‘Enoch needs to tell the truth for a change’
Pan-African Capital Holdings chair Iraj Abedian says finance minister’s budget speech comes as government-created disasters are pushing SA to the precipice
Iraj Abedian, chair of Pan-African Capital Holdings, says finance minister Enoch Godongwana’s biggest challenge in his upcoming budget speech will be getting the investment community to believe a word he says.
“The capital markets have no iota of trust in what the government says. If he was wise he would begin his speech not with dramatic poetry but with a very simple sentence: ‘I and my government are absolutely aware that we have over the past 13 years consistently over-promised and under-delivered on key elements of macroeconomic policy and fiscal management. We are suffering from a credit deficit and we are committed to turn this around’.
“If he starts like that the market will say OK, here is a government that is not bullshitting, not taking us all for fools with promises of ‘thuma mina’. That’s how you start rebuilding credibility when, as a finance minister, you’re in the kind of ditch he’s in.”
Godongwana’s credibility took a bad knock last year when he agreed to an unbudgeted 7.5% pay increase for 1.3-million public servants.
That, and going ahead with national health insurance, which Godongwana had pronounced unaffordable, showed he and the government still believed they could pull the wool over the eyes of citizens and the capital market, says Abedian.
“Citizens may have some remnant of emotional, psychosocial hang-ups that may buy some of that, but the capital market has absolutely no iota of sympathy for a government that does nothing until, knowingly, it gets greylisted.”
Godongwana’s predecessor, Tito Mboweni, told parliament in 2019 that South Africa would be greylisted unless steps were taken immediately.
Nothing was done until last year when Godongwana told parliament that South Africa was now going to be greylisted. “That’s a telling story of a government that says, ‘I know what needs to be done, but I’m not going to do it,’” says Abedian.
In his budget speech last year Godongwana said he had budgeted 3% for public service wage increases, and was going to be tough on that.
“He then ends up signing 7.5%. How do you buy anything that comes out of his mouth after that?”
Godongwana’s credibility is likely to be further eroded on February 21, he says, because in an election year no democratic government can come across as being tough on spending.
“Everybody knows that, the UK, US, France. No government is exempt. The catch is that this government knew four years ago that in 2024 there’s going to be an election. And if you know that, you provide for it. You don’t wait until 2024 and then say, ‘Oops, I’ve got nothing to offer to the electorate.’
“That’s another issue of credibility. A government that does not take democratic cycles or democratic accountability seriously in macroeconomic and fiscal management.”
The government hasn’t had less credibility among investors since the first democratic budget delivered in 1996 by a new government with no track record and no credibility, Abedian says.
“The capital markets didn’t expect anything. There were no expectations of sound macroeconomic policies. The assumption was, ‘Here is an ANC with no capacity. Mandela is wonderful but there’s no macroeconomic policy management or fiscal management because these are socialist, left-of-centre people trained in Leningrad.’
“Expectations were so low that the market was surprised whenever somebody made a sound statement.
“Now there’ve been 13 years of the government saying the right thing but doing nothing or the wrong thing, announcing policies and not implementing them.”
In the 13 years between 1996 and 2009, the National Treasury always underpromised and over-delivered on its projections of growth, debt and deficits. In the budget speeches since 2009 all the growth numbers have been overstated and at the end of the year adjusted down.
“Not a single year have we had budget projections of growth, deficit and debt being on target. Last year Godongwana said we’d have growth from 1.7% for the coming year, revenue will be this, debt will be that. Check what has happened. We’ll be lucky if we get growth of 0.5%, [with] debt overshooting, deficit overshooting ...”
That suggests a lack of capability, which has eroded credibility. Abedian says the budget comes at a time when South Africa is being driven towards the precipice by government-created disasters.
“But the private sector is still fairly resilient. It tries to work around the government, not with the support of government. Government has become a binding headwind for economic growth and social development. They do nothing until we’re greylisted, which means 2.5% loss of GDP growth, or they don’t do the right thing and everything — railways, ports, Eskom, water systems, municipal management — falls apart.
“We’ve got to a point where welfare spend is at serious risk because the revenues are not coming in and borrowing has reached its limit.”
The scariest number Godongwana should have front of mind while delivering his budget, says Abedian, is the increase in government debt service costs from 20.7% of revenue this financial year to 22.1% in 2026/27. Interest on debt will cost government R385.9bn in 2024/25, making it the fastest growing item of government expenditure, faster than health, education, security and welfare.
“That should be the brightest red light for any minister of finance, especially when geopolitics has established an interest rate globally, including in South Africa, that could be with us for nobody knows how long. When you’re facing an uncertainty of that order of magnitude for interest rates staying higher for longer and your debt is ballooning, then as a minister of finance you need to shiver, not smile and try to wish it away.”
An extra challenge for Godongwana is that, as Abedian believes, the government still has “no genuine, deep understanding of the gravity of the issues we face on the fiscal front”, nor a sense of urgency about fixing them.
“Urgency is not in the lexicon of the government. We mustn’t use terms like urgency or responsibility or meritocracy or commitment that the government doesn’t understand.”
Nevertheless, Godongwana’s challenge will be to persuade investors that there is now a “seriousness and urgency” about investment and growth, Abedian says.
He’d have more credibility if he first acknowledged the government’s failures “and doesn’t blame Covid or Ukraine or Israel or nonsense like that … And then says what he’s going to do for the sake of economic recovery.”
There’ve been 13 years of the government saying the right thing but doing nothing or the wrong thing, announcing policies and not implementing them