Hard-won financial stability under fire
Treasury and Reserve Bank are integral to a steady SA ship
FOR two decades, the National Treasury has had only three directors-general, the equivalent of three CEOs in the corporate world. It’s a record that compares favourably with that of any of the leading banks, and is way ahead of the largest mining houses such as Anglo American which have seen their fair share of boardroom changes over the past decade.
In that time, the tallest building in Pretoria and home to the Reserve Bank has only had four governors. The newly elected ANC government led by Nelson Mandela chose to keep apartheid-era Chris Stals on as the bank’s governor until 1999 when Tito Mboweni took the helm.
Stals would eventually hold his seat for a decade, a period matched by Mboweni.
Compared to their peers in the government, the stability of the leadership at the Treasury and the Reserve Bank are unmatched. The current directorgeneral, Lungisa Fuzile, has been at the department since 1998. He replaced Lesetja Kganyago, who was a 13-year Treasury veteran and now heads the Reserve Bank.
The Treasury’s political principals have also been largely stable. Trevor Manuel, finance minister for 13 years to 2009, remains one of the world’s longest-serving.
The department “has been a pillar of strength” in pursuing economic reform and driving modernisation, Colin Coleman, a partner and head of Goldman Sachs in South Africa, said.
There is “high respect for its management of economic affairs,” he said.
Since the turn of the year, Coleman, along with a host of senior business people, have been traversing London and New York, the world’s financial centres, in a campaign to avert a country downgrade to “junk” status.
The mission began as a result of President Jacob Zuma’s sudden and unexpected firing of Nhlanhla Nene last year, after only 24 months in office.
Since that December surprise, the integrity of the department has been called into question in what seems to be the targeting of Nene’s replacement, Pravin Gordhan, for similar action.
But “it’s not about one man”, says Jacko Maree, doyen of South African business and former CEO of Standard Bank. It is about losing the bastion of sound financial management. “Once it happens, you just don’t fix it, it gets a lot worse first.”
The Treasury’s stability has been integral to keeping a steady and credible hand on the national accounts, and particularly in rescuing South Africa from its parlous fiscal state and moving it into a position of surplus a decade or so later in 2007. When the country went into the 2008 “great recession” that surplus helped it escape the worst of the global fallout.
The government of the then recently elected Zuma was able to spend in a time of economic decline and it rather fortunately coincided with the hosting of the Fifa Soccer World Cup.
Since that peak and after the Marikana massacre in August 2012, the state led by the Treasury has had to take a different path, a more austere one.
In January of the year after Marikana, which saw 34 striking mineworkers lose their lives, Fitch Ratings downgraded South Africa’s credit rating to one notch above sub-investment grade, commonly called “junk”.
While not as extreme as the European austerity focus, the Treasury has ever since had to tighten its belt.
In emerging market countries such as South Africa and especially low-growth environments “there’s enormous pressure to balance the budget”, Maree said.
Tightening of the belts has led to a fair number of running battles. In refinancing some of the more troubled state-owned enterprises such as SAA and Eskom, the Treasury has fought some fierce battles over not only the economics but the choice of personalities on boards.
The sale of the government’s 13.9% stake in Vodacom to fund Eskom caused much consternation among some cabinet members who are pursuing the ideals of a developmental state, defined as state-led macroeconomic planning in the mould of China.
To some ministerial heads in the government — who have long been irritated by the difficulty of getting concessions from the controllers of the national purse — the Treasury has behaved much like “God”.
Most recently, that belt tightening has brought into question South Africa’s ability to host the 2022 Commonwealth Games in the city of Durban.
Organisers of the games have warned that frequently missed deadlines and failed payments may mean the country could forfeit the games.
Globally, cities are shying away from hosting sporting events due to their vast expense. Durban became the sole bidder for the games hosting 52 nations when the Canadian city of Edmonton withdrew, citing financial concerns.
To the chagrin of the Treasury’s detractors, the cabinet seemed to play second fiddle to the Treasury and its technocrats. The establishment of the office of the chief procurement officer in the Treasury’s halls in 2013 has only inflamed the situation.
Earlier this week, Manuel lamented the pressure that employees of the Treasury have been under since the department’s integrity was first tested in December.
Chief procurement officer Kenneth Brown’s life is in danger, the former finance minister said.
So while the ructions around the Treasury seem to revolve around the ambitions for nuclear energy and other alleged pursuits of the president, it has for much of the past decade not been a favourite of many others either.
To date, the attacks haven’t
So far the evidence shows that institutions remain highly resilient
inflicted permanent damage, Coleman said.
“Questions are being asked . . . but so far the evidence has shown that institutions remain highly resilient,” he said.
The department is being tested and is passing with “. . . flying colours. In a sense, its reputation is growing in the crisis.”
Xhanti Payi, economist and head of research at Nascence Advisory and Research, says there’s no doubt that the Treasury’s stability has been the key to its success, in its ability to borrow and support markets and the economy.
Should the credibility of fiscal and even monetary policy in the case of the Reserve Bank be lost, South Africa risks following the route of Brazil and even more worryingly, Argentina.