastatal’s Siyabonga Gama believed four years ago the line could raise local coal exports from 4 to 80 million tonnes a year.

In reality, local coal prices peaked at $170 a tonne in 2008, but by 2012 had fallen to $80 and today are just over $50. Nene’s budget document anticipates further decline in coming years, especially with climate change a growing crisis.

Even the industry’s leading expert, Xavier Prevost, admits coal exports are now a money loser. Should that vast project – plus the R60bn worth of Chinese locomotives ordered for mainly coal transport – not be reconsidered?

The second PICC project to rethink is Durban’s port-petrochemical expansion, which at a cost of R250bn, the NDP estimated would facilitate an eight-fold rise of container traffic: from 2.5 million annually the past few years to an astonishing 20 million by 2040. Yet no one else thinks this is possible, given global shipping stagnation (not to mention resulting damage to South African manufacturing). Moreover, using the old airport site for the new “dig out port” is uncertain since the Department of Energy and the KwaZulu-Natal provincial government also want it for a nuclear energy reactor.

The biggest infrastructure bill is for Eskom’s coal-fired power plants, backed by a World Bank loan of $3.75 billion (its largest ever, but one whose repayment should be deeply discounted thanks to lack of bank due diligence). Eskom chair Valli Moosa improperly allowed the ANC’s Chancellor House to front for Hitachi on a R60bn tender that drove the price up by many more tens of billions, as 7 000 welds needed to be redone at Medupi, now seven years behind schedule. Recall too, that the world’s biggest mining house, BHP Billiton, will continue to be subsidised by Medupi electricity.

In recent years it cost just 12 cents a kilowatt hour – which is a tenth of what we ordinary consumers pay. Such generous “corporate welfare”, rife within Nene’s three-year R800bn mega-infrastructure budget, makes it hard to end the white elephant breeding, to better insulate South Africa from adverse world economic trends, and to protect the environment.

And much larger beasts loom on the horizon: the R300bn share Pretoria has committed to capitalising a Brics bank for corporate infrastructure, a project that even its new South African director Tito Mboweni condemned in 2013 as “very costly”, and the trillion rand estimated for eight nuclear reactors, which in July Mboweni announced the Brics bank could finance.

Subsidies gifted to the rich and powerful by corrupt politicians are typically ignored by commentators with a neo-liberal bias.

But as Zuma himself put it last month: “I always say to business people if you invest in the ANC, you are wise.

“If you don’t invest in the ANC, your business is in danger. This organisation does not make profit, but we create a conducive environment to those who make profit.”

The fury unleashed by the students last week against Nene, Nzimande and Zuma resulted in a short-term victory. But it will also inspire a closer reading of the budget and a revolt against it.

Society has also seen that protest works and can put pressure on redirecting funding that is so desperately needed for social progress.

* Patrick Bond is professor of political economy at the University of the Witwatersrand.

** The views expressed here do not necessarily reflect those of Independent Media.


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