ANC seeks utopia as dystopia beckons
In case you hadn’t noticed, there’s a furious argument developing outside about how to revive the SA economy. Assume the worst. We were in recession and Moody’s Investors Service, the ratings agency, downgraded our debt to junk before the coronavirus struck.
Finance minister Tito Mboweni had, a month before, delivered a budget deficit (all tiers of government) forecast of R370bn, or 6.8% of GDP, well above target.
He said debt would rise to R3.5-trillion (a trillion is a thousand billion; a billion is a thousand million), or 65.6% of GDP, increasing to 71.6% by April 2023.
Our official rate of unemployment, already one of the highest in the world at 29%, rises to 43% (or by 3.2-million people in 2020) in the worst case of scenarios painted by Miriam Altman, a seasoned economic adviser to the state and former member of the national planning commission.
Under her hyper-dystopian scenario, social distancing in townships is ignored and hard lockdowns return, or, as Claire Bisseker reports in the Financial Mail, “Given the long-term destruction of economic capacity, Altman warns that SA would be consigned to a ‘dark decade’ of rising fiscal and social distress and would ultimately require an IMF bailout.”
At the other end there’s the good news. The best outcome — provided 90% of distressed firms get support, social distancing, face masks and sanitising become commonplace and testing and tracing are lightning fast — is just 1.6-million jobs lost and unemployment of 36%. In this case, 1.4-million of those jobs return and the jobless rate settles at just 30%. happens There’s in actually SA, so let a’better s not scenario, but the best never bother. Nor does the worst, which is worth bearing in mind if you’re running the Reserve Bank and the politicians are coming for you. Because, believe it or not, this absolute mother of all crises is viewed by the ANC as a moment of renewal, a time to finally get the economy “reformed” and “transformed”. President Cyril Ramaphosa has set his face towards “a new social compact among all role players — business, labour, community and government — to restructure the economy and achieve inclusive growth”.
An ANC paper that tries to detail the work ahead says excitedly that “Covid-19 has created more policy space for progressive policies despite fiscal constraints” and goes on to demand, basically, cheaper money via the Reserve Bank or development finance institutions such as the Development Bank of Southern Africa, for massive investments in infrastructure.
That the infrastructure investment is needed is not in any doubt. It is the only way to pick ourselves up, and the paper is at pains to say that while the state needs to be the guiding light in the economy, it doesn’t need to own everything.
Perhaps not even its own role in our distress. I particularly enjoyed this sentence: “Subjective weaknesses in cadreship has led to a lack of coherence.”
Among the 38 pages of graphs and notes, that is the only single reference to one of the main reasons we are going to struggle to recover after Covid — the ANC itself.
Even as it proposes massive spending, the removal of protection of private pensions and a host of familiar old policy standards, from local beneficiation of minerals to the creation of a state bank, it never confronts the thieving and corruption and utter criminality of its own actors.
In a paper that obsesses over the financial system and “access” to soft funding for projects, not once does it suggest it appreciates the impact and importance of investor confidence. We are again reminded (rightly) of our colonial past (and less helpfully after 20 years) that we are a country of two economies — one rich and white and one poor and black — but nowhere does the paper acknowledge that after a decade of looting under former president Jacob Zuma, not a single person has been arrested, let alone prosecuted for it. It simply ignores the fact that almost every project undertaken under Zuma’s administration became an opportunity to steal.
Why should now be any different? The comrades want quantitative easing from the Reserve Bank. The governor says no. But, tsk tsk, he is already doing it to some degree, by buying government bonds in the secondary market.
Andrew Donaldson, a respected former senior Treasury official, agrees with the calls for more from the Bank. “There is no clear answer to the question of how much intervention is needed,” he wrote in a paper (admittedly) six weeks ago, “though approaches internationally suggest that it is important for central bank purchase programmes to be large, so that they demonstrably change confidence and expectations.
“A bond purchase programme of R10bn-20bn a week, continuing until economic recovery is well under way, would represent a substantial strengthening of liquidity in the markets and would assist in shifting market expectations towards lower long-term bond rates.”
Cheap money is the name of the game, but Ramaphosa is going to have to sweat a little to get it. There’s a lot to be done to save this economy from itself, but it can only happen in a climate of trust and, after being hammered under lockdown, that is not where we are. An accountable state would get the money in a heartbeat. But that is not what we have.