Can he get us to the other side?

Sunday Times - - Front Page - By ASHA SPECKMAN and PENE­LOPE MASHEGO speck­[email protected]­day­times.co.za mashe­[email protected]­day­times.co.za

● Tito Mboweni is no pushover. His rep­u­ta­tion pre­cedes him and this week he re­ceived global ac­claim when he took over as SA’s 7th fi­nance min­is­ter in five years af­ter Nh­lanhla Nene’s res­ig­na­tion.

But he will have lit­tle time to bask in his new role as he is con­fronted with the chal­lenge of fix­ing a bro­ken econ­omy amid de­te­ri­o­rat­ing global mar­kets and trade con­di­tions for emerg­ing-mar­ket na­tions.

Mboweni is set to de­liver the medi­umterm bud­get, a plan of strate­gic spend­ing pri­or­i­ties over the next three years, later this month — mere months from next year’s tightly con­tested na­tional elec­tions, a fac­tor that may bear on this bud­get.

SA’s bor­row­ing ca­pac­ity is lim­ited, with the govern­ment re­sort­ing to repri­ori­ti­sa­tion of its bud­get to stim­u­late a bat­tered econ­omy. Growth for the year is fore­cast at a measly 0.7%.

Emerg­ing mar­kets have been on a roller-coaster ride over the past five years since the US Fed­eral Re­serve first an­nounced it was grad­u­ally re­duc­ing the buy­ing of bonds and would raise in­ter­est rates. US in­ter­est rates have been hiked more ag­gres­sively this year, re­sult­ing in out­flows from emerg­ing mar­kets to the US and caus­ing the cur­ren­cies of the for­mer to weaken.

Lord (Jim) O’Neill, the Bri­tish econ­o­mist who coined the Bric(s) moniker for Brazil, Rus­sia, In­dia and China — later adding SA — told Busi­ness Times this week that the world found it­self in a “very pe­cu­liar era”.

The US dol­lar and in­ter­est rates con­tinue to dom­i­nate the global fi­nan­cial sys­tem yet that econ­omy has a smaller share of global GDP, ow­ing to China’s rise.

“It is a very struc­turally un­healthy thing for the world be­cause it means each time the Fed tries to tighten mone­tary pol­icy there are fre­quently neg­a­tive con­se­quences for other parts of the world, whether they be emerg­ing mar­kets or oth­er­wise.”

Coun­tries with prob­lem­atic do­mes­tic fun­da­men­tals and re­quir­ing cap­i­tal have be­come vul­ner­a­ble, which has been the case for SA, Turkey and Ar­gentina. Emerg­ing­mar­ket na­tions with sim­i­lar af­flic­tions as SA — dual deficits and high com­mod­ity re­liance — have seen a plethora of fi­nance min­is­ters as pol­i­tics de­te­ri­o­rated un­der the weight of their strug­gling economies.

Brazil has had five fi­nance heads in three years. The coun­try is due to hold its run-off elec­tions later this month, which will likely see the coun­try with its sixth fi­nance min­is­ter since 2015.

Ar­gentina has had four fi­nance min­is­ters since 2013, with Turkey fol­low­ing closely over the same pe­riod.

Mu­si­cal chairs hasn’t just been an emerg­ing-mar­ket favourite pas­time; Italy has also had its fair share of fi­nance min­is­ters, with at least four since 2013.

These min­is­ters have of­ten clashed with cabi­net and party mem­bers, find­ing them­selves walk­ing a tightrope be­tween hav­ing strict con­trols that ben­e­fit the econ­omy and giv­ing in to some­times un­rea­son­able and of­ten du­bi­ous de­mands from politi­cians.

This is where Mboweni’s ap­point­ment is cru­cial in light of the chal­lenges SA faces, said O’Neill, who re­gards the fi­nance min­is­ter as a “dis­tant per­sonal friend”. O’Neill is a speaker at the Dis­cov­ery Lead­er­ship Sum­mit next month.

“In it­self, I think ap­point­ing Tito is a very bold and im­pres­sive move. I think of him as a tough guy. Let’s hope it’s a fur­ther sign this new govern­ment wants to im­prove the gov­er­nance stan­dard at its two key in­sti­tu­tions, the cen­tral bank and its fi­nance min­istry.”

The govern­ment needed to do things out­side of the com­mod­ity sec­tor “to boost its pro­duc­tiv­ity. They have to some­how be able to have an eco­nomic sys­tem that can’t be smoth­ered by wild gy­ra­tions in com­mod­ity prices,” O’Neill said.

Char­lie Robert­son, global chief econ­o­mist at Re­nais­sance Cap­i­tal, said that in the cur­rent en­vi­ron­ment of out­flows, emerg­ing mar­kets had to be “par­tic­u­larly ex­em­plary to be able to hold your own”.

“This means strong eco­nomic growth, high in­ter­est rates and good re­form pack­age. Egypt is one ex­am­ple. Its in­ter­est rates have soared to nearly 20%, the govern­ment is run­ning an IMF-backed re­form pack­age. Its cur­rency has been sta­ble all year.”

In con­trast, mar­kets with in­wardly fo­cused poli­cies such as Turkey, Brazil and to some ex­tent Ar­gentina, have seen tur­moil in their cur­ren­cies.

SA’s pol­icy pri­or­i­ties are do­mes­tic-po­lit­i­cal, with land re­form gen­er­at­ing neg­a­tive head­lines world­wide. Even if the pol­icy was jus­ti­fied, “peo­ple worry that this is a Zim­bab­west­yle story, a Mu­gabe-style story”, Robert­son said.

“When you dif­fer­en­ti­ate in 2018, you sell the coun­tries which are overly in­wardly fo­cused and do­ing poli­cies that suit their do­mes­tic po­lit­i­cal pri­or­i­ties and not their eco­nomic needs.”

SA’s cur­rent ac­count deficit in an econ­omy that has seen slower growth than pop­u­la­tion growth in the past four to five years was odd. “It’s telling us that there’s some­thing still not prop­erly aligned in the South African econ­omy,” Robert­son said. The im­pli­ca­tion of this was that bud­get pol­icy was too loose and that the govern­ment would have to be more aus­tere.

Mar­kets re­alised the ANC was un­likely to ac­cede to this be­fore elec­tions. Nor would the ANC re­lax labour laws, which was what the mar­kets be­lieved could cre­ate jobs and lead to growth. Dras­tic im­prove­ment of the ed­u­ca­tion sys­tem was also nec­es­sary.

“But the mar­kets can’t do any­thing about the labour mar­ket leg­is­la­tion, they can’t do any­thing about ed­u­ca­tion. All they can do is hit the cur­rency, and that’s what they are do­ing,” Robert­son said.

Mboweni’s lit­mus test will be the bud­get. Po­lit­i­cal an­a­lyst Daniel Silke said the pres­sures on Mboweni in­cluded im­ple­men­ta­tion of the stim­u­lus pack­age and lim­it­ing the im­pact of in­fla­tion, among other things, but aus­ter­ity mea­sures were not on the cards.

“It’s highly un­likely that, from a po­lit­i­cal point of view, it will be pos­si­ble to in­tro­duce any kind of dra­matic aus­ter­ity mea­sures in the next six months or so, cer­tainly when it comes to labour-re­lated mat­ters,” he said.

At the height of Pravin Gord­han’s rag­ing bat­tle against his boss, for­mer pres­i­dent Ja­cob Zuma, I had to of­ten re­mind my­self not to get lost in the per­son­al­ity clashes and to fo­cus on the im­por­tance of the of­fice of fi­nance min­is­ter. Back­ers of the for­mer pres­i­dent pushed the nar­ra­tive that Gord­han was un­der­min­ing Zuma and fanned the flames of this bat­tle royale be­tween the sup­posed “white mo­nop­oly cap­i­tal” de­fender-in-chief and a pres­i­dent fight­ing the good bat­tle of “rad­i­cal eco­nomic trans­for­ma­tion”. This ar­gu­ment only served to blind us to their real mo­tives as we’ve come to learn. What was lost in this bat­tle was just how im­por­tant sta­bil­ity was in this most se­nior cabi­net po­si­tion, and per­haps, se­condly, the per­son­al­ity. This is es­pe­cially the case for a small emerg­ing-mar­ket coun­try such as ours, so heav­ily re­liant on for­eign sources of cap­i­tal. A change of Trea­sury head at any of the world’s larger economies such as the US or Ja­pan hardly reg­is­ters as a threat to their fis­cal sta­bil­ity be­cause of their sheer size and their abil­ity to fund them­selves in­ter­nally.

Of all the own goals SA has scored in re­cent years, the big­gest faux pas has been the mu­si­cal chairs in the Trea­sury. Over the past decade we’ve had eight changes in that seat.

That makes for a rather dif­fi­cult in­vest­ment case to sell. Bad pol­i­tics has also af­flicted Brazil and Ar­gentina, which have also had their fair share of changes to fi­nance min­is­ters.

The Trea­sury was dragged into SA’s bad pol­i­tics as global mar­kets ze­roed in on the most vul­ner­a­ble of emerg­ing-mar­ket na­tions in light of the US Fed­eral Re­serve’s pol­icy nor­mal­i­sa­tion. The higher yield of­fered by these na­tions would no longer be as lu­cra­tive, with growth in the US and es­pe­cially in their tech stocks of­fer­ing bet­ter prospects.

Our fun­da­men­tals mat­tered again, and when your des­per­ate pres­i­dent has grandiose nu­clear plans with his close friends the big­gest ben­e­fi­cia­ries, we were sin­gled out as a bad ap­ple. It dam­aged our cred­i­bil­ity and if not for the re­silience of in­sti­tu­tions such as the cen­tral bank and courts it would be a much darker story.

With the ap­point­ment of Tito Mboweni, the sixth man at the helm of the Trea­sury in the past three years, one hopes these bat­tles around the of­fice cease in this pe­riod of height­ened scru­tiny of emerg­ing mar­kets. In the decade be­fore the global re­ces­sion of 2008, the Trea­sury was led by Trevor Manuel. His term be­gan in 1996 and ended in 2009, among the long­est of any fi­nance min­is­ter in the world.

While such a term would per­haps sug­gest this was a pe­riod where Manuel and his team were left un­chal­lenged po­lit­i­cally, it quite sim­ply was the op­po­site. Pol­icy spats were the or­der of the day, with Trea­sury at the cen­tre of im­ple­ment­ing some of the most un­pop­u­lar macroe­co­nomic poli­cies of the Mbeki era such as the Growth, Em­ploy­ment and Re­dis­tri­bu­tion (Gear) pol­icy. The pol­icy, which among other things cham­pi­oned in­fla­tion tar­get­ing, caused much fric­tion in the tri­par­tite al­liance and would even­tu­ally lead to the back­ing of Mbeki’s deputy against him by both the SACP and Cosatu.

De­spite these heated pol­icy bat­tles, Manuel’s po­si­tion at the helm of Trea­sury was de­fended by a boss who re­mained re­silient de­spite his fall­ing pop­u­lar­ity.

But in so do­ing the of­fice re­mained shielded from nec­es­sary pol­icy bat­tles in Luthuli House, with no one doubt­ing the many bud­get com­mit­ments made in the 12 years of Manuel’s ten­ure. It’s this level of sup­port that Mboweni will have to be af­forded if SA is to re­gain the con­fi­dence of stake­hold­ers.

We are all still liv­ing with the ef­fects of the tec­tonic shifts in the global sys­tem af­ter the last re­ces­sion, shifts that have dis­rupted our pol­i­tics and un­leashed a pop­ulist wave that has been ac­cen­tu­ated by the growth of so­cial me­dia. In this era, some rather ill-con­sid­ered eco­nom­ics are brought to the fore without any depth to the ar­gu­ment. It’s for Pres­i­dent Cyril Ramaphosa to be strong and for his cabi­net to de­fend the Trea­sury against the mud thrown their way in what is clearly an aus­tere sea­son for the state.

The big­gest faux pas has been the mu­si­cal chairs in the Trea­sury

New fi­nance min­is­ter Tito Mboweni

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