Restructure or lose sovereignty
When Tito Mboweni was dragged out of his self-imposed political retirement to become the country’s sixth finance minister in eight years, his job was to stave off a ratings downgrade by the last agency still kind enough to have us on investment grade.
The concern at the time of his October 2018 appointment was that a Moody’s downgrade would send us down a treacherous path, one of more expensive borrowings and an ever tightening noose around the state’s ability to fund itself as we dropped into the “junk” ratings club of nations.
Despite all of his dire warnings and attempts to alert an ANC administration to the perils that lay ahead, former Reserve Bank governor Mboweni was unable to avert our slide. In March 2020, we were downgraded to “junk,” which coincided with the global hard lockdown because of Covid-19.
More than three years have passed since that event, which was overshadowed by the deadly effect of the pandemic. We forgot about our fiscal condition with a surprise surge in commodity prices as a direct result of tightening supply chains when most of the world’s industries went into a deep hibernation.
It was bound to be short-lived, especially as the country introduced a R350 Covid grant like much of the globe to support its citizenry during the pandemic. With the commodity boom over and revenues under pressure as our economy has returned to its pre-covid sluggishness, the treasury has to face up to its expenditure bill and ask: where do we cut?
The Covid grant — which some viewed as a first step in the eventual introduction of a basic income grant to combat structurally high unemployment — stands out as the most recent introduction to the state’s expenditure bill. Here lie the choices, either the state borrows more in its “junk” status to continue funding the grant, or it stops the grant (never popular ahead of elections next year) or the Ramaphosa administration finally restructures the state in its entirety.
For a nation of 60 million plus, South Africa has 29 ministries, an electricity ministry being introduced just this year. Brazil, with more than double our population and its own complex problems, has about 23 ministries, while the UK, with a similar population to South Africa and a huge Brexit headache, has 17.
There is room for reinvention, but can Ramaphosa lead the restructuring of his administration and successfully manage the factional battles in his party? If we move into coalition politics next year, one has to wonder whether these 29 ministries will form part of the bartering between the different parties. One wouldn’t bet against it.
If the state can’t face up to the need to restructure, market forces will dictate just how far the welfare of the state can spread, ultimately eroding the country’s sovereignty.