tag:theconversation.com,2011:/id/topics/national-treasury-32232/articlesNational Treasury – The Conversation2022-10-03T07:47:20Ztag:theconversation.com,2011:article/1915142022-10-03T07:47:20Z2022-10-03T07:47:20ZKenya’s new finance minister has good credentials but he can’t work miracles<figure><img src="https://images.theconversation.com/files/487255/original/file-20220929-14-btga69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Yasuyoshi Chiba/AFP via Getty Images</span></span></figcaption></figure><p>President William Ruto has nominated <a href="https://www.weforum.org/people/njuguna-s-ndung-u">Njuguna Ndung'u</a> to head Kenya’s National Treasury. A Central Bank of Kenya governor for eight years between 2007 and 2015, Ndung'u is also an accomplished researcher and a University of Nairobi academic. He has <a href="https://financelawpolicy.umich.edu/speaker/njuguna-ndungu">extensive expertise</a> in macroeconomics (inflation, economic growth, national income and unemployment) and poverty reduction.</p>
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<img alt="Photo of Prof Njuguna Ndung'u" src="https://images.theconversation.com/files/487063/original/file-20220928-16-19otl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/487063/original/file-20220928-16-19otl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=821&fit=crop&dpr=1 600w, https://images.theconversation.com/files/487063/original/file-20220928-16-19otl1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=821&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/487063/original/file-20220928-16-19otl1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=821&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/487063/original/file-20220928-16-19otl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1032&fit=crop&dpr=1 754w, https://images.theconversation.com/files/487063/original/file-20220928-16-19otl1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1032&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/487063/original/file-20220928-16-19otl1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1032&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Njuguna Ndung'u served as Central Bank of Kenya governor between 2007 and 2015.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/central-bank-of-kenya-governor-prof-njuguna-ndungu-news-photo/73513801">Getty Images</a></span>
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<p>If parliament approves his nomination, Ndung'u will lead the treasury in difficult circumstances. The country is just emerging from divisive electoral campaigns. It also faces economic challenges. </p>
<p>The government is spending more than it <a href="https://www.bloomberg.com/news/articles/2022-04-07/debt-plan-in-focus-in-kenya-s-national-budget-before-elections">gets in revenue</a>, inflation is <a href="https://theconversation.com/inflation-is-rising-in-kenya-heres-why-and-how-to-fix-it-186479">rising</a> and the value of the shilling is <a href="https://www.african-markets.com/en/news/east-africa/kenya/kenyan-shilling-hits-historic-low-of-119-against-the-dollar-ahead-of-polls">tumbling</a> against major currencies. </p>
<p>Ndung'u has his work cut out for him. Ruto campaigned on the platform of mending a broken economy and redistributing growth dividends to low-income earners.</p>
<p>With a PhD in economics, Ndung'u has a deep understanding of both local and global economic trends. His latest stint was as executive director of the <a href="https://aercafrica.org/leadership/njuguna-ndungu-3/">Africa Economic Research Consortium</a>, a research and policy think-tank.</p>
<p>He has been an advisor to international organisations, such as the <a href="https://www.brookings.edu/about-us/">Brookings Institution</a> and the <a href="https://www.idrc.ca/en/about-idrc">International Development Research Centre</a> (Africa’s regional office).</p>
<h2>The job at hand</h2>
<p>The Treasury Cabinet Secretary (finance minister) manages the revenues and expenditures of the country. </p>
<p>The government gets its revenue from taxes, grants, debts and dividends paid by state-owned enterprises. The treasury (ministry of finance) delegates powers to raise such revenues. </p>
<p>On the spending side, the ministry has to contend with the dictates of other institutions like parliament, the central bank and multilateral organisations like the World Bank and the International Monetary Fund. Decisions have to be made about how the revenue is shared and used – for recurrent expenditure like paying salaries and debt, and for development such as building roads or hospitals. </p>
<p>In Kenya, the decision is complicated by another factor. The money must be <a href="https://cra.go.ke/">shared</a> with 47 counties.</p>
<h2>What he brings to the position</h2>
<p>Ndung'u will have to make Ruto’s <a href="https://theconversation.com/what-william-rutos-presidency-would-mean-for-kenyas-economy-188766">bottom-up economics</a> model work. That means focusing on the people at the bottom of the pyramid who lack capital and opportunities to run businesses. The expectation is that empowering this segment of society would create more jobs and give more citizens a higher standard of living. This model is contrasted with trickle-down economics, which gives resources to a few at the “top” in the hope that it spreads down to the masses. </p>
<p>Ndung'u previously worked at the <a href="https://kippra.or.ke/">Kenya Institute of Public Policy Research and Analysis</a>, which advises government departments, including the National Treasury, on policy issues. In 2001, he helped develop a macroeconomics model to analyse Kenya’s economy. </p>
<p>He is back in familiar waters, having been a central bank governor at the <a href="https://www.theguardian.com/world/2007/dec/31/kenya.topstories3">chaotic start</a> of Mwai Kibaki’s second term in 2008, when post-election violence and the global financial crisis slowed down the Kenyan economy. He was a <a href="https://www.bis.org/review/r070706d.pdf">member</a> of the <a href="https://nation.africa/kenya/news/prime-minister-named-to-high-level-advisory-team--558748?view=htmlamp">National Economic and Social Council</a> that Kibaki put together to lift the economy. </p>
<p>His most valuable experience for the task at hand is, perhaps, his mastery of <a href="https://www.centralbank.go.ke/introduction/">monetary tools</a> as a central banker. His new role focuses on fiscal policy (spending, tax and debt).</p>
<p>He is likely to work in tandem with the central bank, avoiding fiscal policies that upset monetary measures (like interest rates). Harmony between fiscal and monetary policies would be good for stability of the currency (as <a href="https://theconversation.com/only-a-u-turn-by-the-government-or-the-bank-of-england-will-calm-uk-financial-markets-191523">the UK is finding out</a>).</p>
<p>Ndung'u is also known to have championed <a href="https://www.cgdev.org/blog/investing-financial-inclusion-podcast-njuguna-ndungu">financial inclusion</a>, mainly through mobile banking. This implies mass access to affordable payments, savings, credit and insurance.</p>
<p>He was bold in getting banks to accept mobile money, which was unpopular at the time. This may be a quality needed to drive bottom-up economics. There will have to be institutional changes to accommodate bottom-up economics and some resistance is to be expected. Kenyans are used to trickle-down economics.</p>
<h2>Missing in his tool box</h2>
<p>But Ndung'u lacks political experience in a cabinet dominated by politicians. He is a technocrat and, as Uhuru Kenyatta’s first term showed, some technocrats find it hard to fit into a new political dispensation. <a href="https://nation.africa/kenya/blogs-opinion/opinion/uhuru-s-shift-from-a-cabinet-of-technocrats-to-one-of-politicians--7652">Political experience</a> matters even in the most technical of jobs. In addition, Kenyatta lost his political clout partly because his cabinet, dominated by technocrats, lacked the <a href="https://nation.africa/kenya/news/politics/technocrat-css-did-not-understand-people-ours-do-rigathi-3970752">political weight</a> to sell government programmes to his core support base. </p>
<p>Ruto, too, needs to be careful, in my view. The Treasury under his regime should give free markets a human face. For example, the removal of subsidies could be seen as heartless.</p>
<h2>What may not change</h2>
<p>I doubt <a href="https://www.theeastafrican.co.ke/tea/business/kenya-ruto-appeals-to-world-bank-imf-g20-africa-debt-relief-3958012">debt taps</a> will close during Ndung'u’s tenure. The debt ceiling may be raised again in the new administration. Given the country’s budget deficit, which is about 6.2% of annual production (GDP), borrowing is bound to continue. </p>
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Read more:
<a href="https://theconversation.com/kenya-has-breached-its-public-debt-ceiling-how-it-got-there-and-what-that-means-190006">Kenya has breached its public debt ceiling – how it got there and what that means</a>
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<p>If there is change, it might come in the mixture of debt between long term and short term, as well as bilateral and multilateral loans.</p>
<p>At the moment, Kenya borrows equally from local and foreign lenders. Ruto wants Kenyans to save more, reducing the need for external borrowing. This is unlikely in the short run because of the poverty levels. People save after taking care of the basics, like food and shelter. </p>
<p>Inflation is also likely to remain an issue. Will <a href="https://www.businessdailyafrica.com/bd/markets/capital-markets/cbk-announces-sharp-rise-interest-rate-to-fight-inflation-3967182">interest rate hikes</a> slow down inflation? Will government raise wages and salaries to cushion workers? Could cutting taxes be a better option despite fears of stoking inflation? The UK is a good <a href="https://www.reuters.com/world/uk/imf-says-uk-fiscal-measures-will-likely-increase-inequality-urges-rethink-2022-09-27/">case study</a> – its tax cuts have led to a weaker currency, which implies higher inflation. </p>
<p>Finally, reliance on fiscal and monetary tools may not bear fruit. Kenya is a very informal economy. Tools like interest rate cuts may not work effectively when people borrow mostly informally.</p>
<p>Foreign direct investment and increased trade would be more <a href="https://www.worldbank.org/en/news/feature/2010/07/16/foreign-direct-investment-china-story">effective</a> than borrowing, as long as the business environment is attractive to investors.</p><img src="https://counter.theconversation.com/content/191514/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>XN Iraki does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Njuguna Ndung'u has the experience that suits Ruto’s bottom-up economics but lacks the political gravitas to appease voters.XN Iraki, Associate Professor, Faculty of Business and Management Sciences, University of NairobiLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1771882022-02-17T12:04:04Z2022-02-17T12:04:04ZSouth Africa’s fiscal squeeze: warning signs ignored for too long<figure><img src="https://images.theconversation.com/files/446715/original/file-20220216-13-1s4p0du.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty images</span></span></figcaption></figure><p>An analysis of South Africa’s current economic crisis which has put the country on the path of fiscal unsustainability was recently <a href="https://www.wider.unu.edu/publication/macroeconomic-risks-after-decade-microeconomic-turbulence">published</a> by renowned economics professor Ricardo Hausmann and a number of co-researchers.</p>
<p>The paper shows clearly that South Africa embarked on an unsustainable fiscal trajectory over the last decade. Specific attention is drawn to the fiscal pressures coming from unsustainable growth in civil service remuneration and social grant expenditure over the period under review. </p>
<p>At the same time, economic growth in South Africa underperformed. Over the past decade, the trend in actual economic growth <a href="https://tradingeconomics.com/south-africa/gdp-growth-annual#:%7E:text=GDP%20Annual%20Growth%20Rate%20in,the%20second%20quarter%20of%202020">declined</a>. In addition the country’s full potential economic growth rate also <a href="https://www.econrsa.org/system/files/publications/working_papers/working_paper_585.pdf">declined</a> from around 2,5% per annum to around 1,5%.</p>
<p>South Africa clearly faces a serious fiscal dilemma and hard choices. The relevant question is: Who should have listened and who should have cared in the period running up to the current fiscal crisis?</p>
<p>The answer, as we set out below, encompasses many culprits. This includes trade unions who demanded too large civil service remuneration increases and those in the executive who granted these increases. The National Treasury is also on the list. It repeatedly overestimated annual economic growth and tax revenue. And so is parliament: its structures failed in their oversight role.</p>
<h2>The culprits</h2>
<p>The impact of extensive growth in civil service remuneration and social grant expenditure on the country’s fiscal sustainability was hidden for many years in unrealistically high annual growth projections used by the <a href="http://www.treasury.gov.za/documents/national%20budget/default.aspx">National Treasury</a> in the annual budget documentation. </p>
<p>This is evident from a review of budget documentation of successive years published by the National Treasury.</p>
<p>Both of us are part of the Fiscal Cliff Study Group, an informal group that has been assessing fiscal sustainability since 2013. We warned against this practice on numerous occasions, particularly <a href="https://pmg.org.za/tabled-committee-report/4093/">in submissions</a> to the Standing and Select Committees on Finance of Parliament. </p>
<p>These warnings were at first brushed off as being <a href="http://www.treasury.gov.za/comm_media/presentations/South%20Africa's%20long-term%20fiscal%20choices%205%20Nov%202014.pdf">alarmist</a>. But they were confirmed over time, as evident from various Budget Reviews.</p>
<p>Revenue and expenditure estimates were based on unrealistic projections, leading to a compounding error effect. Lower than estimated revenue figures became the norm. At the same time expenditure continued to grow unabated. This resulted in a widening of the deficit before borrowing and in government debt <a href="https://tradingeconomics.com/south-africa/government-debt-to-gdp">as a percentage of GDP</a>. More realistic assumptions for government revenue budgets should have been adopted earlier, thus limiting systemic errors in budget assumptions.</p>
<p>Over the same period the number of social grant recipients <a href="https://businesstech.co.za/news/government/459186/how-many-south-africans-now-rely-on-social-grants-1996-vs-2020/">increased</a>. With the inclusion of the Covid-19 grants recipients, more than 30% of South Africans are direct beneficiaries of <a href="https://www.statista.com/statistics/1116081/population-receiving-social-grants-in-south-africa-by-province/">some form of social assistance</a>. </p>
<p>We recognise the important role of grants for poverty alleviation. But it would be negligent to not, at the same time, highlight the heavy burden this places on the already overstretched fiscus, and on taxpayers. It leaves no room for further permanent increases in social grants.</p>
<p>A related problem is that grant payments crowd out investment spending by the government. The focus in fiscal planning shifted to the continued funding of consumption expenditure. Warnings about this development were also ignored.</p>
<p>The paper <a href="https://www.wider.unu.edu/publication/macroeconomic-risks-after-decade-microeconomic-turbulence">by Hausmann and his colleagues</a> also highlights the impact of civil service remuneration increases above the rate of inflation on South Africa’s precarious fiscal position. The true nature and full impact of this problem was not disclosed for many years. </p>
<p>Despite limited information, concerns were also raised about the growth trends in civil service remuneration and in social grant expenditure, with a concomitant impact on government borrowing and the interest burden, <a href="https://www.econrsa.org/system/files/workshops/presentations/2013/south_africas_fiscal_cliff_combined.pdf">as far back as May 2013</a>. It was only after continued requests that an appendix detailing civil service remuneration trends has begun to be included annually in the government’s <a href="http://www.treasury.gov.za/documents/mtbps/2017/mtbps/Annexure%20B.pdf">Medium Term Budget Policy Statement since 2017</a>.</p>
<p>A major deficiency in South African fiscal policy is promises made by politicians and demands by civil society for more expenditure, that cannot be accommodated within the budget limitations facing the government. One current example is growing demands for a <a href="https://awethu.amandla.mobi/petitions/basic-income-support-for-aged-18-to-59-now">universal basic income grant</a>. </p>
<p>These demands are made with seemingly little acknowledgement of the country’s precarious fiscal position. </p>
<h2>Averting the inflation pitfall</h2>
<p>Under conditions of fiscal unsustainability, many countries often also suffer <a href="https://inepan.pl/wp-content/uploads/2016/07/Working-Papers-47.pdf">high inflation</a>. This danger should be averted in South Africa. </p>
<p>Containing inflation is the responsibility of the South African Reserve Bank in terms of a monetary policy framework anchored in inflation targeting. However, this responsibility has to be supported by sound fiscal policy. Containing inflation can become impossible under conditions of fiscal unsustainability.</p>
<p>Under conditions of high inflation, the real value of government debt is eroded, thus reducing (in real terms) the burden placed on government’s fiscal position. In such a situation the government is the only winner, albeit at the expense of the general population. </p>
<p>But the caveat here is that these are merely short term wins with long term detrimental economic effects far outweighing any short term gains.</p>
<p>Will someone be listening this time?</p><img src="https://counter.theconversation.com/content/177188/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw is an NRF-rated researcher and previously received funding from the National Research Foundation. </span></em></p><p class="fine-print"><em><span>Stephanus Johannes Joubert does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The sums aren’t adding for South Africa on either the spending or revenue side. It’s a problem that’s developed over time with no action being taken.Jannie Rossouw, Visiting Professor at the Business School, University of the WitwatersrandStephanus Johannes Joubert, Senior Lecturer in Economics , University of South AfricaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1730722021-12-08T10:46:32Z2021-12-08T10:46:32ZSouth Africa’s corruption busters: short-changed on funding and political commitment<figure><img src="https://images.theconversation.com/files/435876/original/file-20211206-104971-1h6b4xm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African trade union members take mass strike action against corruption in October 2020.</span> <span class="attribution"><span class="source">Photo by Darren Stewart/Gallo Images via Getty Images</span></span></figcaption></figure><p>The word corruption has its roots in the Latin adjective corruptus which refers to something that is spoiled, corrupted or <a href="https://www.wordsense.eu/corruptus/">perverted</a>.</p>
<p>In South Africa, evidence of the perversion of public funds abounds. In his 2021 Medium-Term Budget Policy Statement the country’s finance minister Enoch Godongwana warned that rampant corruption was a persistent issue <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/FullMTBPS.pdf">draining public finances</a>.</p>
<p>At the height of the COVID pandemic South Africans witnessed how corruption further exacerbated the unprecedented disruption to their <a href="https://mg.co.za/opinion/2020-08-05-corruption-hampers-the-development-of-south-africas-youth/">education, employment, entrepreneurial pursuits and other opportunities for advancement</a>. </p>
<p>In September 2021, South Africa’s Special Investigating Unit <a href="https://issafrica.org/iss-today/south-africas-mixed-messages-on-procurement-corruption">told Parliament that</a> <a href="https://issafrica.org/iss-today/south-africas-mixed-messages-on-procurement-corruption">R14.8 billion</a>, associated with COVID-19 spending from April 2020 to June 2021, was being investigated for procurement irregularities.</p>
<p>Mounting cases of procurement corruption are being investigated </p>
<p>An estimated <a href="https://www.sabcnews.com/sabcnews/corruption-costs-sas-gdp-r27-billion-annually/">R27 billion</a> (about US$1.7billion) is lost to corruption. This represents over one-third of the 2021/22 health budget. In addition, between <a href="https://businesstech.co.za/news/industry-news/367824/how-to-reduce-money-laundering-in-2020/">R159 and R400 billion</a> (about US$10billion and US$25billion) is lost in illicit financial flows annually in the country.</p>
<p>Is South Africa doing enough to transform a state of ‘corruptus in extremis’? The phrase famously appeared in the American animated sitcom <a href="https://www.youtube.com/watch?v=8cPLpyHeha0">The Simpsons</a> in which Mayor Quimby exhibited the phrase meaning ‘extremely corrupt’ on a crest on his office wall. The mayor was allegedly a parody of US senator Ted Kennedy.</p>
<p>We argue that South Africa isn’t doing nearly enough. Key regulatory and oversight agencies <a href="https://pmg.org.za/committee-meeting/31632/">are underfunded</a>. This can have dire consequences, especially for the delivery of public services. The greatest impact is felt <a href="https://journals.co.za/doi/pdf/10.10520/ejc-jpad-v55-n3-1-a11">by the most vulnerable</a>. Corrupt activities redirect money that was intended to reach key sectors such <a href="https://www.news24.com/news24/analysis/explainer-ace-magashule-warrant-what-you-need-to-know-about-the-free-state-asbestos-deal-20201110">as housing</a> , income grants and public healthcare.</p>
<p>In addition, the country has made <a href="https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Executive-Summary-Mutual-Evaluation-South-Africa.pdf">slow progress</a> recovering assets lost to state capture and corruption. </p>
<h2>The gaps</h2>
<p>South Africa’s National Anti-Corruption Strategy seeks to commit the state to a 6-pillar anti-corruption strategy. One of <a href="https://www.gov.za/sites/default/files/gcis_document/202105/national-anti-corruption-strategy-2020-2030.pdf">these</a> aims to:</p>
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<p>strengthen the resourcing, coordination, transnational cooperation, performance, accountability and independence of dedicated anti-corruption agencies. </p>
</blockquote>
<p>Over the medium term, the National Treasury states that it is committed to working with departments to assess the efficiency, effectiveness and performance of key programmes. </p>
<p>According to the finance minister, this will be achieved by prioritising funds to improve capacity in institutions combating crime and corruption.</p>
<p>There are other positive policy pronouncements. The Anti-Corruption Task Team has been enhanced. And there have been key appointments and recent high-profile investigations. </p>
<p>Since 2018 there have been important efforts to strengthen flailing leadership and governance in the National Prosecuting Authority and the Special Investigating Unit as well as the Anti Corruption Task Team. </p>
<p>And the multi-stakeholder <a href="https://www.opengovpartnership.org/">Open Government Partnership</a> platform is showing some signs of re-awakening. A national action plan has been tabled. It includes commitments for open procurement, fiscal transparency and beneficial ownership transparency. </p>
<p>But the plan has been criticised for its <a href="https://www.opengovpartnership.org/documents/south-africa-action-plan-review-2020-2022/">weakness</a>. In addition, The Presidency’s silence about it is cause for concern, particularly given that South Africa was an OGP founder-member.</p>
<p>A crucial issue to monitor is the extent to which the priorities emphasised in the National Anti-Corruption Strategy are supported in the budget. </p>
<p>There have been some worrying trends. Budget cuts have been made to important programmes. There has also been slow progress in meeting performance indicators in key programmes. </p>
<p>The call in the medium term budget for stronger anti-corruption interventions was not adequately backed by meaningful financial resourcing.</p>
<p>The <a href="https://www.npa.gov.za/node/9">National Prosecuting Authority</a> conducts criminal proceedings on behalf of the state. In 2021/22 its budget was increased. But the real term value, <a href="http://www.statssa.gov.za/publications/P0141/P0141October2021.pdf">after factoring inflation</a> was marginal. This has been identified as a risk to its ability <a href="https://pmg.org.za/committee-meeting/33278/">to continue to compensate</a> recently recruited staff.</p>
<p>Similarly, the head of the National Prosecutions Authority <a href="https://www.sabcnews.com/sabcnews/a-new-approach-is-needed-in-the-way-crimes-are-prioritised-batohi/">has stated</a> that budget and other resource constraints continue to undermine the institution’s capacity. </p>
<p>But the National Prosecutions Authority faces criticism that it’s been slow fulfilling its mandate. For instance, in the 2021/22 financial year, it convicted only 29 government officials for corruption and/or related offences against an annual target of 232.</p>
<p>Moreover, 43 people were convicted of corruption in the private sector against an annual target of 158.</p>
<p>The job of the Special Investigating Unit is to institute civil action to recover ill-gotten gains. But it hasn’t been given any additional funding. Sufficient and increased funding would help build the unit’s capacity to confront complex and high-level corruption cases.</p>
<p>A recent investigations revealed a criminal syndicate involving public officials, private companies and the use of ID numbers of dead people to <a href="https://www.timeslive.co.za/news/south-africa/2021-11-17-government-officials-private-companies-and-individuals-abused-uif-covid-19-ters-benefits/">illegally claim payments</a> from the Unemployment Insurance Fund. </p>
<p>The budget for the Department of Justice and Constitutional Development has also been cut. The reduction is troubling given that South Africa urgently needs to reform outdated processes. </p>
<p>The cuts are affecting the department’s ability to increase access to justice services and to accelerate the turnaround times of expensive and lengthy corruption court proceedings. </p>
<p>Another institution affected by budget cuts is the Public Service Commission. Its remit includes promoting constitutional values and the principles of public administration. The commission’s Integrity and Anti‐corruption programme had its budget cut. </p>
<p>Budget reductions like this call into question government’s commitment to realise its stated claim of tackling corruption. The programme reportedly met its performance targets for the first half of 2021/22. For example, 100% of public administration investigations were investigated and finalised within 90 days against a target of 60%.</p>
<p>The Department of Cooperative Governance and Traditional Affairs also has a role in anti-corruption efforts. The local government sphere is often cited for its service delivery failings as well as alarming levels of maladministration. </p>
<p>The consolidated general report of local government audit outcomes for the 2019/20 financial year indicates that <a href="https://www.dailymaverick.co.za/article/2021-06-22-local-government-failures-another-year-another-inspection-another-bad-outcome-with-a-few-exceptions/">only</a><a href="https://www.dailymaverick.co.za/article/2021-06-22-local-government-failures-another-year-another-inspection-another-bad-outcome-with-a-few-exceptions/">27 municipalities</a> (9.7 %) achieved clean audits. And only <a href="https://www.timeslive.co.za/news/south-africa/2021-06-30-just-27-municipalities-get-clean-audits-as-ag-says-skills-to-fix-the-problems-are-lacking/">28% of municipalities</a> submitted quality financial statements for auditing. </p>
<p>Given this bleak state of affairs, financial support for the department’s key programmes becomes even more crucial. Unfortunately two of its key programmes have had their budgets cut.</p>
<h2>Next steps</h2>
<p>Proper financial resourcing of public institutions tasked with anti-corruption work is vital to prevent massive public finance losses. </p>
<p>South Africa’s anti-corruption strategy outlines enabling factors for:</p>
<ul>
<li><p>effective anti-corruption interventions; </p></li>
<li><p>public-private collaboration, political support, resolute enforcement by public officials and </p></li>
<li><p>enforcement of consequences for maladministration.</p></li>
</ul>
<p>But that on its own is not enough. </p>
<p>It’s vital to have targeted, and enabling budget allocations to support anti-corruption institutions in addition to tracking expenditure.</p>
<p>To support improved monitoring activities, it’s vital to promote proactive disclosure of procurement and expenditure information. This includes the online publication of comprehensive procurement and contracting information from all phases of the procurement cycle across all organs of state. </p>
<p>It’s high time that the National Treasury and Office of the Chief Procurement Officer implement open contracting. This would increase the potential for monitoring and enable more meaningful accountability action in the procurement cycle.</p>
<p>And preventative actions need to be prioritised. Examples include the automation of systems to speed up the detection of conflicts of interest. This is particularly critical where politically exposed people are concerned. </p>
<p>Steps also need to be taken to improve the collection of beneficial ownership data. This can be used to help detect potential signs of bid-rigging and conflicts of interest. </p>
<p>This would also help track and ultimately reduce illicit cash flows. While South Africa has an existing definition of a beneficial owner in the Financial Intelligence Centre Act, this definition needs further refining to ensure a more comprehensive net is created. </p>
<p>These trends and indicators provide compelling grounds to call on the government to escalate its open government interventions, to properly resource anti-corruption interventions and to take resolute steps towards open contracting, procurement and overall transparency reforms. </p>
<p>Lastly - and perhaps most importantly - effectively capacitating more ethical public institutions while proactively addressing instances of capture need to be central to the reform agenda. </p>
<p>It is not too late to change the script and direction with regard to South Africa’s corruptus in extremis.</p><img src="https://counter.theconversation.com/content/173072/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>South Africa isn’t doing enough to tackle corruption. Key regulatory and oversight agencies are underfunded. And accountability is weak.Zukiswa Kota, Head of Monitoring and Advocacy, Public Service Accountability Monitor, Rhodes UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1722472021-11-22T15:30:06Z2021-11-22T15:30:06ZSouth Africa faces a slowly worsening chronic fiscal crisis<figure><img src="https://images.theconversation.com/files/432811/original/file-20211119-13-1caybnt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa President Cyril Ramaphosa: His party's 2022 elective conference and the country's 2024 national elections will define political choices</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>South Africa’s National Treasury has done an excellent job in the <a href="http://www.treasury.gov.za/documents/mtbps/2021/">2021 medium term budget policy statement</a> of balancing the fiscal and political pressures forced on it by economic stagnation and the incoherence of government policy. <a href="https://www.businesslive.co.za/bd/opinion/2021-11-12-mokgatla-madisha-the-mtbps-delivered-for-the-markets-with-no-surprises/">Capital markets cheered</a> for two reasons. First the revenue numbers were substantially better than those presented in the February 2021 budget. This created potential fiscal space of about R132 billion in the current year, and R64 and R59 billion in the next two years respectively.</p>
<p>Second, Finance Minister Enoch Godongwana resisted political pressure for substantial commitments to permanent increases in spending. About R60 billion (or 1% of GDP) was added to the spending ceiling in 2021 and R30 billion over each of the next two years, less than half the value of the revenue improvement. Treasury also erred on the side of caution in projecting <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Chapter%202.pdf#page=5">economic growth</a> and <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Chapter%203.pdf#page=9">tax buoyancy</a>, which leaves substantial room for higher revenue and a lower deficit. <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Glossary.pdf#page=8">Tax buoyancy</a> is a measure of relationship between total tax revenue collections and economic growth.</p>
<p>The increased spending is dominated by three items: wage increases for public servants, the extension of the social relief of distress grant, and President Cyril Ramaphosa’s <a href="https://www.gov.za/speeches/speaking-notes-minister-nxesi-announcement-phase-two-presidential-employment-stimulus-14">public works programme</a>. While Treasury <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Chapter%201.pdf#page=7">presented each of these as temporary</a>, in all likelihood they amount to permanent increases in spending. Instead of conceding this reality in advance, the fiscal framework builds in large buffers of unallocated funds. </p>
<p>By holding back part of the spending increase in reserve, Treasury deftly provided space for the political leadership to make choices and confront real trade-offs while simultaneously clarifying Treasury’s own view of the fiscal constraints within which this debate should take place. </p>
<h2>Cabinet caught in the headlights</h2>
<p>An improved fiscal outlook that accommodates spending pressures is encouraging but there are two caveats. First, the chronic position of the country’s public finances continues to worsen. This can be seen in several metrics. Growth remains <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Annexure%20A.pdf#page=2">far below interest rates</a> and GDP per capita is expected to continue stagnating. <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Chapter%203.pdf#page=14">Debt service costs</a> are crowding out social spending.</p>
<p>Money owed by provincial governments to suppliers (largely for essential medical goods) is rising at a rapid rate. Most municipalities are in financial distress, with <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Annexure%20A.pdf#page=4">uncollected revenues</a> reaching R232 billion. The fiscal crisis of local government feeds into the bankruptcy of public utilities, and the latter shows no sign of abating. </p>
<p>As long as Cabinet appears caught in the headlights, unable to offer a programme to overcome the grave operational and financial crises in the provision of municipal services, electricity, water, road construction, and passenger rail, declarations that <a href="https://ewn.co.za/2021/11/11/godongwana-no-more-easy-bailouts-just-tough-love-for-soes">“there will be no bailouts”</a> are posturing. The ongoing destruction of value must be reflected somewhere in the national balance sheet, even if it is not recognised in the budget.</p>
<p>Second, Treasury’s strategy to overcome this chronic fiscal crisis rests on highly uncertain political and economic foundations. The strategy proposed is a deep shock to public expenditure executed over the next two years –- 2022 to 2023. In real terms, core spending is set to contract by 4% each year. This amounts to reduction in real spending per capita of more than 10%.</p>
<p>The 2021 medium term budget policy statement tells us that following this short, sharp, shock to government consumption, the period of fiscal consolidation will be concluded. Having achieved a primary surplus, the national debt will stabilise, and expenditure increases will resume along a prudent path. </p>
<h2>Credibility of the fiscal framework</h2>
<p>This strategy depends on <a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Annexure%20B.pdf">a large reduction in the real incomes</a> of public servants and a fall in public employment. But the plan to hold down pay improvements this year has not worked out. Public servants negotiated an effective increase in average pay of more than 5%. This is in line with inflation. Also, headcount numbers have surged during the COVID-19 crisis, especially in the health sector. </p>
<p><a href="http://www.treasury.gov.za/documents/mtbps/2021/mtbps/Chapter%203.pdf#page=5">The idea</a> that public servants will accept the budgeted wage increases of 1.5% in 2022 and 2023 might be a good negotiating tactic but weakens the credibility of the fiscal framework. </p>
<p>This year South Africa is recovering from the COVID-19 shock and its economy is buoyed by a commodity boom. Public spending has also grown, albeit at a very low rate, providing some support to aggregate demand. Over the next two years, by contrast, Treasury is proposing a large negative fiscal impulse. In their forecast, a recovery in investment and sustained household demand will offset this fiscal contraction, resulting in a expansion in domestic expenditure.</p>
<p>But if these offsetting forces disappoint the proposed fiscal shock may be pro cyclical, slowing growth and raising unemployment. This would be the case if for instance the recovery in capital formation fails or global developments (such as deceleration in China and a tightening of global monetary policy) prove more adverse than currently assumed.</p>
<p>It’s true that a debt crisis and associated high interest rates dampen South African growth and point to the need for fiscal consolidation. But it is also true that a large and sustained consolidation – that is reducing government deficits and debt accumulation – will impede the recovery. </p>
<p>The consolidation as proposed in the medium term budget policy statement will also have problematic consequences for the supply side and long term growth. These depend on effective provision of basic education, criminal justice and healthcare. The deeper and more intense the contraction in spending, the more it will permanently scar these services. Public service reform is sorely needed to improve value for money, and it may well be argued that more spending won’t generate better social outcomes if the public service remains inefficient. But this says nothing about the impact of reduced spending. </p>
<p>The last ten years of <a href="https://www.econ3x3.org/article/part-1-fiscal-dimensions-south-africas-crisis">gnawing expenditure cuts</a> show that those with organised interests in the distribution of rent through the budget – public sector unions, business interests, and the political class – are quite capable of defending their share of the pie and passing the real costs of expenditure constraint on to the voiceless or unorganised. The temptation to engage in false economies, temporary measures, and unsustainable spending reductions will be huge over the next two years. </p>
<p>In theory, we might plan for a consolidation that is “growth friendly” for the economy and which limits the permanent damage of austerity on public services. But neither Treasury nor any other component of government have suggested such a programme. It would probably be prudent therefore to assume that it does not exist. The budget instrument that Treasury wields is blunt, the capacity of public administrators to manage the blow is weaker than ever, and unintended consequences will be widespread and debilitating. </p>
<p>The finance minister is proposing a decisive course correction in the fiscal accounts, followed by a steady path of expenditure prudence. In the context South Africa faces, it makes sense for Treasury to advance this clean and bright solution. It will help to negotiate the difficult choices government faces in the next two years. These choices include matters on which President Ramaphosa continues to hedge his bets for obvious political reasons – the public-sector wage agreement, the permanent extension of basic income support to working-age adults, and the resolution of the operational and financial crisis of public utilities.</p>
<p>The outcome is likely to be somewhere between Treasury’s negotiating position and imperatives that will define political choices. These choices will emerge as various factions jostle for supremacy in the 2022 ANC elective conference and the 2024 general elections. The most likely outlook remains a continuation along the current path of economic stagnation and slow worsening of South Africa’s chronic fiscal crisis.</p>
<p>__
A version of this article, <a href="https://www.econ3x3.org/sites/default/files/articles/Sachs%2C%20M_MTBPS_Nov21.pdf">The MTBPS clears some fiscal space but it is still a path through a swamp</a>, was first published by <a href="https://www.econ3x3.org/">Econ3x3</a>.__</p><img src="https://counter.theconversation.com/content/172247/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Sachs does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>National Treasury’s strategy to overcome South Africa’s chronic fiscal crisis rests on highly uncertain political and economic foundations.Michael Sachs, Adjunct Professor, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1126252019-03-06T15:05:46Z2019-03-06T15:05:46ZArts and culture were given money in South Africa’s budget. Why it matters<figure><img src="https://images.theconversation.com/files/261624/original/file-20190301-110140-jtosfn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African performers from the Mzansi Ballet.</span> <span class="attribution"><span class="source">John Hogg/EPA</span></span></figcaption></figure><p>Analysts came to a range of conclusions about <a href="https://www.gov.za/speeches/budget_vote">the budget speech</a> delivered recently by South Africa’s Finance Minister Tito Mboweni. But few paid attention to his comments on arts and culture. He made a commitment that National Treasury will identify funds to support a new national theatre and museum, among other initiatives.</p>
<p>Mboweni justified making financial commitments to these institutions by arguing that they could be seen as tools of <a href="https://www.jstor.org/stable/1148580">“soft power”</a>. Soft power is a term <a href="https://foreignpolicy.com/2018/08/20/the-rise-and-fall-of-soft-power/">coined</a> by American political scientist and former Clinton administration official, Joseph Nye, nearly three decades ago. It is,</p>
<blockquote>
<p>the ability of a country to persuade others to do what it wants without force or coercion.</p>
</blockquote>
<p>Applied properly, soft power can help play a part in the way a country wants people to see it. A creative industry example is the <a href="https://www.rollingstone.com/music/music-features/bts-kpop-albums-bands-global-takeover-707139/">K-Pop</a> phenomena, which took a Korean music subculture to a global audience. So it’s no surprise that Mboweni said:</p>
<blockquote>
<p>the global renown of South Africa’s art and culture is an expression of our soft power and our heritage. Our public finance choices should reflect an intention to preserve and add to our cultural canon.</p>
</blockquote>
<p>In national budgets, the hard issues like tax rates, economic growth, state-owned enterprises and national debt levels always, and understandably, attract more column inches than touchy, feely stuff like a “soft power” investment plan for 2019.</p>
<p>In Mboweni’s speech, delivered against the backdrop of weak economic growth coupled with deteriorating public finances, he went further: </p>
<blockquote>
<p>Officials from the National Treasury and the Department of Arts and Culture will consider proposals for the development of a new national theatre, a new national museum, and also consider financial support for the National Archives, a national orchestra and ballet troupe.</p>
</blockquote>
<p>This may have come as something of a surprise to the sector. Arts and culture are often the first area to <a href="https://www.theguardian.com/culture/2010/feb/19/arts-funding-global-recession">face budget cuts</a> when economic growth slows, as seen after the 2008 global financial crisis.</p>
<p>Indeed, the South African arts and culture industry is struggling. This is clear from the <a href="https://www.sowetanlive.co.za/entertainment/2019-01-03-famous-jozi-jazz-club-the-orbit-to-close-its-doors/">recent closure</a> of Johannesburg jazz mecca, The Orbit. Funding is also harder than usual to <a href="https://www.iol.co.za/ios/news/find-your-own-funding-ethekwini-tells-artists-19335860">secure</a> and some institutions are increasingly mismanaged. </p>
<p>Yet, arts and culture play a critical role in developing a sustainable and dynamic tourism industry in South Africa. Many cities such as <a href="https://www.theguardian.com/travel/2011/jun/08/top-10-art-spaces-barcelona">Barcelona</a> and <a href="http://nymag.com/visitorsguide/sightseeing/artscenes.htm">New York</a>, are tourist destinations because they have made art and culture the major attraction. They offer a diverse “art in tourism” experience.</p>
<p>South Africa, with its rich heritage of diverse cultures, communities, artefacts and art has the potential to boost the country’s economy in the same way. Given the importance of tourism as one of the biggest income producing industries and generators of employment in the failing South Africa economy, the arts can simply not be neglected, and may require the long-term investments outlined by Mboweni. </p>
<h2>Creating value</h2>
<p>The cultural and creative industries are increasingly recognised as potential drivers of job creation, economic growth and development. They include the more traditional areas of the cultural sector, such as visual arts, music and performing arts – what academic <a href="https://www.tandfonline.com/doi/abs/10.1080/09548960802361951">David Throsby</a> calls the “core” – as well as commercial sectors, such as design, advertising and architecture, what’s known as the “periphery”. </p>
<p>The South African cultural and creative economy is not insignificant. <a href="https://www.southafricanculturalobservatory.org.za/document-library">Estimates</a> show the GDP contribution of the cultural and creative industries was just over R62 billion or 1.7% of the total GDP in 2017. A 2018 South African Cultural Observatory <a href="https://www.southafricanculturalobservatory.org.za/document-library">mapping study</a> shows the greater cultural economy employs 6.94% of the national workforce. It generates one million jobs. </p>
<p>But Mboweni’s speech focused on the social and intrinsic value of arts and culture rather than economic value. Here he listed identity, heritage and soft power. </p>
<p>This is good news. Even in times of slow growth, the intrinsic values of culture are not being sidelined, which could so easily be the case. </p>
<p>This is particularly important in the South African context given the country’s history. As political scientist Kevin V Mulcahy <a href="https://link.springer.com/content/pdf/bfm%3A978-1-137-43543-9%2F1.pdf">argues</a>, cultural policy is political, much like art:</p>
<blockquote>
<p>Reclaiming the past by a newly independent people is a necessary element for regaining political sovereignty… a process of cultural nation building.</p>
</blockquote>
<p>Cultural institutions are key to this process. The inclusion of these in Mboweni’s speech is a commitment to platforms that support nation-building and social cohesion – essential ingredients for social stability, economic growth and exporting and importing soft power products.</p>
<h2>Something old, something new</h2>
<p>South Africa has a thriving and vibrant arts, culture and heritage sector. Many of the artists, institutions and the businesses thrive and, as acknowledged by Mboweni, contribute to South Africa’s cultural soft power. </p>
<p>Following the Budget Speech, there has been much <a href="https://city-press.news24.com/Voices/really-tito-we-need-another-theatre-and-museum-20190222">debate</a> at industry level about how the proposed new institutions might be constituted, funded and run. This includes how they could fit into existing institutions, such as the Cape Philharmonic Orchestra, KwaZulu-Natal Philharmonic Orchestra and Johannesburg Philharmonic Orchestra, Cape Town City Ballet and Jo'burg Ballet. </p>
<p>Yet, the development of a new national theatre and a new national museum does not necessarily mean new buildings or new entities – it could be that existing ones receive national status. The missing element though may be more direct support for an industry that gives a lot, albeit softly. </p>
<p>However, there is something to be said for government investment in both the <a href="https://theconversation.com/why-art-and-culture-contribute-more-to-an-economy-than-growth-and-jobs-52224">economic and intrinsic value</a> of arts, culture and heritage, when economies are in a recession and public resources under pressure.</p><img src="https://counter.theconversation.com/content/112625/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jen Snowball is a researcher at the South African Cultural Observatory, which is funded by the Department of Arts and Culture. </span></em></p><p class="fine-print"><em><span>Amy Shelver is an associate researcher for the South African Cultural Observatory. </span></em></p>Government support for the arts, culture and heritage is important even in tough economic conditions.Jen Snowball, Professor of Economics, Rhodes UniversityAmy Shelver, Associate research scientist, Nelson Mandela UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1061892018-11-02T14:46:26Z2018-11-02T14:46:26ZExplainer: lessons from the collapse of a small South African bank<figure><img src="https://images.theconversation.com/files/243682/original/file-20181102-83644-413bbl.jpg?ixlib=rb-1.1.0&rect=1970%2C747%2C1773%2C966&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Kuben Naidoo, South African Reverse Bank deputy governor and CEO of the country's Prudential Authority.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/unu-wider/23707971554/in/photolist-dKyqee-C7ZxYf">Flickr/UNU-WIDER</a></span></figcaption></figure><p>The South African Reserve Bank placed VBS, a small mutual bank, under curatorship in March this year against a backdrop of a serious liquidity crisis. The initial findings of the curator revealed significant financial losses, which prompted a decision to institute a forensic investigation. This was <a href="https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/8830/VBS%20Mutual%20Bank%20-%20The%20Great%20Bank%20Heist.pdf">completed</a> by early October and handed over to the banking regulator, the Prudential Authority. The report revealed widespread looting and subsequent cover-ups. The report was handed over to the country’s law enforcement authorities for further investigation and possible prosecutions. In <a href="https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/8830/VBS%20Mutual%20Bank%20-%20The%20Great%20Bank%20Heist.pdf">the words</a> of Advocate Terry Motau who headed up the investigation:</p>
<blockquote>
<p>I have, for the past five months, investigated the sorry affairs of the VBS Mutual Bank. My report will reveal that the perpetrators of the heist at VBS made away with almost R2 billion.</p>
</blockquote>
<p>Last week the banking regulator <a href="https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/8860/1VBS%20Liquidation%20release%2030%20October%202018.pdf">asked</a> a South African court to terminate the curatorship and for permission to wind up the affairs of the bank. The regulator argued that liquidation was necessary because VBS was hopelessly insolvent after being subject to massive fraud. This meant that there was no prospect of saving the bank. The South African Reserve Bank responded to questions on the issue from Jannie Rossouw, who is Head of School of Economic & Business Sciences, at the University of the Witwatersrand. </p>
<hr>
<p><strong>What drove the regulator’s decisions?</strong></p>
<p>In the first instance the decision to place the bank under curatorship was taken because the bank regulator realised that swift action was needed given the liquidity crisis that had come to light. This was necessary both to protect depositors as well as to make sure that no further damage could be done to the bank. The welfare of the depositors and the speed of execution was important.</p>
<p>The decision to go to court and ask for VBS to be liquidated six months later followed evidence that came to light as a result of the forensic investigation. The report showed that the bank had been subject to massive fraud. It was incumbent on the regulator to take action in the light of this evidence. As argued in the application, the regulator believes that the damage done to the bank is irreparable. And that it can’t be saved.</p>
<p><strong>Why the decision to go from curatorship to liquidation?</strong></p>
<p>When a bank is put under curatorship, the curatorship provides tools and instruments to manage the bank’s liquidity and its operations to save the bank, to put it back on a sound footing and to protect depositor funds. The idea is that the bank can be nursed back to health. </p>
<p>So the aim of curatorship is ultimately to turn the bank around. An example of this being executed successfully in South Africa was African Bank which was put under curatorship. It continues to operate today.</p>
<p>But the law states that when the registrar of banks is of the view that the bank is insolvent, they are legally obliged to go to court to apply for liquidation. This does <em>not</em> mean that the bank cannot be saved. But it does mean that the registrar is of the view – based on all the available evidence – that the bank is insolvent and probably can’t be saved. That is, that the probability of the bank being saved is limited. </p>
<p>The decision to apply for liquidation was made on the basis that the Prudential Authority believes the final winding-up of VBS is in the best interests of all parties. It paves the way for two things to happen. Firstly, it will allow a liquidator to use the insolvency law and the Companies Act to effect recoveries – in other words to protect people who had deposited money with the bank. And, secondly, it will mean that the recommendations of the investigator into the affairs of VBS can be followed.</p>
<p><strong>What does liquidation actually mean? What happens now?</strong></p>
<p>Liquidation provides for the winding down of a bank under the terms set out in the Companies Act. The bank will still be managed to maximise depositor value, to collect on loans and to recover as much money as possible. It does, however, reduce the discretion on the creditor hierarchy. In other words a curator has more discretion about who gets paid out what amount. Under liquidation, that discretion is removed. </p>
<p>Nevertheless, the National Treasury has issued a guarantee that will ensure that 97% of retail depositors will be <a href="https://www.fin24.com/Companies/Financial-Services/vbs-retail-depositors-to-get-their-money-back-20180709">covered</a>. That guarantee will remain should the court agree to the bank’s liquidation.</p>
<p><strong>What are the key lessons learnt from VBS?</strong></p>
<p>There are a number.</p>
<p>The first is that audit reports need to be treated with a degree of circumspection. In some cases they will require independent verification.</p>
<p>Another lesson is that the bank regulator needs stronger tools to force a bank to convert from a mutual bank licence to a full bank licence when they get to the point of being too big to fall under the mutual bank regulations. </p>
<p>Mutual Banks are <a href="http://www.treasury.gov.za/comm_media/press/2018/2018031401%20TREASURYS%20RESPONSE%20TO%20THE%20VBS%20MUTUAL%20BANK%20MATTER.pdf">very different</a> to commercial banks. The three main differences are that they tend to be smaller, that some types of deposits in mutual banks qualify as an ownership stake in the mutual bank and lastly that they’re not regulated to the same standard as commercial banks. Because they don’t carry as many risks, the regulatory framework governing them is substantially lighter.</p>
<p>But the events of VBS have shown that supervising small banks requires more resources. This is true even though the failure of a smaller bank won’t necessarily lead to systemic risk – it won’t pose a threat to the entire banking and financial services sector. But the risks still need to be managed better.</p><img src="https://counter.theconversation.com/content/106189/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw is a C-rated NRF researcher and received research funding from the NRF. He was a Deputy General Manager of the SA Reserve Bank in the period that Mr Tito Mboweni served as Governor.</span></em></p>One of the main lessons from the VBS Bank collapse in South Africa is that audit reports need to be treated with a degree of circumspection. In some cases they will require independent verification.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1056052018-10-24T15:07:31Z2018-10-24T15:07:31ZSouth Africa’s new finance minister postpones tough decisions<figure><img src="https://images.theconversation.com/files/242047/original/file-20181024-48721-4jyflk.jpg?ixlib=rb-1.1.0&rect=16%2C116%2C978%2C744&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Tito Mboweni must walk a fiscal tightrope.</span> <span class="attribution"><span class="source">GovernmentZA/Flickr</span></span></figcaption></figure><p>South African finance minister Tito Mboweni’s 2018 medium-term budget policy statement brought no surprises. Standing before the National Assembly on Wednesday 24 October, Mboweni <a href="http://www.treasury.gov.za/documents/mtbps/2018/speech/speech.pdf">presented</a> the Natural Treasury’s fiscal policy and projections for the next three years.</p>
<p>The country’s economic growth has been officially revised down to 0.7% – it was at 1.5% in the <a href="http://www.treasury.gov.za/documents/national%20budget/2018/speech/speech.pdf">Budget</a> tabled in February by one of Mboweni’s predecessors, Malusi Gigaba. Revenue collection is lower than had been forecast. This all means that national debt levels will, again, be higher than projected.</p>
<p>In short, there’s very little tangible good news. That is to be expected. The economy and public finances have been in a poor state for some time. The current level of economic growth is below estimates of population growth, meaning that South Africans will have become poorer per person by the end of the year. </p>
<p>But with debt levels having repeatedly exceeded the levels previous ministers of finance had promised, numerous risks on the horizon and an election looming, there was relatively little room for Mboweni to manoeuvre. </p>
<p>What Mboweni and National Treasury have tried to do is to keep walking an increasingly thin tight-rope. This involves containing the growth in debt while not reducing government expenditure or increasing taxation to the point where it greatly harms economic growth or South Africans’ well-being. </p>
<p>Unless economic growth improves, the country will have to step off this tightrope. Either debt must be increased well beyond what had been planned, possibly leading to downgrades, higher borrowing costs and the associated consequences. Or expenditure will be cut and more taxes imposed – leading to immediate negative effects for citizens.</p>
<h2>Public finances</h2>
<p>One way that Treasury is trying to stay on the tightrope is by making use of other borrowing and spending capacity in the state. In particular, it’s looking to government’s development finance institutions such as the Development Bank of Southern Africa, the Industrial Development Corporation and the Land Bank to use their borrowing and lending capacity. </p>
<p>The medium-term budget policy statement also argues that various municipalities have sufficiently reliable revenue streams to borrow and spend more than they currently do.</p>
<p>The Treasury has indicated <a href="http://www.treasury.gov.za/documents/mtbps/2018/mtbps/FullMTBPS.pdf">in the policy statement</a> that it hopes to keep tax rates at their current levels and not introduce new ones. One important exception will be at the forefront of many South Africans’ minds: increases to the cost of fuel, in this instance possible large increases in the Road Accident Fund levy, to address the massive accumulated liability in the Fund itself. </p>
<p>Last year the medium-term budget policy statement discussed risks to public finances, including possible further downgrades of debt by international rating agencies and the likely consequences. This year’s statement avoided such references – but some debt downgrades and their negative results remain a possibility. </p>
<p>Mboweni made it clear that one of the most serious risks to public finances is the perilous condition of state-owned enterprises. More than R9 billion is going to be given to South African Airways, SA Express and the Post Office in the current financial year to prop up their finances. </p>
<p>Beyond this, all he could do was express the hope that restructuring these and other state-owned entities means it could reduce the risk although he offered little detail about what “restructuring” actually means. </p>
<p>Even though he said that there should be “no holy cows”, it’s questionable whether structural shifts could really deal with the financial risks; in certain circumstances, restructuring could actually increase the state’s financial burden.</p>
<p>Reforming key state institutions in general is critical. But there will be little to show for that in the short term when it comes to public finances. In fact, in some instances, doing the right thing can lead to short-term costs. </p>
<h2>Hints, but little detail</h2>
<p>There were some suggestions in the statement of a sensible, “New Deal” way of thinking. These include the reallocation of existing funds to the Expanded Public Works Programme, clothing and textile industry support and faster-spending infrastructure programmes. But with such limited resources this is likely to only have a small positive effect.</p>
<p>And in parts, Mboweni provided too little or no detail. There remains inadequate information on the costs of providing “free higher education” as <a href="http://www.presidency.gov.za/press-statements/president%E2%80%99s-response-heher-commission-inquiry-higher-education-and-training">promised</a> by former President Jacob Zuma to new entrants. This reflects the irresponsibility of committing to a blank cheque to university student funding at a time when public finances are under huge strain.</p>
<p>Politically, the cabinet will be hoping that local and global risks will be kept in check until the 2019 election. But if some of those materialise then the government could face the unenviable task of either presenting a very unpopular budget in February 2019, or allowing public finances to deteriorate to a concerning degree.</p><img src="https://counter.theconversation.com/content/105605/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seán Mfundza Muller receives funding from a European Union-funded project, "Putting People back in Parliament", led by the Dullah Omar Institute (University of the Western Cape), in collaboration with the Parliamentary Monitoring Group, Public Service Accountability Monitor (Rhodes) and Heinrich Boell Foundation (South Africa). He is affiliated with the Public and Environmental Economics Research Centre (University of Johannesburg), regularly making inputs to Parliament oversight of the national budget, advising civil society groups on public finance matters and consulting for private sector organisations on an ad hoc basis. He resigned from the South African Parliamentary Budget Office in 2016. The views expressed are his own.</span></em></p>South Africa’s finance minister has chosen to walk a tightrope rather than face tough choices about cutting expenditure or raising taxes.Seán Mfundza Muller, Senior Lecturer in Economics and Research Associate at the Public and Environmental Economics Research Centre (PEERC), University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1053022018-10-21T09:35:43Z2018-10-21T09:35:43ZWhy Ramaphosa’s “new dawn” will break slowly for South Africa’s finances<figure><img src="https://images.theconversation.com/files/241413/original/file-20181019-105770-1lktd5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Tito Mboweni must answer several big questions about the country's economic plans.</span> <span class="attribution"><span class="source">Sebastiao Moreira</span></span></figcaption></figure><p>South Africa’s newly inducted finance minister, Tito Mboweni, will this week <a href="https://www.gov.za/speeches/minister-nhlanhla-nene-presents-medium-term-budget-policy-statement-mtbps-parliament-24-oct">deliver</a> the country’s 2018 medium-term budget policy statement setting out the government’s fiscal policy and projections for the next three years. </p>
<p>The medium-term budget comes at a time when South Africa’s economy is on a downward trajectory. President Cyril Ramaphosa’s administration is trying to deal with this in several ways. One is a “<a href="http://www.thepresidency.gov.za/speeches/statement-president-cyril-ramaphosa-economic-stimulus-and-recovery-plan">stimulus plan</a>” to promote economic growth. Another was a recently convened “<a href="https://www.gov.za/JobsSummit2018">jobs summit</a>” to identify ways of addressing the country’s high rates of unemployment. </p>
<p>In addition, commissions of inquiry have been instituted, or are underway, into the South African Revenue Service and the broader problems of state institutions that have been undermined and compromised by corruption. The Public Investment Corporation, which manages public sector pensions and is South Africa’s biggest fund manager, is also being investigated for alleged corruption and mismanagement. </p>
<p>Numerous other matters relating to critical sectors such as water, communications, transport and electricity are before various parliamentary committees.</p>
<p>Against this backdrop, Mboweni’s speech will reflect a harsh reality. The damage done during the preceding decade under president Jacob Zuma will have a negative effect on public finances and the economy for some time to come. Economic growth has been repeatedly below population growth for some time. The causes of this are such that the trajectory cannot be rapidly altered.</p>
<p>The “new dawn” <a href="https://www.gov.za/speeches/president-cyril-ramaphosa-2018-state-nation-address-16-feb-2018-0000">promised</a> by Ramaphosa’s administration will break slowly for South Africa’s public finances.</p>
<h2>Dealing with the past</h2>
<p>A year ago, when Zuma was still running the country, the destructive effects of his presidency were being keenly felt in the country’s budgeting process. </p>
<p>In the <a href="http://www.treasury.gov.za/documents/mtbps/2017/default.aspx">2017 medium-term budget policy statement</a>, economic growth and tax collection were forecast to be significantly lower than expected. As a result, national debt levels were forecast to rise rapidly. Worse, <a href="https://theconversation.com/latest-budget-underscores-desperate-state-of-south-africas-finances-86362">no concrete action was proposed</a> to address the likely escalation of national debt beyond what had previously been planned. </p>
<p>Unsurprisingly, the country’s local currency sovereign debt ratings were subsequently <a href="https://mg.co.za/article/2017-11-25-global-credit-ratings-agency-has-downgraded-south-africa-to-junk-status">downgraded</a> to “junk” – that is, sub-investment grade – by two of the three major ratings agencies. That followed <a href="https://www.businesslive.co.za/bd/economy/2017-04-07-fitch-downgrades-south-africa/">downgrades of the foreign currency rating</a> earlier in 2017.</p>
<p>Shortly after the budget was delivered, the senior official in the National Treasury responsible for preparing the budget <a href="https://theconversation.com/what-the-hijacking-of-south-africas-treasury-means-for-the-economy-87395">resigned</a>. Reports suggested this was due to unprocedural and irresponsible efforts to fund a populist allocation to higher education. </p>
<p>This appeared to be confirmed when Zuma, in a shock mid-December press statement shortly before the governing African National Congress’s elective conference, announced <a href="https://theconversation.com/free-higher-education-in-south-africa-cutting-through-the-lies-and-statistics-90474">“free higher education”</a>. </p>
<p>Despite the dubious circumstances and the country’s serious fiscal situation, the 2018 Budget announced the intention to allocate an additional R12.4 billion (about US$863m) in 2018/19, rising to R24.3 billion (about US$1.7bn) in 2020/21. </p>
<p>Among the major proposals to fund this new outlay, while still trying to stabilise national debt levels, were a controversial 1% increase in value-added tax. Significant cuts were also proposed to planned expenditure in other areas.</p>
<p>But the government has never actually produced a detailed costing of the “free higher education” plan. Worryingly, the <a href="http://www.treasury.gov.za/documents/national%20budget/2018/default.aspx">2018 Budget</a> referred to these costs <a href="https://theconversation.com/options-on-the-table-as-south-africa-wrestles-with-funding-higher-education-87688">as “uncertain”</a>. The Treasury has now had enough time to properly address such uncertainty; that ought to be reflected in Mboweni’s medium-term expenditure proposals.</p>
<p>As well as dealing with this recent history, Mboweni will need to provide details of the plans referred to by Ramaphosa to boost the economy in the coming years.</p>
<p>The medium-term budget policy statement should reflect the fiscal details of the commitments in Ramaphosa’s stimulus plan. We already know that the term “stimulus plan” is somewhat misleading. It actually involves reallocation of resources, not an increase. </p>
<p>Mboweni must outline where the funds will be redirected to, and – as important – where they’re going to be taken from. One possibility in the medium-term is cutting back on the <a href="https://www.enca.com/south-africa/archives-cabinet-sizes-throughout-south-africa-s-past-three-presidencies">bloated bureaucracy</a> that was introduced under Zuma.</p>
<h2>Seeking sustainability</h2>
<p>The broad question Mboweni will need to answer is how the government is going to maintain its plan for sustainable public finances in the face of even weaker economic growth and possibly a further decline in the performance of the South African revenue service in collecting taxes. </p>
<p>Some supposedly “radical” economic commentators argue that the government should spend more to stimulate the economy, regardless of debt levels. But there is little evidence to suggest this would work given the rather dire state of public sector institutions. </p>
<p>And a significant increase in debt without a large increase in economic growth could lead to a crisis.</p>
<p>A major concern is that recent budgets have maintained expenditure constraints by capping or reducing public sector employment. This is a strategy which could reasonably be referred to as “austerity by stealth”. The <a href="https://www.gov.za/speeches/president-cyril-ramaphosa-economic-stimulus-and-recovery-plan-21-sep-2018-0000">stimulus plan commits</a> to filling 2,200 critical posts in the healthcare system. But it remains unclear how the impact of the government’s fiscal stabilisation is being passed on to public sector employment. It’s also not clear how that could be affecting service delivery. </p>
<p>There is a strong argument to be made for maintaining or even increasing public sector employment. This could be achieved by removing overpaid and ineffective senior managers and redirecting those funds to filling, or creating, posts for core front line staff.</p>
<h2>Risk factors</h2>
<p>Another area to watch is how Mboweni deals with the issue of state-owned entities. These were <a href="https://ewn.co.za/2018/08/16/gordhan-full-impact-of-state-capture-at-soes-still-to-be-understood">often the primary targets</a> of efforts to loot the state under the Zuma presidency. And many, from South African Airways to the national power utility Eskom, pose a serious risk to public finances. </p>
<p>There are two aspects to the risk: the need for cash injections which come directly from the government budget, and the need for state loan guarantees which increase the broader precariousness of public finances. The medium-term budget policy Statement should provide a sober assessment of those risks and how they are going to be managed.</p><img src="https://counter.theconversation.com/content/105302/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seán Mfundza Muller receives funding from a European Union-funded project, "Putting People back in Parliament", led by the Dullah Omar Institute (University of the Western Cape), in collaboration with the Parliamentary Monitoring Group, Public Service Accountability Monitor (Rhodes) and Heinrich Boell Foundation (South Africa). He is affiliated with the Public and Environmental Economics Research Centre (University of Johannesburg), regularly making inputs to Parliament oversight of the national budget, advising civil society groups on public finance matters and consulting for private sector organisations on an ad hoc basis. He resigned from the South African Parliamentary Budget Office in 2016.</span></em></p>The damage done during the preceding decade will have a negative effect on South Africa’s public finances and the economy for some time to come.Seán Mfundza Muller, Senior Lecturer in Economics and Research Associate at the Public and Environmental Economics Research Centre (PEERC), University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1021362018-08-29T14:18:15Z2018-08-29T14:18:15ZHow structural flaws contribute to the crisis in South Africa’s municipalities<figure><img src="https://images.theconversation.com/files/233881/original/file-20180828-86129-1iao6ms.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Vaal River in Gauteng, South Africa's richest province, is polluted.</span> <span class="attribution"><span class="source">EPA/Jon Hrusa</span></span></figcaption></figure><p>The dire state of municipal governance in South Africa has been <a href="https://www.news24.com/Opinions/IN-FOCUS/in-focus-zweli-mkhizes-4-point-plan-to-fix-municipalities-20180601">in the news</a> for much of this year. Recent events in <a href="http://www.emfuleni.gov.za/">Emfuleni Local Municipality</a>, an urban municipality with <a href="http://citypopulation.info/php/southafrica-admin.php?adm2id=GT421">more than 700 000 residents</a> in Gauteng, the country’s economic hub, show the extent of the problem.</p>
<p>The municipality, located to the south of Johannesburg, has been unable to settle water and electricity debts owing to the utilities <a href="https://www.news24.com/SouthAfrica/News/rand-water-threatens-to-cut-water-to-emfuleni-municipality-over-r419m-debt-20180411">Rand Water</a> and <a href="https://ewn.co.za/2018/07/24/eskom-emfuleni-municipality-at-loggerheads-over-debt">Eskom</a>. This has led to services to residents being reduced or cut. Lack of infrastructure maintenance has further bedevilled the delivery of water and electricity, as well as rubbish removal. </p>
<p>Sewage spills <a href="https://www.iol.co.za/the-star/raw-sewerage-run-on-streets-and-taps-remains-dry-as-emfuleni-water-issues-continue-16249851">have plagued suburbs</a> and <a href="https://www.businesslive.co.za/bd/national/science-and-environment/2018-07-31-emfuleni-faces-catastrophe-as-sewage-threatens-crops-and-tourism/">severely polluted the Vaal River</a> - the main source of drinking water in the province that is also crucial to its tourism and agriculture. The municipality’s entire basic vehicle fleet was recently <a href="https://www.thesouthafrican.com/emfuleni-municipality-vehicles-repossessed/">repossessed by creditors</a>.</p>
<p>In June, the Gauteng Provincial government placed the municipality under <a href="https://www.sanews.gov.za/south-africa/emfuleni-work-progress">financial administration</a>. </p>
<p>Emfuleni is not alone. The national minister responsible for municipalities recently said 31% of the country’s municipalities are <a href="http://www.cogta.gov.za/?p=3447">“dysfunctional”</a>, and another 31% “almost dysfunctional”. He went on to say that many South African municipalities are battling with financial management as well as good governance and <a href="http://www.cogta.gov.za/?p=3447">administration</a>.</p>
<p>Given its extensive infrastructure and a large tax base, Emfuleni is the kind of municipality that has little excuse not to function well. If it is failing, how could less developed municipalities thrive?</p>
<h2>Who is to blame?</h2>
<p>It’s tempting to blame the government for the municipality’s troubles.</p>
<p>According to the National Treasury’s <a href="https://municipalmoney.gov.za/profiles/municipality-GT421-emfuleni/">municipal finance data website</a>, Emfuleni had a healthy cash balance in 2015. But it then fell by over a third in 2016, before collapsing in 2017. While the municipality did have problems with wasteful expenditure and budget <a href="https://municipalmoney.gov.za/profiles/municipality-GT421-emfuleni/">overspending before,</a> things got much worse after the local government elections in August 2016.</p>
<p>The municipality has also been experiencing political turmoil. The previous mayor resigned in 2017 amid a sex scandal and rumours of <a href="https://www.sowetanlive.co.za/news/south-africa/2017-11-21-anc-gauteng-welcomes-resignation-of-emfuleni-mayor-mofokeng/">financial mismanagement</a>. <a href="https://www.timeslive.co.za/politics/2018-06-05-da-accuses-anc-of-running-emfuleni-municipality-into-the-ground/">Opposition parties</a> and <a href="https://www.thesouthafrican.com/emfuleni-local-minicipality-makhosi-khoza-outa/">civil society organisations</a> blame the council and mayor, who are from the governing African National Congress, for the municipality’s problems. </p>
<p>But it’s also necessary to look beyond people and politics, and consider whether structural factors have contributed to the crisis. Emfuleni’s problems perhaps point to flaws in the way in which local government in South Africa is structured and financed.</p>
<h2>Raising revenue</h2>
<p>Emfuleni’s cash shortage has partly been blamed on poor collection of <a href="https://www.enca.com/south-africa/emfuleni-intervention-to-focus-on-revenue-recovery-makhura">revenue from service charges</a>. This highlights the extent to which South African towns depend on income from service delivery. <a href="https://municipalmoney.gov.za/profiles/municipality-GT421-emfuleni/">Municipal finance data</a> show that Emfuleni generated about 85% of its own income in the 2016/2017 financial year. (The rest came from its equitable share of national tax revenue and grants from national government). Most of its self-raised revenue came from service charges.</p>
<p>A budget that depends on recovering service debt means that the ability to run the municipality depends on how much residents can consume and pay for. This is neither stable nor sustainable.</p>
<p>A number of factors affect these revenue streams. The first is that a <a href="https://www.fin24.com/Economy/culture-of-non-payment-threatens-stability-of-municipal-finances-treasury-20180308">culture of non-payment</a> is pervasive among residents. Secondly, service revenue is also often affected by supply side constraints, such as <a href="https://www.news24.com/SouthAfrica/News/the-inherent-problem-of-municipal-financing-20180421">water scarcity</a> or power cuts. And lastly, a revenue stream based on consumption also assumes that most residents can afford services. This isn’t always the case.</p>
<p>Emfuleni has gone through tough economic times in recent years. Unemployment has risen sharply and some better off residents have moved away. This does not bode well for service demand, or the ability to pay for what has been consumed.</p>
<p>The problem won’t go away unless municipalities find less volatile ways of balancing the books. A greater allocation from national government would be one route. So would raising money through loans and imposing taxes or development levies on businesses.</p>
<p>But the problem goes beyond money. </p>
<h2>Unclear lines of accountability</h2>
<p>At least some of the crisis in Emfuleni has been down to mismanagement. This calls into question how municipalities are run. </p>
<p>According to the <a href="http://www.justice.gov.za/legislation/constitution/SAConstitution-web-eng.pdf">Constitution</a>, local governments have both legislative and executive functions. This means that there isn’t a clear separation of powers between municipal executive leaders (mayors) and the councils to which they report. </p>
<p>On top of this, municipal powers are closely tied to administrative functions, meaning that there is an overlap between political and bureaucratic structures in municipalities. </p>
<p>The close connection between different functions makes sense. But it makes lines of accountability unclear. This isn’t helped by the fact that municipalities can chose from different governance models. This means that accountability works differently in almost every municipality. </p>
<p>This may well have added to Emfuleni’s woes. The municipality has an elected municipal council and an executive mayor system. It is further part of the <a href="http://www.sedibeng.gov.za/">Sedibeng District Municipality</a>, with which it shares responsibility for many of its functions.</p>
<p>There are concerns that executive mayor systems give too much power to mayors and <a href="https://www.dailymaverick.co.za/article/2018-06-25-municipalities-must-change-the-way-they-are-governed/">not enough to councils</a>. There is also insufficient accountability, and flows of information, between local and <a href="https://www.salga.org.za/Documents/NMMF%202016/Reporting%20between%20Districts%20and%20Locals.pdf">regional municipalities</a>.</p>
<p>South African municipal governance is also bedevilled by the influence of political parties over councils, mayors and the administration. In Emfuleni, for instance, the mayor initially resigned when the council was put under administration, but then withdrew his resignation after <a href="https://www.news24.com/SouthAfrica/News/anc-says-emfuleni-mayor-back-on-the-job-20180608">the ANC intervened</a>.</p>
<h2>What needs to happen</h2>
<p>South Africa may have to consider reducing the governance options available to municipalities, to ensure more uniformity and easier oversight. It also needs to devise uniform, simple and clear, internal accountability structures for local government. And it should seriously consider legally regulating the line between political parties and the civil service.</p>
<p>Finally, provincial intervention in local government affairs is not ideal, and should only happen in extreme cases – as has been the case in Emfuleni. But it would be better if this was triggered by an event - such as a municipality falling into arrears with the water or electricity supplier – rather than waiting for political discretion to be exercised.</p><img src="https://counter.theconversation.com/content/102136/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marius Pieterse receives funding from Wits University and the NRF. </span></em></p>South Africa’s local governments lack a clear separation of legislative and executive powers.Marius Pieterse, Professor of Law, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/922212018-02-21T16:00:27Z2018-02-21T16:00:27ZSouth Africa’s budget: first steps towards a recovery, but at what cost?<figure><img src="https://images.theconversation.com/files/207294/original/file-20180221-132680-hysur8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African Finance Minister Malusi Gigaba is trying to spearhead a more stable economic landscape.</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p>The <a href="http://www.treasury.gov.za/documents/national%20budget/2018/speech/speech.pdf">2018 Budget</a>, presented by Finance Minister Malusi Gigaba in Parliament, lays out the painful consequences of the country’s public finances for South Africans.</p>
<p>The National Treasury’s proposal of an increase in Value Added Tax (VAT) – a tax applied to most items consumers buy – from 14% to 15% is the most dramatic of these consequences. Because it’s a tax paid by all citizens, putting it up by 1 percentage point raises concerns about the negative effects on the poorest households. </p>
<p>The Budget also proposes that tax brackets for the highest-earning 1 million taxpayers will not be adjusted for inflation, which effectively increases income taxes for these taxpayers.</p>
<p>Another sign of the distress the country’s finances are in came in the form of proposed cuts to government infrastructure spending, especially at local and provincial government level. The need for expenditure cuts is exacerbated by the fact that the budget supports former president Jacob Zuma’s commitment to provide <a href="https://www.news24.com/SouthAfrica/News/zuma-announces-free-higher-education-for-poor-and-working-class-students-20171216">free higher education</a> for a greater number of students. The minister said that the policy would be phased-in, with the Budget indicating that the cost rises from R12bn to R24bn over the next three years. But there are reasons to believe the cost <a href="https://theconversation.com/free-higher-education-in-south-africa-cutting-through-the-lies-and-statistics-90474">could be higher</a>. </p>
<p>Whether measures announced by Gigaba will stave off a downgrade of South Africa’s local currency debt by the one remaining rating agency remains to be seen. While the ascension of Cyril Ramaphosa to <a href="http://ewn.co.za/2018/02/15/watch-live-ramaphosa-to-be-sworn-in-as-sa-president">the presidency</a> has provided hope that pressure on public finances will be reduced by the state being better managed, it will take years to significantly improve the current situation.</p>
<h2>A substantial shift</h2>
<p>In October last year Gigaba painted a grim picture of South Africa’s public finances in the 2017 <a href="http://www.treasury.gov.za/documents/MTBPS/2017/mtbps/FullMTBPS.pdf">Medium Term Budget Policy Statement</a>. With an expected R50bn shortfall in tax revenue he indicated that national debt would increase rapidly – contrary to repeated earlier promises to “stabilise” debt levels. </p>
<p>The 2018 Budget reflects a substantial shift from this position. The new plan is to return to a strategy of “debt consolidation”: reducing the speed at which national debt increases relative to the size of the economy, so that within a few years it begins to decline. </p>
<p>Debt will still increase to levels higher than promised in numerous previous budgets, but significantly slower than suggested in October. Reducing the rate at which the government borrows requires raising more money from taxes and decreasing planned government expenditure. But this is even more difficult to do because of Zuma’s announcement of “free higher education” – which happened after the medium term budget statement. </p>
<p>Essentially, expanded free higher education means a combination of more taxes, more spending and more borrowing.</p>
<h2>Some notable proposals</h2>
<p>It is important to remember that, <a href="https://www.parliament.gov.za/storage/app/media/PBO/act-9-2009-money-bill-amendment-procedure.pdf">by law</a>, the budget is actually a set of proposals – even though the National Treasury and Minister of Finance almost always get their way. The <a href="https://theconversation.com/explainer-the-nitty-gritty-of-south-africas-annual-budget-72901">proposals are only fully legally binding once they have been approved by Parliament</a>. If citizens are not happy with certain proposals there are still opportunities in Parliament to challenge them. </p>
<p>Some of the proposals that deserve attention are: </p>
<p><strong>1. The impact of VAT increase:</strong> Of all the major taxes available, VAT is the least “progressive”. It is paid to a much greater extent by the poor and vulnerable than personal income tax or corporate tax. It is arguably for this reason, in the context of South Africa’s <a href="https://theconversation.com/south-africa-needs-to-fix-its-dangerously-wide-wealth-gap-66355">high rates</a> of income and wealth inequality, that VAT has <a href="https://www.pwc.co.za/en/assets/pdf/vat21-september-2012.pdf">not been increased</a> since 1994. </p>
<p>The increase has been defended on the grounds that other options (personal and corporate income tax) are increasingly strained and VAT is the least harmful to economic growth. The claim about economic growth is debatable: it depends on assumptions about how the economy works. And although the budget claims that social grants have been increased to try and offset the negative impact, the overall effect remains unclear. It seems likely that most poor households will experience additional hardship.</p>
<p><strong>2. Free higher education:</strong> The budget repeatedly states that the costs of Zuma’s free higher education announcement “remain uncertain”. This is strange and probably reflects the fact that Zuma violated normal budget protocol by almost unilaterally announcing the policy change without adequate consultation or analysis of the likely costs. Nevertheless, it is surprising that the budget does not provide more detail.</p>
<p>The budget indicates additional government expenditure of R12.4 billion in 2018/19, increasing rapidly to R20.3 billion in 2019/20 and R24.3 billion in 2020/21 as the policy is rolled out beyond just first year students. But these numbers look optimistic. Treasury does not explain what it has assumed about the number of students needing support and how much support will be provided.</p>
<p><strong>3. Expenditure cuts:</strong> The budget proposes R85 billion in cuts to planned government spending over the next three years. It’s hard to tell what the implications of spending cuts really are just from looking at the numbers and explanation in the budget. Nevertheless, a couple of things are clear. </p>
<p>Firstly the cuts affect infrastructure spending in particular: about R40 billion is cut. In some ways this is understandable. But it’s also dangerous because these decisions seem, for now, less harmful than they really are. That’s because South Africa’s economic and social infrastructure is already a matter of concern and the additional negative consequences of underspending will only be noticed years down the line.</p>
<p>Secondly the cuts are targeted at provincial and local government: R28 billion will be cut in grants given to local and provincial governments for various infrastructure programmes. This is also concerning given the importance of service delivery at these levels.</p>
<h2>The gaps</h2>
<p>The National Treasury needs to provide more information on why the decision was taken to increase VAT, and what the implications are likely to be. This is important because the move raises concerns about the effects on poorer and more vulnerable South Africans.</p>
<p>A detailed explanation of the likely costs of the proposed policy to expand free higher education also needs to be provided. The absence of this information raises concerns about whether Treasury has allocated enough money for this policy and, if not, whether universities may be left to deal with the consequences of insufficient funding for students who have been promised free higher education.</p>
<p>Finally, the attitude of the National Treasury in recent budgets has been that provinces and municipalities simply need to become more efficient and must fulfil their obligations with fewer resources. But what if that’s not possible? The Treasury can’t wash its hands of the negative consequences of cuts to critical areas of service delivery.</p>
<p>In conclusion, the Budget represents progress since last year when Zuma and his cabinet effectively sat on their hands and refused to take any difficult decisions. At least proposals have now been made to stabilise the national debt. Whether they represent the best solutions to our public finance challenges is a matter for public debate.</p><img src="https://counter.theconversation.com/content/92221/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seán Mfundza Muller has received funding support from the Heinrich Böll Foundation and is part of an European Union-funded project to build the capacity of South African civil society to engage with legislatures. In these and related projects he advises various civil society groups on public finance issues.</span></em></p>Whether measures announced by Gigaba will stave off a downgrade of South Africa’s local currency debt by one remaining rating remains to be seen.Seán Mfundza Muller, Senior Lecturer in Economics and Research Associate at the Public and Environmental Economics Research Centre (PEERC), University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/896602018-01-04T13:16:20Z2018-01-04T13:16:20ZTo lead South Africa, Ramaphosa must balance populism and pragmatism<figure><img src="https://images.theconversation.com/files/200779/original/file-20180104-26163-1w66w78.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cyril Ramaphosa, newly elected president of South Africa's governing ANC, during his maiden address.</span> <span class="attribution"><span class="source">EPA-EFE/Stringer</span></span></figcaption></figure><p>Maiden speeches are tricky. They only come once. The one delivered in South Africa by newly-elected president of the African National Congress (ANC) Cyril Ramaphosa required extraordinary ingenuity. </p>
<p>Ramaphosa had to knit together multiple dynamics into a coherent whole. He managed to do this, delivering a <a href="https://www.power987.co.za/news/politics/read-ramaphosas-full-maiden-speech-as-anc-president/">speech</a> which largely resonated with the delegates. His maiden address to the party, at the end of its <a href="http://www.anc.org.za/54th-national-conference">54 National Conference</a>, was shaped by the context of a narrow victory following a fierce and highly polarised contest in a factionalised organisation. A necessary aspect of his leadership was therefore to unite the ANC for a new beginning in a way that didn’t rock the boat. </p>
<p>Ramaphosa’s maiden speech showed he might indeed be the leader South Africa has been waiting for. Its power lay in its simplicity and ordinariness. Measured, but forthright, he touched on many policies that were approved by the conference. These included a raft of resolutions that tried to give meaning to the goal of achieving <a href="https://theconversation.com/the-odd-meaning-of-radical-economic-transformation-in-south-africa-73003">“radical socio-economic transformation”</a>. Two policy initiatives in particular set the cat among the pigeons: <a href="http://city-press.news24.com/Special-Report/ANC_Conference/anc-decides-on-expropriation-of-land-without-compensation-20171221">land redistribution </a> without compensation and <a href="https://www.timeslive.co.za/anc-conference-2017/2017-12-20-anc-conference-wants-swift-implementation-of-free-education/">fee-free higher education</a>. </p>
<p>These are policy extremes with far-reaching implications for the economy, and that could easily create distress. They require exceptional leadership, a sense of ingenuity and dexterity, both at party and state levels – lest recklessness sully policy intentions.</p>
<p>Ramaphosa struck the right note as he thanked delegates for electing him. But the real test of his leadership will lie in how he walks the tightrope between populism and pragmatism, and his ability to make his incongruous leadership team share his vision and approach.</p>
<h2>Corruption</h2>
<p>Ramaphosa did not shy away from the elephant in the room – corruption. But will he be able to take decisive action given the permutations of the motley crew of the ANC’s top leaderhip team as well as those chosen to serve on its national executive committee? These two outcomes may in fact have made his presidential victory Pyrrhic. </p>
<p>The power dynamics in the national executive committee – the party’s highest decision making body between national conferences – will come to the fore as soon as Ramaphosa moves to act against those implicated in a report – called <a href="https://www.news24.com/SouthAfrica/News/download-the-full-state-of-capture-pdf-20161102">State of Capture</a> – produced by Thuli Madonsela, the country’s former public protector.</p>
<p>The trickiest issue will be what to do about Jacob Zuma who remains president of the country even though his term as ANC president has ended. This means that South Africa faces a gridlock as the two “centres of power” – Ramaphosa as head of the ANC and Zuma as head of the country – vie for power.</p>
<p>There are many in the country who want the ANC to <a href="https://www.timeslive.co.za/anc-conference-2017/2017-12-21-anc-stalwarts-call-on-partys-new-leadership-to-recall-jacob-zuma/">“recall”</a> Zuma as president of the republic. There are a number of understandable reasons for this, over above the two-centres of power problem. </p>
<p>Chief among them relate to various court judgements against him. One of the latest was a decision by the North Gauteng High Court to dismiss his application for the review of the <a href="https://www.news24.com/SouthAfrica/News/download-the-full-state-of-capture-pdf-20161102">State of Capture Report</a>. It also ordered Zuma to comply with the remedial action set out in the report. </p>
<p>Zuma is appealing the court’s decision. This runs against the wishes of the ANC conference which called for Zuma to institute a judicial commission of inquiry, as recommended by the public protector. </p>
<p>How the ANC deals with this will determine whether Ramaphosa meant what he said when he <a href="https://www.power987.co.za/news/politics/read-ramaphosas-full-maiden-speech-as-anc-president/">declared</a>:</p>
<blockquote>
<p>The people of South Africa want action. They do not want words.</p>
</blockquote>
<h2>Land and fee-free higher education</h2>
<p>On policy issues, the speech tried to moderate populism with a semblance of pragmatism. A caveat that the ANC’s new policy on land reform shouldn’t compromise food security and destroy financial markets, and that its implications on property rights should be adroitly managed, exemplifies this. </p>
<p>In politics, populism is as important as pragmatism. As American anthroposopher Joel Wendt put it, populism is <a href="http://ipwebdev.com/hermit/pgplt.html">“rooted in the people”</a>, and therefore gives legitimacy to a political system. It is sustained by pragmatism, especially at the level of policy implementation. </p>
<p>It appears that, as his speech showed, Ramaphosa’s leadership of the ANC’s newly-found radicalism is going to be that of <a href="http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=4152&content=flr">pragmatic populism</a> – the ability to manage expectations generated by populist policy posturing to recapture waning electoral support, with extraordinary care not to destroy the sources of revenue necessary to sustain the state.</p>
<p>But this will be a huge challenge, particularly when it comes to delivering on the promise of fee-free higher education. At issue is the haste with which Zuma announced the new policy on the eve of the ANC’s elective conference, sparking suspicion that it was intended to influence the outcome of the race for the presidency in favour of Nkosazana Dlamini-Zuma, his anointed candidate. </p>
<p>Zuma’s announcement sent the higher education sector into a <a href="https://www.timeslive.co.za/politics/2017-12-19-zumas-fee-free-education-does-not-tackle-fees-must-fall/">tailspin</a> and caught the National Treasury <a href="https://www.timeslive.co.za/politics/2017-11-13-top-treasury-official-quits-in-row-over-free-tertiary-education/">off-guard </a> as no discussions had been had about how to fund it. </p>
<p>Fee-free higher education is a poisoned chalice for Ramaphosa. It is already being used by opposition parties for <a href="https://www.enca.com/south-africa/higher-education-minister-mkhize-slams-malema">political opportunism</a> on campuses. And uncertainties about its administration are likely to be blown out of proportion to spark disruptions. </p>
<p>Zuma’s hasty pronouncement on this politically charged and emotive issue is going to be the first test of Ramaphosa’s mastery of the art of managing the confluence between populism and pragmatism, not as binary opposites, but as elements of the same policy.</p><img src="https://counter.theconversation.com/content/89660/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mashupye Herbert Maserumule received funding previously from the National Research Foundation. He is affiliated to the South African Association of Public Administration and Management(SAAPAM). He is the Chief Editor of the Journal of Public Administration.</span></em></p>Free university education and land redistribution without compensation have far-reaching implications for South Africa’s economy, and requires exceptional leadership.Mashupye Herbert Maserumule, Professor of Public Affairs, Tshwane University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/873952017-11-14T12:26:23Z2017-11-14T12:26:23ZWhat the hijacking of South Africa’s Treasury means for the economy<figure><img src="https://images.theconversation.com/files/194547/original/file-20171114-27625-1plraev.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There are claims President Jacob Zuma may push through irresponsible proposals relating to higher education funding.</span> <span class="attribution"><span class="source">Reuters</span></span></figcaption></figure><p><em>South Africa has been rocked by <a href="https://www.timeslive.co.za/politics/2017-11-13-top-treasury-official-quits-in-row-over-free-tertiary-education/">news</a> that President Jacob Zuma has bulldozed the country’s National Treasury to adopt a fee free higher education proposal without following standard process and scrutiny. This is reportedly what’s behind the resignation of the Treasury’s respected head of budgeting, <a href="http://ewn.co.za/2017/11/13/treasury-confirms-michael-sachs-resignation">Michael Sachs</a>. The Conversation Africa’s Sibonelo Radebe asked Seán Muller to weigh up the implications.</em></p>
<p><strong>How significant is the resignation?</strong></p>
<p>Reports indicate that the resignation came as a result of interference in the budgeting process. There appears to have been an attempt to push through irresponsible proposals relating to higher education funding. From a technocratic perspective this is a serious a blow to the Treasury’s credibility.</p>
<p>What’s unfolding can be seen as a continuation of the “state capture” inspired attack on National Treasury that began in 2015 with the firing of the then finance minister <a href="https://theconversation.com/why-south-africa-should-gird-itself-for-tumultuous-times-52161">Nhlanhla Nene</a>. The attack was temporarily halted and Zuma had to reverse the appointment of trusted ally Des van Rooyen.</p>
<p>The president relented by bringing back trusted finance minister <a href="https://mg.co.za/article/2017-03-30-report-president-jacob-zuma-has-fired-finance-minister-pravin-gordhan">Pravin Gordhan</a>. But then he fired Gordhan early this year and replaced him with another ally <a href="https://www.ujuh.co.za/south-africas-new-finance-minister-tries-to-assure-the-markets/">Malusi Gigaba</a>. This was followed by the departure of the department’s director general <a href="https://www.businesslive.co.za/bd/national/2017-04-05-lungisa-fuzile-quits-will-more-senior-treasury-officials-follow/">Lungisa Fuzile</a>.</p>
<p>The head of the budget office is arguably one of the most important positions within the Treasury. The incumbent, Sachs, played a pivotal role in protecting the country’s public finances while also increasing transparency and engagement with civil society. </p>
<p>He is the son of former constitutional court judge and anti-apartheid activist Albie Sachs, and a former member of the ANC’s Economic Transformation Committee. He had unparalleled insight into both the bureaucratic and political sides of the budget process. His resignation indicates the extent to which political dysfunction has compromised responsible management of public finances.</p>
<p><strong>How does the proposal for increasing higher education funding compromise the budget process?</strong></p>
<p>One of the major achievements of post-1994 governments was to embed a thorough, bureaucratic and political process of developing the annual national budget and the medium-term budget. Within this process, any major changes to budget priorities are signalled in the medium-term budget. They are then gradually integrated into successive national budgets. </p>
<p>Any intention to dramatically change the structure of the budget – for instance, by cutting social grants in order to pay university fees – should have been contained in the medium-term budget.</p>
<p>In the current case, the <a href="https://www.news24.com/SouthAfrica/News/sa-doesnt-have-money-for-free-higher-education-heher-commission-20171113">Heher Commission</a>, under retired Judge Jonathan Heher was established to investigate higher education funding. It <a href="http://www.presidency.gov.za/press-statements/release-report-commission-inquiry-feasibility-making-high-education-and-training">handed its report to the president on the 30th of August</a>, before the presentation of the 2017 medium-term budget policy statement. Its findings should have been released earlier and any decision reflected in the medium-term budget. That would have provided a basis for Parliament to facilitate democratic oversight of the proposals and alerted citizens and stakeholders to government’s intention.</p>
<p>What’s more worrying are reports that the president has ignored the Heher Commision’s recommendations. Given the extensive consultation by this commission, it would arguably be irrational and irresponsible to ignore its findings and implement an ill-conceived, “populist” removal of university fees. </p>
<p>Regardless of the merits of such proposals, to try and ram them through in the period between the medium term budget, in October, and the national budget in February is reckless. It will undermine the credibility of South Africa’s public finance management and carries negative implications for investment, credit ratings and economic growth.</p>
<p><strong>What is your view on the call for free university education?</strong></p>
<p>We should start with the widely accepted principle that no student who is suitably qualified for university education should be prevented from pursuing it. Given this principle we then need to ask the following questions:</p>
<ul>
<li><p>How many students does the basic education system adequately prepare for higher education?</p></li>
<li><p>How many of those need financial support and to what extent?</p></li>
<li><p>What are the total cost implications of providing all such students with the necessary support, whether in grants or loans? </p></li>
<li><p>Can the country afford to do this for all such students immediately?</p></li>
<li><p>Even if we can afford it, is it the most equitable use of such funds?</p></li>
</ul>
<p>I have <a href="https://theconversation.com/south-africas-feesmustfall-protests-some-inconvenient-truths-67516">argued previously</a> that too many students are being admitted into the higher education system. Many are ill-prepared given the poor quality in the schooling system.</p>
<p>Evidence on the household incomes of students in higher education indicates that – relatively – they are much <a href="https://theconversation.com/south-africas-feesmustfall-protests-some-inconvenient-truths-67516">better off than the majority of South African youth</a>. Youth outside the further education system get little, if any, direct support from government. And so a large increase in funding for university students is not the best way to assist poor youth.</p>
<p><strong>What are the implications beyond education?</strong></p>
<p>There are two major implications.</p>
<p>Firstly, it increases the chances of a downgrade of the country’s debt that’s held in local currency. Even before these recent events I <a href="https://theconversation.com/latest-budget-underscores-desperate-state-of-south-africas-finances-86362">argued</a> this was almost inevitable. My view then was mainly informed by the revenue shortfalls indicated in the medium term budget, poor economic growth forecasts and the government abandoning its policy of fiscal consolidation (stabilising government debt).</p>
<p>The resignation of the head of the Treasury’s budget office makes the situation even more dire. The interference that induced it constitutes an unprecedented subversion of the country’s national budget process and National Treasury’s mandate to ensure stability and sustainability of public finances. </p>
<p>Secondly, the way in which the president intends to unilaterally ram through his favoured approach to higher education funding signals that a similar approach could be taken with a decision to pursue nuclear power. At the time of the medium-term budget, Finance Minister Malusi Gigaba <a href="https://www.fin24.com/Budget/gigaba-sa-cant-afford-nuclear-yet-20171025">indicated</a> that government cannot afford nuclear. But <a href="https://theconversation.com/zumas-allies-are-once-again-gung-ho-about-nuclear-will-they-get-their-way-87022">shortly afterwards</a> the new minister of energy, David Mahlobo, and Zuma both suggested that they are preparing to push it through. If that happened, it would further compromise South Africa’s public finances and economic growth.</p>
<p>There was some hope that a <a href="https://www.timeslive.co.za/sunday-times/business/2017-09-14-ramaphosa-leads-anc-leadership-race-analysts/">victory</a> in December for the anti-state capture grouping in the governing African National Congress’s elective conference might be able to stabilise governance and public finances. But it now appears that a great deal more damage could still be done by the president before then.</p><img src="https://counter.theconversation.com/content/87395/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seán Mfundza Muller has received support from the Heinrich Boell Foundation to participate in parliamentary oversight processes relating to the 2017 medium-term budget policy statement, and is actively involved in providing technical support and advice to a number of civil society organisations on a range of public finance matters.</span></em></p>The imposition of the fee free higher education proposal on South Africa’s National Treasury without due consideration represents an escalation of the state capture led by President Jacob Zuma.Seán Mfundza Muller, Senior Lecturer in Economics, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/791312017-06-09T11:50:12Z2017-06-09T11:50:12ZThe battle for control of South Africa’s state isn’t just about personalities<figure><img src="https://images.theconversation.com/files/172977/original/file-20170608-32294-12onp7d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A protester calling for President Jacob Zuma's removal. </span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p>It is probably no consolation to Brian Molefe, the CEO of South Africa’s power utility Eskom, that his woes are evidence that President Jacob Zuma’s March cabinet reshuffle has so far had precisely the opposite effect to that which was expected. </p>
<p>Nor, no doubt, would it cheer Molefe to know that his plight has become a symbol of an important reality: that who occupies which political post is turning out to be far less important to the government’s economic decision-making than it seemed.</p>
<p>Molefe’s woes are evidence that the country’s infamous <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">cabinet reshuffle</a> has so far had precisely the opposite effect to that which was generally expected. </p>
<p>Before the reshuffle, many expected that, if Zuma did fire the finance minister and deputy minister, the balance of power in government would sharply change. Walls which held the <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">state’s capture</a> at bay would come tumbling down. </p>
<p>But this has not happened. The ANC patronage faction may have strengthened its presence in the Cabinet. But its attempt to take control of key institutions is in retreat in the face of opposition within the governing party and from unions, business and civil society groups. </p>
<p>Thus far the patronage group’s opponents have also turned the tide by winning changes which reverse its gains. This does not mean that the patronage faction’s opponents have won: the battle will continue to be fought decision by decision, day to day, possibly until the 2019 election. But the patronage group’s expected triumph has not materialised despite changes in the faces in government. </p>
<h2>Molefe’s Pyrrhic victory</h2>
<p>It is widely known that the Treasury is a key prize for the <a href="https://theconversation.com/economic-exclusion-feeds-the-politics-of-patronage-in-south-africa-69996">ANC’s patronage faction</a>. It was also expected across the spectrum that if Pravin Gordhan and Mcebisi Jonas were out of the way, it would be able to get on with handing over public resources to private interests without hindrance. Molefe’s <a href="http://www.iol.co.za/news/politics/brianmolefe-fired-again-9448206">recent experiences</a> shows that this has not happened.</p>
<p>After <a href="http://www.fin24.com/Economy/Eskom/full-statement-eskom-ceo-brian-molefe-quits-20161111">leaving</a> Eskom in response to the Public Protector’s <a href="https://www.ujuh.co.za/state-of-capture-public-protectors-report/">State of Capture report</a> which linked him to the Gupta family, Molefe landed in Parliament chosen by <a href="https://www.businesslive.co.za/bd/politics/2017-02-17-brian-molefe-will-soon-be-an-mp-anc-officials-say/">North West province</a>, a patronage faction stronghold. </p>
<p>When Zuma told ANC leaders he planned to replace Gordhan, it became clear that Molefe had not been given his seat as a consolation prize – <a href="https://www.businesslive.co.za/bd/politics/2017-02-17-brian-molefe-will-soon-be-an-mp-anc-officials-say/">the president wanted to appoint him finance minister</a>. He backed off because half the ANC’s top six leaders insisted that Molefe was <a href="http://www.iol.co.za/news/politics/furore-over-molefes-new-job-implodes-7937847">unacceptable</a> because he had become firmly linked to the patronage faction. </p>
<p>This seems to have made Molefe so politically radioactive that he was not given any post in the reshuffle. Since he presumably had not come to parliament to sit on committees, he was <a href="http://www.heraldlive.co.za/news/top-news/2017/05/12/breaking-brian-molefe-returns-chief-executive-eskom/">given his Eskom job back</a>. </p>
<p>This prompted a <a href="http://ewn.co.za/2017/05/17/anc-wants-brian-molefe-s-return-to-eskom-rescinded">backlash</a> – from within the ANC as well as outside it. The governing party issued a statement <a href="http://ewn.co.za/2017/05/17/anc-wants-brian-molefe-s-return-to-eskom-rescinded">rejecting</a> the appointment and the ANC national executive committee, its decision-making body between conferences, agreed that Molefe should go. </p>
<p>He now <a href="http://www.fin24.com/Economy/breaking-brian-molefe-challenges-his-removal-as-ceo-20170604">relies on courts</a> to give him back his job – the same courts which have barred him temporarily from Eskom property, suggesting that they may see less merit in his case than he hopes.</p>
<p>What is the political import of these events? Not only have the president and the patronage faction been unable to secure Molefe any job in the Cabinet which would enable him to take the economic decisions they want. They have also failed to persuade an ANC national executive committee that Molefe should keep his Eskom job. That hardly suggests an all-conquering patronage faction ready to do with the state whatever it pleases.</p>
<h2>Other patronage faction losses</h2>
<p>Molefe’s fate is not an isolated incident. Since the reshuffle, every key government decision has gone against the patronage faction. The president has finally, after months of stonewalling, <a href="https://www.ujuh.co.za/president-zuma-signs-the-fica-bill-into-law-leaving-protesters-in-a-lurch/">signed</a> the Amendments to the Financial Intelligence Centre Act. The amendments aim to tighten control on illicit financial activity and were opposed by the patronage faction. </p>
<p>The <a href="http://www.news24.com/SouthAfrica/News/parliament-adopts-sabc-interim-board-names-in-unenviable-task-20170315">interim board</a> of the South African Broadcasting Corporation has begun an attempt to retrieve it from the faction. A deal between the armaments parastatal Denel and a company with links to the Gupta family, VR Laser Asia, has been <a href="https://mybroadband.co.za/news/government/209596-gigaba-cancels-massive-deal-between-denel-and-gupta-linked-company-report.html">halted</a>. </p>
<p>Berning Ntlemeza, head of the Hawks, the special investigating unit which hounded Gordhan and Jonas and was seen as a loyal instrument of the patronage group, has been <a href="http://ewn.co.za/2017/04/17/police-ministry-warns-of-legal-action-if-ntlemeza-refuses-to-leave-office">removed</a> by new Police Minister Fikile Mbalula. </p>
<p>Investigations have been ordered into Eskom transactions. </p>
<p>There is a clear pattern here and it sends the opposite message to the one expected before the reshuffle. It is consistent with a takeover by the patronage faction’s opponents, not the faction itself. </p>
<p>How do we explain this? Why, after Zuma, a key figure in the patronage faction, removed key impediments to it at the National Treasury and other ministries, and saw off attempts to remove him, is the ANC and government behaving as if the patronage group lost?</p>
<h2>It’s about much more than just personalities</h2>
<p>The short answer is that the framework through which many in business, the media and the academy look at the ANC’s economic battle places far too much stress on personalities. It assumes that, if Zuma stays, the patronage group is rampant - if he goes, they will be put to flight. </p>
<p>It was similarly assumed that Gordhan and Jonas were the thin line which kept the patronage faction at bay: once they were gone, it could trample over the fiscus like an invading army.</p>
<p>But the battle is about far more than personalities. It is about how important sections of the ANC and the society relate to the market economy. Within the ANC there are significant groups who see patronage as a mortal threat to the economy. They enjoy substantial support from anyone who has a stake in the formal economy: unions and their members as well as professionals and business people. </p>
<p>They did not disappear on the night of the reshuffle. On the contrary, they regrouped quickly. They seem to have decided that they could win important battles on what government should and should not do about the economy regardless of who is president and in the Cabinet. And they seem to be winning thus far.</p>
<p>While the mainstream debate concentrates on who occupies which positions, the patronage group’s opponents are showing that it is possible to limit the use of public funds for private purposes regardless of who wins the personality battles.</p>
<p>It is, of course, not yet clear how lasting the patronage group’s retreat is – it may well recover. What is clear is that, even if its opponents win the ANC presidency, this faction will not disappear: it may continue to control several provincial governments which can be used as patronage strongholds. So its success, too, depends less on who gets what position.</p>
<p>Molefe’s recent travails, and the events which surround it, show that the battle for the fiscus will continue. And that the economy will be shaped by who wins the battle on concrete decisions more than who sits in government offices.</p><img src="https://counter.theconversation.com/content/79131/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Friedman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The misfortunes experienced by Brian Molefe, the CEO of South Africa’s power utility Eskom, shows that the battle for the country’s public purse is not a one way bet.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/755502017-03-31T07:59:36Z2017-03-31T07:59:36ZStakes for South Africa’s democracy are high as Zuma plunges the knife<figure><img src="https://images.theconversation.com/files/163423/original/image-20170331-16307-tru6ql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's President Jacob Zuma has shafted and shifted 20 cabinet posts.</span> <span class="attribution"><span class="source">Aaron Ufumeli/EPA</span></span></figcaption></figure><p>South Africa has reached a crisis point in its political history that’s been looming on the horizon for more than a year. In the dark of night – literally – President Jacob Zuma demonstrated his ruthlessness by firing finance minister, Pravin Gordhan, amid a <a href="http://www.iol.co.za/news/politics/zuma-names-10-new-ministers-10-new-deputies-8424900">20-person</a> reshuffle of his government.</p>
<p>The magnitude of what has happened shouldn’t be underestimated. The Save South Africa campaign, echoing the sentiments of the country’s progressive-minded constitutionalists, described Gordhan’s dismissal as <a href="https://www.biznews.com/leadership/2017/03/31/comment-zumas-night-of-long-knives-gordhan-out-gupta-associates-in/">“an outrage”</a>.</p>
<p>There are two major concerns. The first is the impact on the economy, the second is a political and democratic one.</p>
<p>It’s not hyperbolic to suggest that what happens next – in the coming hours and days – will determine whether South Africa’s hard-won democracy will survive or whether it will join the club of post-colonial calamities that have scarred the continent’s past. The stakes couldn’t be higher.</p>
<h2>Threat to the economy</h2>
<p>In the last few months South Africa’s economy had begun to show the very first signs of <a href="http://m.fin24.com/fin24/Economy/live-gupta-bank-court-battle-set-to-begin-20170328">strengthening</a>. Gordhan, in fact, had just embarked on an investor roadshow to further encourage much-needed investment when, on Monday, Zuma ordered him to <a href="http://www.timeslive.co.za/politics/2017/03/27/BREAKING-Zuma-orders-Gordhan-to-return-from-unauthorised-UK-roadshow-cancels-Jonas-US-trip">return</a>.</p>
<p>Zuma has been waging a cold war against his finance minister for <a href="https://theconversation.com/prexit-as-south-africa-looks-over-the-abyss-who-will-blink-66969">over a year</a>, causing uncertainty and undermining attempts to convince markets and <a href="http://www.fin24.com/Economy/no-change-in-south-africas-credit-rating-moodys-20161126">rating agencies</a> alike that South Africa’s government was doing all it could to shake the country out of the economic rut into which it has fallen since the <a href="https://www.forbes.com/2009/01/14/global-recession-2009-oped-cx_nr_0115roubini.html">global economic crisis</a> almost ten years ago.</p>
<p>Gordhan and his team of public servants at National Treasury stood between Zuma and his cronies’ most nefarious and venal plans – such as a <a href="http://www.fin24.com/Economy/why-governments-nuclear-deal-will-destroy-sa-20160915">nuclear deal</a> with Russia. As South Africa’s former Public Protector (ombudsman) described in her seminal report, “<a href="https://www.da.org.za/2016/11/download-public-protectors-state-capture-report/">State of Capture</a>”, the Gupta family and other rent-seeking opportunists have been exploiting Zuma and his family’s weakness and taking control of important institutions and agencies of the state, such as the <a href="http://www.sars.gov.za/Pages/default.aspx">tax authority</a> (SARS), the <a href="https://www.npa.gov.za/">national prosecuting authority</a> (NPA) and state energy utility, <a href="http://www.eskom.co.za/Pages/Landing.aspx">Eskom</a>.</p>
<p>Gordhan has heroically withstood the intimidation and held the line. The rand has already <a href="http://www.sabc.co.za/news/a/69589e80409ab28eb279f242beef4d8c/Rand-plunges-after-Gordhan-sacked-20170331">plunged</a> on news of his removal. Market sentiment will collapse. And there’s a high likelihood that perhaps as early as next week, rating agency Moody’s will downgrade South Africa to <a href="http://www.fin24.com/Economy/junk-status-on-the-cards-after-zumas-night-of-long-knives-20170331">junk status</a>. This will, in turn, increase the cost of government borrowing and set in motion a sequence of economic events that will cause great harm to the poorest and most vulnerable members of society.</p>
<h2>Political and democratic concerns</h2>
<p>Gordhan’s removal is an act of <a href="http://ewn.co.za/2017/03/29/opinion-judith-february-president-zuma-is-holding-sa-to-ransom">democratic disregard</a> and political as well as economic recklessness. While the two main opposition parties, the <a href="https://www.da.org.za/">Democratic Alliance</a> and the <a href="http://www.economicfreedomfighters.org/">Economic Freedom Fighters</a>, both reacted by tabling motions of <a href="http://citizen.co.za/news/news-national/1471914/da-to-table-motion-of-no-confidence-in-zuma/">no confidence</a> in the national assembly, the focus will now be on how the social democratic and left-leaning members of cabinet – the “constitutionalists” – will respond to last night’s events.</p>
<p>They will be under pressure to resign <a href="http://www.news24.com/Columnists/AdriaanBasson/zuma-vs-pravin-is-it-checkmate-20170329">in solidarity</a> with Gordhan, but they will also be anxious about vacating the space to the nationalist populists who now hold a big majority in government.</p>
<p>But this is no longer about ideology. It’s as several senior ANC insiders have described to me in recent days as being about “the corrupt versus the non-corrupt”.</p>
<p>That there will be a fight back against Zuma’s reckless decision is beyond doubt. One of the fired ministers wrote to a friend late last night: “we will get the bastard”. But to “get Zuma” they will have to show the same ruthlessness and courage, and they will have to act decisively and fast.</p>
<p>All eyes will be on deputy president, <a href="http://ewn.co.za/2017/01/08/the-debate-over-who-should-succeed-zuma-as-anc-president-heating-up">Cyril Ramaphosa</a>, one of two contenders to succeed Zuma at the ANC’s five-yearly national elective conference in<a href="http://www.huffingtonpost.co.za/2017/01/22/the-battle-for-limpopo-is-on-head-of-anc-elective-conference/"> December</a> this year. </p>
<p>When Zuma told the ANC’s top six leadership of his decision to remove Gordhan earlier this week, Ramaphosa and Secretary General Gwede Mantashe <a href="http://www.news24.com/SouthAfrica/News/ramaphosa-mantashe-rejected-zumas-reasons-for-axing-gordhan-20170331">objected</a>. They rejected out of hand the “evidence” that Zuma put before them – a self-evidently <a href="http://citizen.co.za/news/news-national/1471284/gupta-manufactured-report-made-zuma-recall-gordhan/">fake piece of intelligence</a> that Zuma claimed showed that Gordhan was in London to persuade investment banks to help him topple Zuma.</p>
<p>As Gordhan flew through the night on Monday, events intervened: ANC stalwart and liberation hero, Ahmed Kathrada, <a href="http://www.enca.com/south-africa/struggle-stalwart-ahmed-kathrada-dies-aged-87">passed away</a>. Zuma was compelled to press the pause button on his reshuffle plans. At Kathrada’s funeral on Wednesday, many of the ANC’s top leadership gathered to hear former president Kgalema Motlanthe read out the letter from Kathrada that called for Zuma to <a href="https://www.enca.com/south-africa/standing-ovation-as-motlanthe-quotes-kathradas-call-for-zuma-to-step-down">resign</a>.</p>
<p>When Gordhan was acknowledged, the mourners <a href="https://www.businesslive.co.za/bd/national/2017-03-29-stoic-gordhan-gets-standing-ovation-at-funeral-of-anc-stalwart-kathrada/">rose </a> as one in support: a powerful, as well as emotional moment. Zuma was conspicuous by his absence: it had been made clear to him by Kathrada family that <a href="https://mg.co.za/article/2017-03-28-president-zuma-barred-from-kathrada-funeral">he was not welcome</a>.</p>
<h2>Is South Africa’s democracy under threat?</h2>
<p>The ANC has never been more painfully divided, to the point where it’s very future is threatened. It could split. It may not maintain its majority at the next national election in 2019. All bets are off.</p>
<p>And, in the long run, this may not be a bad thing. As every hour has passed since Zuma won the ANC’s presidency in <a href="https://mg.co.za/article/2007-12-18-zuma-is-new-anc-president">December 2007</a>, it has declined as a progressive, stabilising force for good amid the turbulent, violent precariousness and social incohesion of South Africa’s noisy democracy.</p>
<p>Is that democracy now under threat? This is the biggest question now, which cannot be ignored.</p>
<p>Is South Africa sleepwalking towards the door marked “dictatorship”? Repeatedly, the analyst community has underestimated Zuma. Repeatedly, he’s fought back ruthlessly. He doesn’t conform to the “usual rules” or the same political calculations. He cares only about his interests and those of his sponsors and of a band of ‘comprador’ nationalists.</p>
<p>Zuma plunged his knife into Gordhan’s back with ruthlessness but also cowardice: he didn’t even have the decency to look his former comrade in the struggle, in the eye.</p>
<p>Democratic leaders don’t fire their finance ministers late at night, without even having the grace to contact the person being removed from office or without some kind of press conference. Close to midnight, the presidency published <a href="http://www.iol.co.za/news/politics/zuma-names-10-new-ministers-10-new-deputies-8424900">the list </a> of 20 new ministers and deputy ministers, while Zuma slipped away into the dark and onto his presidential jet to Durban.</p>
<p>There have been many other notorious “<a href="http://www.historylearningsite.co.uk/nazi-germany/the-night-of-the-long-knives/">nights of the long knives</a>”. Now Africa’s <a href="https://theconversation.com/south-africa-is-africas-largest-economy-again-but-what-does-it-mean-63860">biggest economy</a> has its own contribution to offer the annals of political history. Caused by a crisis in political leadership, Zuma’s ruthless display of power could prompt an economic crisis that could easily send South Africa into a <a href="https://www.bloomberg.com/politics/articles/2016-12-23/2016-was-awful-for-brazilians-and-2017-doesn-t-look-much-better">Brazil-style downward spiral</a> whose consequences are impossible to predict.</p><img src="https://counter.theconversation.com/content/75550/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Calland is a partner of The Paternoster Group and a Board member of the Open Democracy Advice Centre and a member of the Advisory Council of the Council for the Advancement of the South African Constitution. </span></em></p>The focus will now be on how the social democratic and left-leaning members of South Africa’s cabinet – the “constitutionalists” – will respond to the reshuffle.Richard Calland, Associate Professor in Public Law, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/732242017-02-20T20:25:09Z2017-02-20T20:25:09ZThe real risks behind South Africa’s social grant payment crisis<figure><img src="https://images.theconversation.com/files/157480/original/image-20170220-15879-mmoju8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Social grant recipients waiting in Gugulethu, Cape Town. A battle over social grant payment tender threatens the system.
</span> <span class="attribution"><span class="source"> EPA/NIC BOTHMA</span></span></figcaption></figure><p>The <a href="http://www.iol.co.za/news/south-africa/gauteng/its-gordhan-vs-dlamini-over-r120bn-grant-contract-7765965">dispute</a> hovering over South Africa’s social grant system and threatening millions of vulnerable beneficiaries with nonpayment creates risks that go far beyond interrupting poor people’s access to desperately needed grants. </p>
<p>The failure of the South African Social Security Agency (<a href="http://www.sassa.gov.za/">Sassa</a>), which is responsible for the payment and administration of social grants, to act timeously has created a crisis that threatens to deliver grant recipients on a silver platter into the hands of unscrupulous financial services companies.</p>
<p>The latest instalment in the bizarre saga came last week. Sassa officials announced that they would <a href="http://www.enca.com/south-africa/sassa-to-file-court-papers-on-grant-payment-crisis-on-thursday">file papers</a> with the Constitutional Court proposing that their invalid contract with <a href="http://www.net1.com/business-structure/transactional-solutions-cluster/cash-paymaster-services-(cps)/">Cash Paymaster Services (CPS)</a>, which holds the contract for grant distribution, should be extended for another year. </p>
<p>This contract was awarded to CPS in a controversial tender in 2012. It was <a href="http://www.news24.com/Archives/City-Press/AllPay-wins-against-Net1-20150429">declared invalid</a> two years ago by the constitutional court, which instructed Sassa to reissue the tender. As the deadline came closer civil rights groups such as <a href="http://probonomatters.co.za/who-is-responsible-for-the-sassas-epic-social-grant-distribution-disaster/">Black Sash</a> started sounding warning bells that Sassa was not implementing the court’s orders. </p>
<p>Deadline after deadline passed, and by end the end of 2016 it was clear that Sassa had utterly failed to act on the court’s instructions. Late last week it appeared that Sassa had missed another one. It <a href="http://amabhungane.co.za/article/2017-02-18-grants-belamant-holds-a-gun-to-sas-head-as-dlamini-dawdles">didn’t</a> make its planned eleventh-hour submission.</p>
<p>This means that there is no credible arrangement in place to ensure that social grants will be paid when the court’s deadline expires on 31 March. The social grant system supports about 17 million individuals. Disrupting the payments will cause huge suffering to the country’s poorest and most vulnerable people and is likely to lead to social unrest. </p>
<p>With last week’s announcement, it seems that Sassa officials intended simply to present the constitutional court and the <a href="http://www.iol.co.za/news/south-africa/gauteng/its-gordhan-vs-dlamini-over-r120bn-grant-contract-7765965">National Treasury</a> with an impossible situation: condone an illegal contract, or face the possibility of social and political chaos. </p>
<p>But there’s even more at stake. If the court allows a further extension of the invalid contract (or approves a new contract with CPS), Sassa will have perpetuated a situation in which the accounts of grant recipients have in effect become mere conduits between the South African fiscus and the private financial empire that has taken shape around grant disbursement.</p>
<h2>More than just a contract is at stake</h2>
<p>At the centre of the storm is CPS, a subsidiary of <a href="http://www.net1.com/">Net1 UEPS Technologies</a> which is a listed global financial services and logistics group with operations in a number of countries including South Africa, India and Tanzania. </p>
<p>Net1 owns the fingerprint-based biometric identification and payment system that is central to CPS’s operations. Their proprietary <a href="http://www.net1.com/key-products/the-ueps-technology/">Universal Electronic Payments System</a> technology forms the “back end” of the Sassa smart card CPS uses in the electronic payment of grants. It is access to this system that has enabled CPS to roll out payments to the whole country. </p>
<p>While convenient for CPS, scholar Keith Breckenridge has <a href="https://books.google.co.za/books/about/Biometric_State.html?id=4YNxBAAAQBAJ&redir_esc=y">pointed out</a> that this creates an unprecedented situation – grant beneficiaries are captured within a private technological and financial network owned and controlled, not by Sassa, but by its service provider. </p>
<p>Here it should be noted that the work of CPS is only part of a bigger corporate strategy. Also part of Net1’s <a href="http://www.net1.com/business-structure/group-structure/">global empire</a> are financial services companies like MoneyLine, EasyPay, Manje Mobile Solutions, Smart Life and others. These companies act in concert to make use of the opportunities afforded by CPS’s control of the payment network. </p>
<p>Millions of grants beneficiaries, for example, have not only been provided with a Sassa account; their accounts have also been linked to EasyPay Everywhere, a bank account operated by MoneyLine and CPS’s banking partner, Grindrod Bank. All this is part of an <a href="http://ir.net1.com/phoenix.zhtml?c=73876&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTg0Mzc0ODgmRFNFUT0xJlNFUT0xMCZTUURFU0M9U0VDVElPTl9QQUdFJmV4cD0mc3Vic2lkPTU3">explicit two-stage strategy </a>on the part of Net1: a first wave in which it rolls out its technological infrastructure, and a second wave in which it uses this infrastructure to market a wide array of products and services to an essentially captive customer base.</p>
<p>The net effect is that social grant recipients are now tied up in a web of dependency on financial services companies controlled by Net1. </p>
<h2>What this means for financial inclusion</h2>
<p>This creates two problems. Firstly, this arrangement may be in violation of competition law. It looks as if Net1 is making use of CPS’s privileged position as social grant paymaster to give its sister companies first bite and privileged access to a vast potential client base. </p>
<p>Secondly, it raises an issue that’s often forgotten in sweeping generalisations about the need to cover the “unbanked” with financial services. Yes, poor people need access to banking services, and may benefit from smart cards and electronic banking. But these services should be designed with their interests in mind. </p>
<p>Deborah James and Dinah Rajak have <a href="http://eprints.lse.ac.uk/59434/1/James_Rajak_Credit-apartheid-migrants-mines-money.pdf">shown</a> how in South Africa the history of “credit apartheid” and paternalistic control over poor people’s finance has created a situation where creditors wield disproportionate power. Unbridled financial inclusion of the poor may amount to adverse incorporation into a financial sector geared towards preying on them. Already, the Black Sash has collected evidence of troubling instances of <a href="http://ewn.co.za/2016/10/12/Social-grant-beneficiaries-call-for-an-end-to-illegal-grant-deductions">unauthorised and unlawful deductions</a> from accounts set up for grant recipients, often with very little recourse. </p>
<p>This is why the social grants crisis has implications beyond the distribution of payments. Sassa has missed a major opportunity to ensure that financial inclusion happens in a beneficial, “pro-poor” way. It failed to follow the Constitutional Court’s order that the payment of social grants should be done in a way that protects the rights, interests, and confidential data of grant beneficiaries. Instead, it has created a situation in which CPS and Net1 hold all the cards. At present, the Constitutional Court and Treasury have almost no leverage to prevent their service provider from simply walking away on 1 April 2017. </p>
<p>Already, Net1 CEO Serge Belamant has <a href="https://www.pressreader.com/south-africa/business-day/20170209/281479276157572">made it clear</a> that he is not interested in extending the contract on its present terms. He is in a position to ask for <a href="http://amabhungane.co.za/article/2017-02-18-grants-belamant-holds-a-gun-to-sas-head-as-dlamini-dawdles">whatever he wants</a> – including provisions that lock claimants even more tightly into his empire. </p>
<p>Sassa’s inactivity has created the worst possible outcome, not only in the short but also in the long term. A crisis over grant distribution looms, and the opportunity to provide meaningful financial inclusion has been missed.</p><img src="https://counter.theconversation.com/content/73224/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andries du Toit is the Director of the Institute for Poverty, Land and Agrarian Studies at UWC, a donor-funded research institute that relies on funding from a range of development and policy research organisations including the Department for International Development, the Economic and Social Research Council (ESCRC), the Department of Science and Technology (DST) and the National Research Foundation (NRF).</span></em></p>The South African Social Security Agency has created a crisis that threatens to deliver social grant recipients on a silver platter into the hands of unscrupulous financial services companies.Andries du Toit, Director: Institute for Poverty, Land and Agrarian Studies, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/700682016-12-11T06:17:37Z2016-12-11T06:17:37ZThe South African economy will be bolstered if Zuma falls<figure><img src="https://images.theconversation.com/files/149242/original/image-20161208-31352-osg40o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African President Jacob Zuma just escaped a bid by some of his senior colleagues in the governing ANC to remove him.</span> <span class="attribution"><span class="source">REUTERS/Rogan Ward</span></span></figcaption></figure><p><em>South Africa’s President Jacob Zuma narrowly <a href="https://theconversation.com/zuma-lives-to-fight-another-day-but-fallout-from-latest-revolt-will-live-on-69587">escaped a call</a> from some senior members of the governing party’s national executive committee for him to step down. The first stern action from inside the African National Congress’ (ANC) leadership against Zuma, while quelled by his supporters, is reverberating far and wide. The economic cluster of government is likely to be the main target. The Conversation Africa’s business and economy editor Sibonelo Radebe asked Jannie Rossouw what impact this will have on the economy.</em></p>
<p><strong>What impact will the upheaval inside the ANC have in the economic arena?</strong></p>
<p>South Africa is currently suffering the consequences of a “<a href="https://theconversation.com/south-africa-can-expect-zero-growth-its-problems-are-largely-homemade-62943">low growth trap</a>”. One of the reasons for this low growth-trap is that business people lack confidence in the Jacob Zuma government and therefore investment is suffering. Confidence will only begin to be restored after President Zuma steps down, as he is one of the main reasons for low confidence. The fact that he was <a href="https://theconversation.com/zuma-lives-to-fight-another-day-but-fallout-from-latest-revolt-will-live-on-69587">challenged</a> by some members of the National Executive Committee (NEC) of the ANC suggests that his stepping down might be earlier than 2019, which is good news for the economy.</p>
<p>The economy has suffered greatly under Zuma. Having registered 1.5% growth last year, GDP is <a href="https://www.businesslive.co.za/bd/economy/2016-12-06-sas-gdp-growth-disappoints-in-the-third-quarter/">expected</a> to clock something close to zero growth this year and only slightly above 1% growth in 2017 and 2018. Growth has <a href="http://www.statssa.gov.za/?cat=30">averaged</a> less than 2% per annum since Zuma’s rule commenced in 2009. </p>
<p>With this rate of growth South Africa will not win the battle against high unemployment, poverty and inequality. We must all be worried that the latest <a href="http://ewn.co.za/2016/05/09/SA-unemployment-rate-rises">unemployment rate</a> rose to about 27%.</p>
<p>The situation requires stern corrective action. We all know that the South African economy needs a deep structural reform to get out of the low growth trap. Zuma has proved incapable of leading the required reform. It is not only apparent incompetence that seems to prevent him from ordering and leading the reform but he seems distracted by other interests and projects of a personal nature. In addition to mounting <a href="http://ewn.co.za/2016/06/24/Charges-against-Zuma-have-in-effect-been-reinstated">legal battles</a>, Zuma’s attention seems to be on <a href="https://theconversation.com/how-the-state-capture-controversy-has-influenced-south-africas-nuclear-build-58879">enriching</a> his family and friends, the Guptas, while the South African economy suffers.</p>
<p><strong>Do you expect a strike back against the individuals who led the call?</strong></p>
<p>I expect some form of sanction by Zuma against the <a href="https://theconversation.com/zuma-lives-to-fight-another-day-but-fallout-from-latest-revolt-will-live-on-69587">members of Cabinet</a> that spoke against him in the NEC. The obvious sanction will be to remove them as Cabinet ministers, because their action is tantamount to a motion of no confidence in the President. The mere fact that we have not seen sanction yet implies that Zuma’s position might be weakened. This is a very positive development for South Africa’s economic future. </p>
<p>The Cabinet members that spoke against Zuma in the NEC are in the main from the economic cluster. If Zuma fires them, it will provide him with a perfect opportunity to appoint his cronies to these positions in Cabinet and to continue with state capture. The unfortunate consequence will be a South African credit risk downgrade. </p>
<p><strong>What sorts of market reaction are you expecting?</strong></p>
<p>The market will react positively when Mr Zuma finally steps down. A case in point is the exchange rate of the Rand. The exchange dropped from R7,32 against the dollar in 2010 to the current level of some R14,00. There is no doubt that a significant portion of the recent rand slide is directly due to the Zuma factor. Consider the <a href="http://www.fin24.com/BizNews/zumas-blunder-on-nene-costs-sa-billions-when-will-taxpayers-call-enough-20151213">losses</a> suffered in December 2015 when he fired finance minister Nhlanhla Nene and replaced him with the unknown Des van Rooyen. That move caused a significant rand slide and general market jitters wiping out hundreds of billions of rands on financial markets.</p>
<p>While Zuma was forced to remove Van Rooyen from the ministry of finance to replace him with the trusted Pravin Gordhan, he appears to have allowed the creation of a <a href="https://theconversation.com/charges-against-finance-minister-show-misuse-of-south-african-law-67177">toxic environment</a> around the National Treasury. Its been widely reported that the harassment of Gordhan by law enforcement agencies serves Zuma’s mission to capture the state and in particular the National Treasury in order to raid the public purse at will. This saga has also played its fair share in the depressed value of the local currency.</p>
<p>The exchange rate will most likely improve once Zuma steps down, and such an improvement will result in lower inflation. An appreciation of the local currency will also help to avoid a credit downgrade.</p>
<p><strong>What should economic players, mainly business and households, be doing?</strong> </p>
<p>Business should do what it is good at, namely doing business. But policy certainty and a corruption-free environment are necessary to restore confidence. Business leaders should unite in their calls for a corruption-free business environment and lead by example in refraining from paying any forms of bribes. They should also unite in their support of the few pockets of excellence that still exist in the government despite Zuma, for instance the National Treasury and the <a href="https://theconversation.com/its-hard-to-get-rid-of-the-governor-of-a-central-bank-heres-why-64836">SA Reserve Bank</a>. </p>
<p><strong>How can South Africa get out of this hole?</strong> </p>
<p>South Africa urgently needs higher economic growth. This will create fiscal space for the government and will also help to lower the unemployment rate. Higher growth can only follow on the back of increased investment, so government must ensure an investor-friendly and corruption-free environment.</p>
<p><a href="http://mg.co.za/article/2016-12-02-reprieve-for-south-africa-as-sp-leaves-credit-rating-unchanged">Escaping</a> a credit risk downgrade contributes to the restoration of international and domestic investor confidence and will support increased investment. However, the continued bi-annual focus on risk ratings increases the danger of short-termism in planning. South Africa should therefore move out of the danger zone of a possible downgrade to refocus on long-term investment planning and sustained economic growth.</p>
<p>In the quest to avoid a downgrade, it is imperative that Gordhan should be retained as minister of finance. Credit rating agencies realise that a downgrade to junk status will give Zuma reason to replace Gordhan. They will therefore refrain from downgrading the country in the quest to keep Gordhan in his position and Zuma’s hands off the Treasury.</p><img src="https://counter.theconversation.com/content/70068/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw is an NRF-rated researcher and receives funding from the National Research Foundation. </span></em></p>The South African economy stands to benefit if the country’s president steps aside because he has had a destructive economic impact.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/699962016-12-06T14:30:33Z2016-12-06T14:30:33ZEconomic exclusion feeds the politics of patronage in South Africa<figure><img src="https://images.theconversation.com/files/148855/original/image-20161206-25749-13o29a1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's President Jacob Zuma is part of a faction which embraces patronage politics.</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p>The politics of South Africa’s governing African National Congress (ANC) may be hogging today’s headlines, but they are a symptom of the economy’s development over the past two decades. They are unlikely to offer a cure. But they could help decide whether a remedy will be possible.</p>
<p>The ANC drama reached new heights late in November at a national executive committee meeting at which some Cabinet ministers and some senior officials <a href="https://theconversation.com/zuma-lives-to-fight-another-day-but-fallout-from-latest-revolt-will-live-on-69587">called</a> for the removal of President Jacob Zuma. Their attempt was thwarted by Zuma’s supporters on the committee.</p>
<p>It is common to reduce the politics of the ANC to a battle between personalities: more specifically, to one in which the future depends on whether the president stays or goes. In reality, it is a fight between two factions, both of them products of trends in the economy. The battle’s outcome will have important implications for the economy but, without other changes, they will not be as dramatic as we are sometimes led to believe.</p>
<p>To understand what is happening within the ANC, we need to look at the economy’s path since the country became a democracy. In 1994, <a href="http://www.sahistory.org.za/article/segregation-apartheid">South Africans were divided</a> into economic insiders who derived the benefits of the formal economy, and outsiders who were largely excluded. The main criterion for inclusion or exclusion was race.</p>
<p>Since then, the economy has absorbed new black entrants who have joined the insider group. But there are still strong barriers to entry into the formal economy – <a href="https://theconversation.com/business-needs-to-change-and-stop-blaming-others-for-south-africas-ills-64942">a point made</a> by, among others, International Monetary Fund deputy managing director David Lipton. And so, despite the emergence of black professionals and managers, many black South Africans remain economic outsiders.</p>
<h2>What feeds the politics of patronage</h2>
<p>This insider-outsider divide explains the division within the ANC.
Many of the ills which are associated with Zuma’s presidency are, in reality, the work of a faction which relies on using public office to acquire resources which it uses to buy support. </p>
<p>One cause of this style of politics is that it is <a href="https://theconversation.com/south-africa-must-tackle-dominant-firms-to-achieve-better-wealth-distribution-68759">not that easy</a> for ambitious black people, freed of the legal burdens of the past, to make it in the formal economy. So some see politics as a way of getting ahead. The insider-outsider divide makes sure that they have a ready support base if they are able to hand out resources to people who live on the economy’s margins.</p>
<p>Because many people are still excluded, they cannot rely on formal jobs to make ends meet. If they can, they therefore attach themselves to politicians, giving them support in exchange for (some) resources. This opens the way to patronage politics, in which private and public interests get together to use public resources for their benefit and, if they are politicians, to build their power base. </p>
<p>The president is part of this faction, and the <a href="http://www.timeslive.co.za/sundaytimes/stnews/2016/10/16/Shady-Gupta-family-billions-laid-bare">Gupta family</a> is one source of its resources. But there is far more to it than one politician and one family. Its <a href="https://theconversation.com/high-stakes-drama-as-south-african-president-and-finance-minister-square-off-47698">goal</a> is to feed the public-private networks which keep its money flowing. This is why it is eager to take over parastatals and the National Treasury, which would be a source of patronage bounty if people who want to keep public money public are removed.</p>
<p>The ANC faction which opposes them largely represents those who have been absorbed into the market economy. This does not mean that all its politicians are directly engaged in the private economy, although many are. But they rely for support on voters whose livelihood depends on the formal economy and who would lose out if the government damaged it. This group is not restricted to business people and professionals. It includes trade union members whose wages or salaries give them a stake.</p>
<p>While cosy relationships between public and private interests happen in the formal economy too, people who have been absorbed into the market economy have an obvious interest in protecting it from a takeover of the National Treasury or other damage inflicted by the patronage faction. </p>
<p>ANC politics does not make much sense unless we see it as a battle between the factions. While we are often told that ANC statements are contradictory or confused, this usually means that the factions are taking opposing positions. It was the patronage faction which wanted <a href="https://theconversation.com/the-removal-of-south-africas-finance-minister-is-bad-news-for-the-country-52170">Des van Rooyen</a> to become finance minister, their opponents who insisted he be replaced by <a href="https://theconversation.com/zumas-about-turn-shows-power-of-the-south-african-media-and-the-markets-52315">Pravin Gordhan</a>. </p>
<p>The battles over parastatals hinge around whether they will be used for patronage as does the continuing fight over nuclear power. It is the patronage faction which wants Zuma to remain in office, its opponents who want him out. </p>
<h2>The battle continues</h2>
<p>The battle between the factions is likely to continue next year despite the dramatic developments at the last ANC national executive committee meeting. The earliest this battle is likely to be settled is at the end of 2017, when a new ANC leadership will be elected. </p>
<p>This means that many skirmishes between the factions lie ahead – over the South African Broadcasting Corporation, power utility Eskom, South African Airways and perhaps the South African Revenue Service too. In every case, the issue will be whether patronage politics or the public interest (at least the interests of the public which is active in the formal economy) prevail. Although neither side will win a clear victory, the outcome of these battles will signal the direction in which the economy is heading.</p>
<p>Victories for the patronage faction will erode the market economy. Wins for their opponents would strengthen it. If the patronage faction loses the battle for control of the ANC, the economy in its current form will be insulated from attack by politicians and their private partners who want to turn it into their property.</p>
<p>But if that is all that is achieved, the gains for the economy will remain limited. The problem which strengthens patronage politics – the exclusion of many from the formal economy – remains. So do the poverty and <a href="https://theconversation.com/south-africa-needs-to-fix-its-dangerously-wide-wealth-gap-66355">inequality</a> which are its product. Unless economic change is negotiated which opens the formal marketplace to the excluded the problem, and so the potential for damaging patronage politics, will remain.</p>
<p>Amid the political drama of the last few days there was one sign that this negotiation may be beginning. This was represented in the news that business, labour and government were <a href="https://www.bloomberg.com/news/articles/2016-11-21/south-africa-eyeing-rating-downgrade-seeks-to-calm-labor-market">discussing a deal</a> in which a national minimum wage would be introduced in exchange for measures to reduce strikes. While that would be only the beginning, it is this sort of bargaining which could ensure that the market economy is not only saved from patronage politicians but that it begins to create conditions which will mean that patronage has far fewer takers. </p>
<p>None of this will be possible if the patronage faction wins. But, if it is defeated, the gains may not last long unless negotiation on economic change takes root.</p><img src="https://counter.theconversation.com/content/69996/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Friedman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It is common to reduce the politics of the ANC to a battle between personalities. A closer look suggest that this is a fight between two factions, both of them products of trends in the economy.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/669692016-10-13T07:57:03Z2016-10-13T07:57:03ZPrexit: as South Africa looks over the abyss who will blink?<figure><img src="https://images.theconversation.com/files/141532/original/image-20161012-16203-1homloc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's President Jacob Zuma (right) and Deputy President Cyril Ramaphosa. The jury is out on whether Ramaphosa will break ranks.</span> <span class="attribution"><span class="source">Mike Hutchings/Reuters</span></span></figcaption></figure><p>Like the lemming that is about to throw itself off the proverbial cliff, South Africa appears unable to stop itself from preventing a self-inflicted act of such monumental folly that it could easily send Africa’s biggest economy into a tailspin. </p>
<p>It has been a long time coming. Nevertheless the announcement that finance minister Pravin Gordhan had been summonsed to appear in court <a href="http://businesstech.co.za/news/government/139621/these-are-the-official-charges-gordhan-faces-and-what-lies-ahead/">on charges of fraud and theft</a> was still shocking. It prompted <a href="https://www.enca.com/money/rand-plunges-as-gordhan-issued-with-summons">a sharp fall</a> in the country’s currency and provoked dismay from market analysts, constitutional watchdogs and political commentators alike. </p>
<p>How things unfold in response to this dramatic event over the coming days will have a huge long-term impact. In turn this will reveal a great deal about the balance of power within the ruling African National Congress (ANC), the prospects of deputy president Cyril Ramaphosa succeeding Jacob Zuma as president of both the ANC and the country, increased political risk and socioeconomic uncertainty, and whether South Africa will be able to avoid a damaging rating agencies’ downgrade before the end of the year. </p>
<p>The announcement has been a long time coming because ever since Zuma was forced on 13 December last year to <a href="http://www.fin24.com/Economy/pravin-gordhan-appointed-minister-of-finance-20151213">re-appoint Gordhan</a> to the position he held in the cabinet between 2009-14, the president has been waging a cold war against his own finance minister. </p>
<p>Five days earlier Zuma had, without any warning, <a href="http://mg.co.za/article/2015-12-09-nhlanhla-nene-removed-as-finance-minister">fired Nhlanhla Nene</a>. He had taken this bold decision to clear the path for the “capture” of the National Treasury, which is widely viewed as the one part of government capable of standing up to attempts by Zuma and his cronies to push through disreputable deals and policies intended to enrich a small group of Zuma insiders at the expense of the national fiscus and the wider population. </p>
<p>This history and context is essential to understanding what is happening now. </p>
<h2>Prosecution or persecution</h2>
<p>In his budget speech in late February Gordhan drew a line in the stand, telling Zuma “no more”. He unveiled a package of reforms essential to South Africa avoiding a downgrade by rating agencies. Such a move would have a dramatically adverse impact on South Africa’s sluggish economy, its prospects for growth, inflation and the cost of borrowing. In short, on the living conditions of the country’s poorest citizens. </p>
<p>Zuma has fought back through loyal proxies such as General Mthandazo Berning Ntlemeza, the head of police’s elite unit, The Hawks, and now, it would seem, the National Director of Public Prosecutions, Shaun Abrahams. It was Abrahams who held a press conference to announce that Gordhan would be charged. This was notwithstanding the fact that Gordhan had been informed in May that he was not a suspect in the Hawks’ investigation and would in any case be given an opportunity to make representations should that situation change. </p>
<p>For seasoned observers, the detail of the charge sheet was revealing. Earlier in the year Gordhan had faced a list of 27 questions relating to the establishment of a so-called “rogue unit” within the South African Revenue Service a decade ago. Gordhan was at that time commissioner of the revenue body. </p>
<p>But the charges Gordhan now faces have nothing to do with the rogue unit. This is probably because there is <a href="http://www.biznews.com/leadership/2016/08/30/hawks-case-against-gordhan-a-legal-sham-expert-insights/">no sound basis for them</a>. </p>
<p>And the goalposts have also been moved in relation <a href="http://www.news24.com/SouthAfrica/News/pillay-retirement-entirely-above-board-gordhan-20160824">to the payment of R1m</a> to former deputy commissioner Ivan Pillay. This is the cost to the revenue service of an early payout, which, by all accounts, is a common occurrence in the public sector.</p>
<p>The National Prosecuting Authority was clearly forced to scrabble around for a different legal basis for charging Gordhan and have come up with fraud and theft. These charges will require the state to prove several elements beyond reasonable doubt, making its prospects of success even less likely. </p>
<p>So less of a prosecution and more of a persecution. And an example of what is known as “selective prosecution”. What, then, will happen next? </p>
<p>The assumption is that no-one in the National Prosecurity Authority, including its head Abrahams, seriously believes that they have a sound case. But this does not matter since the primary, and perhaps only purpose, of the charges is to provide Zuma with the pretext to remove Gordhan regardless of <a href="http://ewn.co.za/2016/08/26/HandsOffGordhan-Chorus-of-support-grows">the support he has received</a> from a range of organisations and individuals. These include business leaders, civil society, parts of the ANC and its alliance supporters including the South African Communist Party and the ruling party’s own chief whip, Jackson Mthembu. </p>
<p>All eyes, therefore, are on Zuma. There is no doubt that he is brave and bold enough to fire Gordhan. He may do this in a desperate “last man standing” bid to ward off forces within the ANC that want him to go. The chorus of voices for a change at the top has grown stronger with recent calls from, among others, <a href="http://www.biznews.com/sa-investing/2016/09/07/watch-anglogold-chairman-sipho-pityana-skewers-zuma-as-anc-bigwigs-look-on/">ANC stalwarts Sipho Pityana</a>, Trevor Manuel and Barbara Hogan. Along with others they have <a href="http://www.fin24.com/Economy/manuel-tells-zuma-to-be-honourable-and-quit-20161007">formed a new organisation</a> – Save South Africa – whose sole purpose is to persuade parliament, and the ANC majority within it, to remove their President. </p>
<h2>Who will blink first?</h2>
<p>How will the rest of the ANC leadership and Zuma’s cabinet react?</p>
<p>Attention will also be focused on ANC secretary general Gwede Mantashe, who has been consistently vocal in backing Gordhan, and even more so on Ramaphosa, the deputy president of the ANC and the country. </p>
<p>This is a crucial fork in the road moment. Who will blink first? Ramaphosa, backed by Mantashe, needs to abandon his overly prudential approach, and finally make a decisive move. He must insist that Gordhan stays and, if Zuma threatens to fire Gordhan or does so, then Ramaphosa should resign as a matter of principle. </p>
<p>As much as anything, this moment is a test of Ramaphosa’s own leadership. He had a chance to act last December. But he is increasingly viewed as a man who never misses an opportunity to miss an opportunity. It may be now or never for him and for the ANC moderate traditionalists and social democrats who began to find their voice when Nene was fired, but who are persistently out muscled by the venal nationalists on the right of the ruling party, with whom Zuma has increasingly aligned himself. He has done so by exploiting the “transformation” agenda to secure the fidelity of pliable placemen such as Hlaudi Motsoneng at the South African Broadcasting Authority, among others.</p>
<p>The implications for the ANC are profound; it faces its own acute dilemma. Act decisively and force Zuma from power, and it may tear the party apart. Fail to act, and allow him to continue his self-serving project of state capture, and the outcome may be the same, but with even more collateral damage as South Africa plunges into a Brazil-like tailspin caused by overlapping leadership and economic crises, stirred by a militant student movement. </p>
<p>The stakes have not been higher since the heady days of the early 1990s when South Africa also looked over the brink. Now it is less about brink and more about who will blink: Zuma, or Gordhan, or Abrahams or Ramaphosa. Which of these men will do the right thing and accept, or defend, the hard-won principles of constitutional democracy and public accountability that have been so sorely tested since Zuma came to power in 2009?</p><img src="https://counter.theconversation.com/content/66969/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Calland is a founding partner of The Paternoster Group and Associate Professor at the University of Cape Town. He is author of "Make or Break: How The Next Three Years Will Shape South Africa’s next three Decades".</span></em></p>The stakes have not been higher since the heady days of the early 1990s when South Africa also looked over the brink. Now it is less about brink and more about who will blinkRichard Calland, Associate Professor in Public Law, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.