Budget fails to deliver any plans for economy to grow

Five months after he became finance minister, Tito Mboweni faced two major challenges when he delivered his inaugural budget in parliament on Wednesday.

He had to announce plans to revive the economy after a lost decade.

However, the budget failed to deliver any plans for the SA economy to reach higher rates of growth and employment, or to fix the state-owned enterprises (SOEs).

The allocation of R75bn for the SOEs, of which R69bn will go to Eskom, the appointment of chief reorganisation officers to lead unbundling and firesales of state assets, will not be enough to put them on a path to sustainability.

The result will be continued low growth, rising levels of unemployment and huge job losses within SOEs.

Between 2009 and 2017, SA significantly underperformed compared with the world economy and developing countries.

It grew by 1.6% a year compared with a growth rate of 3.3% for the world economy and 5% for developing countries.

Between December 2008 and December 2018 the number of unemployed South Africans increased by almost 4million to 9.7-million.

At first glance, Mboweni delivered a neutral budget.

There is no fiscal stimulus or austerity.

There will be a slight increase in the budget deficit over the next year before a resumption of austerity-lite during the following two years.

The economy will grow by 0.7% in 2018, rising to 1.5%, mainly due to an improbable recovery in gross fixed capital formation, presumably due to increased business confidence since Cyril Ramaphosa became president of the country.

Yet, with no prospects for a fiscal or monetary stimulus, there will be no meaningful economic recovery.

As the latest budget figures show, SA has a relatively low net debt ratio of 50% of GDP.

There is scope for a fiscal expansion that would focus on increasing expenditure on infrastructure, which can pay for itself.

With imagination, many projects could be financed off the sovereign balance sheet.

Instead, the government has scaled back plans announced by Ramaphosa in 2018 to launch a R400bn infrastructure fund.

According to the Budget Review, the government will contribute only R10bn a year towards this fund over the next decade. The fund will leverage private sector investment, the document reads.

SA has 11 large SOEs – Eskom, Transnet, Telkom, SAA, SA National Roads Agency (Sanral), Petro SA, the Airports Company SA (Acsa), the SA Post Office, the SABC, Armscor and Denel.

Together, they had assets of R1.7-trillion, revenues of R377bn and debt of R627bn in 2018, and employed 180,000 people.

However, Eskom accounted for two-thirds of the debt (R419bn) and almost half of their revenues (R178bn).

Transnet (R4.9bn), Telkom (R3.2bn) and Acsa (R800m) made profits of R8.9bn in 2018.

The rest made losses of R13.1bn. But Eskom (R2.3bn) and SAA (R5.6bn in 2017) accounted for most of the losses.

In his budget, Mboweni set aside R69bn over the next three years for Eskom, which is set to report a loss of R20bn, and R6bn to cover the needs of the other 10 companies.

The government refused to lift R100bn of Eskom debt from its balance sheet, as the company had requested.

Instead, Mboweni doubled down on plans to unbundle Eskom into four companies – generation, transmission and distribution, and a holding company.

The first step will be to set up a transmission company that will invite private investors. This contradicts Ramaphosa’s statement in parliament that unbundling is not a path to privatisation.

It will set the government on a collision course with trade unions.

Eskom’s bailout is much lower than the R190bn a Nedbank report estimated would be required to stabilise the company’s finances.

The R23bn allocation for 2019 will hardly cover the loss it will make.

The allocation for SAA will also be much lower than the R21bn the company has estimated it will require.

There is nothing for Sanral, which is in a dire situation with debt of R50bn.

There are no plans for the SABC and the Post Office, which are also in a desperate situation.

The companies would have to sell assets to complement what the state will provide.

But there are few quality assets to sell. And many have said they cannot continue for more than a few months.

After the elections in May, many SOEs will probably announce massive job cuts.

● Gqubule is founding director of the Centre for Economic Development and Transformation