Political Economy Watch

Massive task awaits Gordhan after SONA

Heavy burden on Gordhan’s shoulders
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Last week’s SONA was, on the economic front, largely a holding exercise. A massive task now awaits Finance Minister Pravin Gordhan to stave off a sovereign credit downgrade.

This is all the more true against the background of a South African Chamber of Commerce and Industry (Sacci) Trade Conditions Survey’s finding that the country’s strained trade conditions presently closely resemble the conditions before the recession in 2007/8.

President Jacob Zuma’s Thursday State of the Nation Address (SONA) in parliament, after the expected pre-election party political posturing was over – and less chaotic than feared – had done not too bad a ‘holding job’. This was reflected in the fact that by late Friday trading of the rand was steady and stocks reacted in line with global markets, be it on lower levels.

Considering that Mr Zuma is suffering a huge credibility gap – in the words of former trade union boss Zwelinzima Vavi there is a breakdown of trust between government and the population – the address did fairly well on the economic front.

This can probably be ascribed to the fact that it was clearly not a speech produced by Mr Zuma himself. It had all the thumbprints of the ANC’s leadership collective having taken over control.

Hand of Gordhan

The hand of Mr Gordhan in the SONA was already evident in its hints that South Africa is heading towards an era of austerity – including the fact that the highly emotional and contentious subject of a single capital city made a reappearance.

Mr Zuma called on parliament to consider the issue and the cost involved in maintaining both and ferrying officials between Pretoria and Cape Town – a subject that has been debated by government over many years. To date it has not come close to resolution, among other things because of the cost involved in replicating the existing parliamentary infrastructure, such as the three parliamentary villages.

It also has very serious economic implications for Cape Town and surrounds, should parliament be relocated to Gauteng. It could become a hot political issue if the ANC, with its present majority in parliament, is tempted to use it as a threat against Western Cape voters for voting a Democratic Alliance government into power in the province.

Nowhere has Mr Gordhan’s hand been clearer on display than in the intentions of cutting the cost of running the government.

In 2013 Minister Gordhan announced similar cost-cutting measures, which have now been revived. These include doing away with departmental budget vote dinners.

There was also an announcement that four years after a Presidential Review Committee on State-owned Enterprises brought out a report its recommendations will finally be implemented.
Within the context of austerity and keeping a lid on state expenditure, Mr Zuma for the first time emphasised the importance of the affordability of nuclear energy. To date this subject has been surrounded by deep controversy as a legacy project for his administration.

Although nuclear procurement remained a part of future energy plans, it would be done only on “a scale and pace that our country can afford”, Mr Zuma said.
Over to the budget

Mr Zuma’s address, however, remained thin on detail and it is now up to Minister Gordhan to deal with the nuts and bolts in his budget submission to parliament on 24 February.

He will have to convince the global marketplace, and above all international rating agencies, that South Africa will do – and not just promise to do – what is needed to avoid a credit downgrading to junk status.

Not all factors are under his control in a tremulous global economic environment. This is well illustrated by the fact that analysts mostly described the firming of the rand last week as not a reaction to the SONA, but rather to a recovery in the position of the US dollar and the performance of South African stocks locked into trends on global markets.

As it stands, things are shaping up to a situation where Mr Gordhan will be submitting probably one of the most crucial national budgets in the history of the country, hampered by the credibility gap that has developed under the Zuma administration.

by Piet Coetzer

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