tag:theconversation.com,2011:/us/topics/finance-minister-23333/articlesFinance minister – The Conversation2020-08-24T15:29:24Ztag:theconversation.com,2011:article/1448942020-08-24T15:29:24Z2020-08-24T15:29:24ZChrystia Freeland and the merit myth that won’t go away<figure><img src="https://images.theconversation.com/files/354128/original/file-20200821-22-jum0b2.JPG?ixlib=rb-1.1.0&rect=69%2C107%2C4901%2C3144&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Deputy Prime Minister and Minister of Finance Chrystia Freeland responds to a question during a news conference on Aug. 20, 2020 in Ottawa.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span></figcaption></figure><p>Chrystia Freeland made history by becoming Canada’s first woman finance minister. The next day, she experienced what many high-achieving women do: her qualifications for the job were immediately challenged. </p>
<p>Journalists reported that Freeland <a href="https://www.cbc.ca/news/politics/freeland-morneau-finance-minister-bay-street-experience-1.5691135">lacked the Bay Street experience</a> of her predecessor, Bill Morneau, that her “<a href="https://www.pressreader.com/canada/the-globe-and-mail-bc-edition/20200819/281831466101417">mastery of business issues was relatively untested</a>” and that she was merely a journalist with no business credentials. </p>
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<p>Such reporting ignores Freeland’s stellar performance in two cabinet posts over five years and overlooks the fact that she was an <a href="https://www.newswire.ca/news-releases/chrystia-freeland-wins-national-business-book-award-512475541.html">award-winning financial journalist</a> before entering politics. For some, Freeland’s qualifications for finance minister were insufficient. </p>
<p>We shouldn’t be surprised. Denigrating or <a href="https://www.theguardian.com/commentisfree/2010/may/16/carole-cadwalladr-women-politics-power">ignoring women’s credentials</a> is a common strategy to reinforce ideas about <a href="https://doi.org/10.1080/21565503.2018.1532917">who is entitled to the most powerful positions</a> in our society. My co-authored book, <a href="https://global.oup.com/academic/product/cabinets-ministers-and-gender-9780190069001?cc=ca&lang=en&"><em>Cabinets, Ministers, and Gender</em></a>, shows that downplaying women’s qualifications helps explain why so few make it into top government posts. </p>
<p>Women were entirely absent from Canadian cabinets until 1957, when <a href="https://time.com/4101443/canada-first-female-cabinet-minister/">Ellen Fairclough was appointed to cabinet</a> by prime minister John Diefenbaker. Since then, progress has been slow, and few women have <a href="https://global.oup.com/academic/product/cabinets-ministers-and-gender-9780190069001?cc=ca&lang=en&">held the most powerful posts</a>. Just three women have served as justice minister, two have led foreign affairs and just one woman, Kim Campbell, has been defence minister, a post she held for less than six months. </p>
<p>Women’s gains in politics and the workplace over the past few decades are undeniable. Yet men continue to dominate the upper echelons of politics. Why? Our research digs into how qualifications and arguments about merit are deployed to women’s disadvantage. </p>
<h2>Qualifying for cabinet</h2>
<p>There are no formal qualifications for ministers in the countries we studied — Australia, Canada, Chile, Germany, Spain, the United Kingdom and the United States. We interviewed former ministers and political advisers, read former leaders’ memoirs and dug into media archives to figure out why some people make it into cabinet and others don’t. </p>
<p>We found that even without written rules, there were still widely recognized expectations about the qualifications ministers needed. Political experience and policy expertise were central, but we found that friendship and loyalty mattered even more, especially to the person doing the appointing.</p>
<p>Women have a harder time qualifying on these grounds. That’s because the networks where political friendships develop often originate in all-male or mostly male spaces like private school, fraternities and golf clubs. Examples include former British prime minister David Cameron’s “<a href="https://inews.co.uk/news/politics/day-long-knives-ruthless-may-dispatched-notting-hill-set-14248">Notting Hill set</a>,” many of whom sat in his cabinet.</p>
<h2>The route to cabinet</h2>
<p>Another route to cabinet is having policy expertise, educational credentials and professional experience related to the post. Unfortunately, patterns of gender segregation in the workforce get reproduced in cabinet. Researchers find that <a href="https://doi.org/10.1111/j.1540-5907.2005.00158.x">women tend to be appointed to less prestigious</a> cabinet posts that correspond to stereotypically feminine professions like education, social services and health. </p>
<p>If qualifying for more powerful posts like finance, defence and foreign affairs requires occupational experience, women will be disadvantaged. Women lead a mere <a href="https://www.cnn.com/2020/05/20/us/fortune-500-women-ceos-trnd/index.html">7.4 per cent of Fortune 500 companies</a> and continue to be <a href="https://www.canada.ca/en/department-national-defence/services/women-in-the-forces/statistics.html">vastly under-represented</a> in the Armed Forces. The high-profile cabinet spot where women are most likely to be found is justice, which is unsurprising given the ever-growing number of women graduating with law degrees.</p>
<p>But the real reason why criteria requiring occupational experience undermines women’s chances of making it to cabinet are the ones exemplified by the reaction to Freeland’s appointment: qualifications are in the eye of the beholder. They’re not objective, and they’re not static. They shift and change depending on who’s being considered and who’s doing the judging. </p>
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<img alt="Justin Trudeau elbow bumping Chrystia Freeland" src="https://images.theconversation.com/files/354127/original/file-20200821-24-nkng6t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/354127/original/file-20200821-24-nkng6t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=378&fit=crop&dpr=1 600w, https://images.theconversation.com/files/354127/original/file-20200821-24-nkng6t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=378&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/354127/original/file-20200821-24-nkng6t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=378&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/354127/original/file-20200821-24-nkng6t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=475&fit=crop&dpr=1 754w, https://images.theconversation.com/files/354127/original/file-20200821-24-nkng6t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=475&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/354127/original/file-20200821-24-nkng6t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=475&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">Chrystia Freeland elbow bumps Prime Minister Justin Trudeau after being sworn in as Finance Minister on Aug. 18, 2020.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span>
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<p>While doing research for our book, we encountered several cases of women’s qualifications for cabinet being ignored or downplayed. The most egregious — and sadly similar to Freeland — is when Theresa May, former British prime minister, was selected by newly elected prime minister David Cameron as home secretary, one of the most powerful posts in government. May had been in parliament for 13 years, served as party chairman, and shadowed six different portfolios. Yet the <a href="https://www.theguardian.com/commentisfree/2010/may/16/carole-cadwalladr-women-politics-power">media still challenged her qualifications</a> for the position.</p>
<h2>Merit as a strategic tool</h2>
<p>When Trudeau first appointed a gender-balanced cabinet in 2015, <a href="https://www.thebeaverton.com/2015/11/50-female-cabinet-appointments-lead-to-5000-increase-in-guys-who-suddenly-care-about-merit-in-cabinet/">the satirical <em>Beaverton</em> ran the headline</a>: “50 per cent female cabinet appointments lead to 5,000 per cent increase in guys who suddenly care about merit in cabinet.” The headline illustrates how merit arguments are deployed precisely when women’s gains threaten the status quo. </p>
<p><a href="https://www.cbc.ca/news/politics/kim-campbell-sexism-freeland-minister-finance-1.5694539?fbclid=IwAR0WegGNc4pBB5UslYDuMtQ171PXtaWW_itTbjsI-sMm9ikYWFuAdtsoGxs">Journalists who ignore Freeland’s qualifications</a> or imply — contrary to the historical record — that Bay Street experience is a qualification for finance minister, are doing the same thing, except they’re not trying to be funny. </p>
<p>Instead, they’re sending an all-too-familiar message to women seeking high office: No matter what you accomplish, it will never be enough.</p><img src="https://counter.theconversation.com/content/144894/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Susan Franceschet receives funding from the Canadian Social Sciences and Humanities Research Council.</span></em></p>Reactions to Chrystia Freeland’s appointment as finance minister demonstrate how qualifications and arguments about merit are deployed to women’s disadvantage in politics.Susan Franceschet, Professor of Political Science, University of CalgaryLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1261372019-10-30T15:21:09Z2019-10-30T15:21:09ZMini-budget underscores bad state of South Africa’s economy<figure><img src="https://images.theconversation.com/files/299509/original/file-20191030-17924-fhkgz8.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, delivering his mid-term budget.</span> <span class="attribution"><span class="source">EFE-EPA/Nic Bothma</span></span></figcaption></figure><p>The <a href="https://www.news24.com/SouthAfrica/News/ramaphosa-promises-corruption-crackdown-at-maiden-sona-20180216">new dawn</a> promised by Cyril Ramaphosa when he took over as president of the country as well as the African National Congress (ANC) last year was always <a href="https://theconversation.com/why-ramaphosas-new-dawn-will-break-slowly-for-south-africas-finances-105302">going to break slowly</a> for South Africa’s public finances. This was because it was inevitable that the <a href="https://theconversation.com/why-the-anc-itself-is-the-chief-impediment-to-ramaphosas-agenda-108781">damaging effects wrought by his predecessor</a>, Jacob Zuma, would continue for a long time. </p>
<p>This year’s <a href="http://www.treasury.gov.za/documents/mtbps/2019/speech/speech.pdf">medium term budget</a> – an outline of state spending, revenue collection and borrowing over the next three fiscal years – suggests that the damage was deep. It also suggests that the new political administration is unable to stabilise public finances and increase economic growth.</p>
<p>Five years ago the then Finance Minister Nhlanhla Nene promised to stabilise national debt at <a href="https://www.iol.co.za/business-report/an-upward-revision-of-debt-to-gdp-ratio-1933784">less than 50%</a> of the size of the economy. It is now projected to breach 60% this year and grow to more than 70% by 2022/23 and 80% by 2027/28. </p>
<p>This dire outlook is a function of three main factors that are to some extent related. These are consistently low economic growth, revenue collection below targets, and support for state-owned enterprises beyond what had been planned in past years.</p>
<p>Economic growth for 2019/20 is now expected to be only 0.5%. This is significantly below the 1.5% forecast in the <a href="http://www.treasury.gov.za/documents/national%20budget/2019/review/FullBR.pdf">February budget</a> and means that economic activity is increasing more slowly than estimated population growth. </p>
<p>Slow growth has had an impact on tax revenue, which is now expected <a href="http://www.treasury.gov.za/documents/mtbps/2019/mtbps/Chapter%203.pdf#page=7">to be R250bn below</a> what was forecast in the 2019 budget. Meanwhile, additional support to state-owned enterprises like the power utility Eskom has caused the government to exceed its expenditure ceiling in the current year. It will need continued support, amounting to hundreds of billions over the next ten years. </p>
<p>Changes are needed, but where and how?</p>
<h2>Bad policies, and some good</h2>
<p>The Minister of Finance, <a href="https://www.gov.za/about-government/contact-directory/finance-ministry/tito-mboweni-mr">Tito Mboweni </a>, rightly notes that it cannot be business as usual. As he pointed out yesterday, sacrifices must be made and stale ways of thinking must be disrupted. </p>
<p>But it appears that the winds required to clear stuffy heads and focus minds may not yet be blowing through the corridors of those who inform and determine public finance decisions. </p>
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Read more:
<a href="https://theconversation.com/tough-times-and-bad-advice-are-holding-back-south-africas-economy-125990">Tough times -- and bad advice -- are holding back South Africa's economy</a>
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<p>A major concern is that government’s resolve is strongest on policies that are actually quite suspect. Some reflect the need for political rhetoric. But in many places it does reflect questionable policy positions. </p>
<p>One of these is the institutional separation of Eskom, even though the case for this as a crisis management tool <a href="https://theconversation.com/why-restructuring-south-africas-power-utility-wont-end-the-blackouts-114333">is unconvincing</a>. </p>
<p>The minister said yesterday that such enterprises must</p>
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<p>learn to stand on their own feet.</p>
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<p>This makes for a nice soundbite. But it papers over the origins of these crises and says nothing about the role these enterprises were expected to play in a developmental state.</p>
<p>Similarly, the idea that managers of these enterprises should be rewarded or punished based on meeting financial targets seems sensible until the case of the transport and logistics enterprise, Transnet, is brought into focus. The entity’s financial outcomes have often been relatively good because its port charges have been excessive for many years.</p>
<p>Another is the notion that introducing economic regulation and more private sector involvement in areas like transport will resolve problems that are mostly to do with basic failures by the state.</p>
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Read more:
<a href="https://theconversation.com/south-africa-is-planning-more-regulators-this-is-a-bad-idea-123572">South Africa is planning more regulators: this is a bad idea</a>
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<p>And in the area of employment, the renewed commitment to the employment tax incentive is unsupported by any credible evidence of its efficacy. This means that it is likely simply to be a handout to the private sector at a time when the money could instead be used to create jobs at the coalface of public service delivery. </p>
<p>There were some positives, such as proposals on politicians’ salaries. These will be frozen and perks cut. And although no clear recommendations have yet been made, there appears to be an understanding that if the public sector wage bill is reduced, employees earning the most will also need to take the largest reductions. </p>
<p>This provides some credible basis for difficult negotiations with public sector unions. Those should be focused on reducing – or limiting – salaries, rather than reducing posts in a country where unemployment is at record highs and key service delivery areas remain understaffed.</p>
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<img alt="" src="https://images.theconversation.com/files/299476/original/file-20191030-17901-hizxvg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/299476/original/file-20191030-17901-hizxvg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=772&fit=crop&dpr=1 600w, https://images.theconversation.com/files/299476/original/file-20191030-17901-hizxvg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=772&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/299476/original/file-20191030-17901-hizxvg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=772&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/299476/original/file-20191030-17901-hizxvg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=970&fit=crop&dpr=1 754w, https://images.theconversation.com/files/299476/original/file-20191030-17901-hizxvg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=970&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/299476/original/file-20191030-17901-hizxvg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=970&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">Cyril Ramaphosa, president of South Africa.</span>
<span class="attribution"><span class="source">GCIS</span></span>
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<p>It appears that compromises on public sector wages may be what the treasury is targeting in its efforts to somewhat reduce the anticipated escalation in debt levels. The policy statement says that the budget in February 2020 will announce R150bn of adjustments. Some may come from additional tax. But most will come from reductions in planned spending. </p>
<p>Other positive aspects include increased allocations to institutions critical for addressing the legacy of <a href="https://mg.co.za/article/2018-09-14-00-definition-of-state-capture">state capture</a> and increasing revenue. These include the <a href="https://www.npa.gov.za/">National Prosecuting Authority</a> and the <a href="https://www.sars.gov.za/Pages/default.aspx">South African Revenue Service</a>. </p>
<p>The minister also showed a clear appreciation of the fact that subsidising the national airline, South African Airways, is a highly regressive use of funds which must be stopped. And Gauteng province has been pulled back into line on the question of e-tolls, with government continuing to insist that road users must pay for the infrastructure they have benefited from. Whether this will have any tangible effect remains to be seen.</p>
<p>An emphasis on the importance of procurement efficiency and infrastructure investment is also positive. But it has been a feature of budgets over many years and it remains unclear whether anything significant has been achieved in either area. And cuts to local government budgets are expected to reduce infrastructure investment at that level.</p>
<h2>Dark days here to stay</h2>
<p>The minister argues that the medium-term budget is supposed to stimulate debate. But, in fact, history tells us that the national treasury never meaningfully changes its plans in response to public input. So now it is a matter of waiting to see what comes from behind-the-scenes negotiations with public sector unions and between spheres and departments of government.</p>
<p>Regardless of what proposals are ultimately tabled when the minister of finance stands before parliament to deliver the full-year budget in February, the long dark economic winter in which South Africa finds itself seems likely to persist for some time. </p>
<p>Ramaphosa has done relatively well in rolling back state capture in various key institutions. For the moment he appears to have solidified his political position, with internal opponents increasingly muted and opposition parties in disarray. And the immediate focus of the treasury is necessarily on merely stabilising public finances. </p>
<p>But a much broader state and societal effort is required to bring about the new dawn promised by Ramaphosa’s ascendance. At the heart of such an effort is further reform of state institutions whose functioning, in complex areas like education, is key for development. So too is the much-talked about “social compact” in which organised business and labour in particular – as well as those societal groups that can – make some sacrifices for the long-term public interest. </p>
<p>Ramaphosa remains arguably the best politician in the country to do this, but it remains an almost Herculean task.</p><img src="https://counter.theconversation.com/content/126137/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>A major concern is that the government’s resolve is strongest on policies that are actually quite suspect.Seán Mfundza Muller, Senior Lecturer in Economics, Research Associate at the Public and Environmental Economics Research Centre (PEERC) and Visiting Fellow at the Johannesburg Institute of Advanced Study (JIAS), University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1122352019-02-21T14:23:40Z2019-02-21T14:23:40ZSouth Africa takes important next steps to solving its power crisis<figure><img src="https://images.theconversation.com/files/260144/original/file-20190221-195870-sophye.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Keeping South Africa's lights on will come at a cost. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>In his maiden <a href="http://www.treasury.gov.za/documents/national%20budget/2019/speech/speech.pdf">budget speech,</a> South Africa’s Finance Minister Tito Mboweni, confirmed the depth of the financial crisis at South Africa’s power utility Eskom. He also underscored the serious risks this poses to economic recovery in the country. </p>
<p>Mboweni allocated R23bn a year over the next three years to Eskom, to be extended over the next ten years if needed. Without this support – and additional measures to address the structural roots of operational and governance crises at the utility – the costs could be much higher.</p>
<p>The minister made clear that fiscal support would be provided with strict conditions. First off, a Chief Reorganisation Officer will be appointed by the ministers of finance and public enterprises. This person’s mandate will be to implement the recommendations of a recently appointed <a href="http://www.thepresidency.gov.za/press-statements/president-appoints-eskom-sustainability-task-team">task team</a> set up to advise government on resolving Eskom’s challenges. </p>
<p>Mboweni also confirmed that Eskom would be broken up. This follows President Cyril Ramaphosa’s announcement <a href="https://www.gov.za/speeches/president-cyril-ramaphosa-2019-state-nation-address-7-feb-2019-0000">earlier this month</a> that the power utility would be unbundled into 3 separate companies – generation, transmission and distribution. The first priority would be to establish an independent transmission company. </p>
<p>In addition Eskom’s turnaround plan will be formalised in a new shareholder compact with the Minister of Public Enterprises. This will include maintenance plans, technical improvements and management of the capital expenditure programme. </p>
<p>The interventions and reforms in the budget combine both short term interventions – such as the fiscal support – as well as the first steps to longer term structural reforms. The idea is to keep Eskom afloat while the sector transitions. </p>
<p>The route being mapped out is controversial. And government should listen to the <a href="https://citizen.co.za/business/2080549/unions-stand-firm-against-eskom-unbundling/">vocal opposition</a> from unions to unbundling as well as questions being raised about the appropriate role for the private sector. </p>
<p>It’s not enough to demonstrate how the proposed interventions might address the governance, operational and financial crisis at Eskom. Government will also have to show how its plans will protect the most vulnerable. And how its plans will deliver tangible benefits to all South Africans. </p>
<p>The only way this will be possible is through meaningful engagement with labour, municipalities and civil society. It will also need transparent planning and implementation. </p>
<h2>Taking the first step</h2>
<p><a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28853/WPS8235.pdf?sequence=1&isAllowed=y">Experience elsewhere</a> shows that there are often considerable delays between announcing plans and implementation. South Africa is no exception. Previous plans to restructure Eskom got bogged down in lengthy policy and legislative processes. </p>
<p>But the new approach suggests there’s room for some optimism. Establishing an independent, state-owned transmission company within the current legislative framework is a pragmatic first step in a longer-term process. And working within the bounds of existing policy is prudent and could help catalyse the momentum to transform the sector. </p>
<p>The transmission company will be established as a subsidiary to Eskom Holdings and a board will be appointed by mid-2019. Following this the relevant assets, debts, personnel and licenses will be migrated to it. This will include Eskom’s substations and associated infrastructure, the national control centre, system operator assets and a group of Eskom’s power stations known as Peaker stations. These operate during peak periods or when the system is under duress and are essential for system balancing. Property rights, transmission licenses and supply agreements with existing clients, will also be transferred.</p>
<p>Separating the national transmission grid could lead to critical changes in the sector. In the short-term, it could provide some relief from the current crises, such as the recent <a href="https://www.fin24.com/Economy/South-Africa/eskoms-load-shedding-the-biggest-political-nightmare-to-have-shaken-the-anc-20190217-2">power cuts</a>. Critically, combining transmission with systems operation, power planning, procurement and buying functions could pave the way for contracting new power suppliers, at a lower cost, through competitive procurement processes. </p>
<p>Fast-tracking this procurement process may lead to an increase in generation capacity within the next two years. It would also diversify the risks of dependence on Eskom generation, which is facing a myriad of problems. These include the faulty and costly <a href="https://mg.co.za/article/2019-02-15-00-medupi-and-kusile-costly-and-faulty">Medupi and Kusile</a> mega plants.</p>
<p>A number of global trends are also likely to facilitate change. Countries are increasingly moving to renewable energy because it’s becoming cheaper to produce on the back of rapid technology developments. This places countries like South Africa in a much better position to move to new, cheaper and cleaner technologies, as well as to develop innovative distribution models. For example, municipalities might procure power directly from independent power producers, using the transmission grid to transport it. Or individual households might be able to switch to paying for back up electricity services to balance solar home generation. </p>
<h2>Benefits</h2>
<p>A host of additional benefits are likely to flow <a href="https://theconversation.com/why-south-africas-latest-plan-for-state-owned-power-giant-could-work-111480">from the unbundling</a> of Eskom. For example, the power utilities operations should become much more transparent, which in turn will improve accountability. In its current form, Eskom’s sheer size and complexity gets in the way of making it accountable to its shareholder – the government – and South African citizens. </p>
<p>The changes should also translate into increased investment from the private sector, commercial banks and development partners. This matters because increased investment in the sector is critical for its long-term sustainability and growth. It’s also important because the state can’t go on diverting resources from other critical services to foot the bill for the outmoded giant. Reforms are about solving the problems of the past and stemming the flow of resources through the Eskom “seive”. Reforms are also about setting a path to a more sustainable power future for the country.</p><img src="https://counter.theconversation.com/content/112235/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Catrina Godinho receives funding from UCT. </span></em></p><p class="fine-print"><em><span>Lauren Hermanus receives funding from UCT. </span></em></p>Eskom, South Africa’s power utility will be unbundled and receive financial support from national treasury. These are the next steps.Catrina Godinho, Research associate, University of Cape TownLauren Hermanus, Research associate, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1047012018-10-11T09:11:24Z2018-10-11T09:11:24ZSouth Africa’s economy is in a mess. New finance minister must hit the road running<figure><img src="https://images.theconversation.com/files/240064/original/file-20181010-72117-3e0y6p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African President Cyril Ramaphosa, left, introduces the country's new Finance Minister, Tito Mboweni, in Cape Town.
</span> <span class="attribution"><span class="source">Phando Jikelo/African News Agency(ANA)</span></span></figcaption></figure><p>The latest <a href="https://www.news24.com/SouthAfrica/News/live-ramaphosa-to-announce-decision-on-nene-20181009">reshuffling</a> of South Africa’s finance minister, following the resignation of Nhlanhla Nene and appointment of Tito Mboweni, may have negative origins but it brings with it some positive energy.</p>
<p>Nene resigned as finance minister after it emerged that he lied about the nature of his contact with the controversial Gupta family, the friends of former President Jacob Zuma who stand accused of championing massive misappropriation of public funds in a process branded as <a href="https://theconversation.com/why-state-capture-is-a-regressive-step-for-any-society-56837">state capture</a>. </p>
<p>In an initial response to a journalist’s question, <a href="https://citizen.co.za/news/south-africa/2017965/nene-lied-at-state-capture-inquiry-eff/">Nene</a> claimed that he had only met the Guptas in passing. But in his recent testimony to a commission investigating state capture he admitted that he’d met Gupta family members on numerous occasions, including a number of visits to their house and their offices. </p>
<p>The inconsistency tarnished his integrity and sparked massive public criticism. Within a week of making his admissions he resigned. South Africa’s President Cyril Ramaphosa immediately appointed former South African Reserve Bank governor Mboweni as the new finance minister.</p>
<p>On the one hand Nene’s departure must be hailed as setting a new tone for South African politicians, particularly for the cabinet. By falling on his sword, he has taken responsibility for his actions – a rarity in South African politics. It’s tempting to cast his action in stone as the “Nene Rule” that sets a standard for politicians to resign when in the wrong.</p>
<p>On the other hand the appointment of Mboweni brings back someone with considerable skills and the political finesse needed to steer South Africa out of its current economic quagmire. </p>
<p>Mboweni needs to hit the ground running. In late October he must present the country’s medium term budget policy framework. All eyes will be on how he steers the challenge of rebalancing the national budget. His political skills and ranking might come in handy. </p>
<h2>Equal to the task</h2>
<p>Mboweni takes over the finance portfolio at <a href="https://theconversation.com/south-africas-budget-some-good-moves-but-not-enough-to-fix-mounting-problems-73529">a difficult time</a>. Tough decisions will be required in a hostile environment as a strong populist wave sweeps through the ruling party, the African National Congress (ANC). </p>
<p>It’s therefore a positive that he commands a more senior political ranking than Nene had within the ANC. Mboweni claimed the <a href="https://www.timeslive.co.za/politics/2017-12-21-anc54-these-are-the-80-members-elected-to-the-nec/">11th position</a> in the tallying of the votes for the ANC’s National Executive Committee (NEC) during the ruling party’s 2017 elective conference that made Ramaphosa the President. The NEC is made up of 80 members and is the ANC’s highest decision making body between conferences. </p>
<p>In addition to this, Mboweni has a strong financial background. He served as governor of <a href="https://www.bloomberg.com/research/stocks/private/person.asp?personId=25853585&privcapId=398625">the South African Reserve Bank</a> from 1999 to 2009. Prior that he served in Nelson Mandela’s first cabinet as minister of labour. </p>
<p>Both experiences should help equip him to meet the economic challenges facing the country. There’s no doubt that he’s knowledgeable about financial matters and is respected among investors. </p>
<p>His tenure at the Reserve Bank should ensure a smooth working relationship between the minister of finance, the national treasury and the central bank. As a previous governor, Mboweni understands this important relationship while valuing the autonomy and the independence of the various institutions and their responsibilities.</p>
<h2>High expectations of Mboweni</h2>
<p>Mboweni will need to be a quick study. He has only two weeks in which to familiarise himself with the details of the medium term budget.</p>
<p>He can’t afford to disappoint. This year’s budget will be watched more intensely than usual by key stakeholders, including investors and credit rating agencies because it follows closely on an <a href="https://theconversation.com/south-africas-stimulus-package-shows-power-is-finely-balanced-in-the-anc-104418">economic stimulus and recovery plan</a> announced by Ramaphosa. Details are expected to be unveiled in the medium term budget.</p>
<p>The medium term budget is also expected to signal how South Africa is dealing with its fiscal challenges. This is where government faces its very hard choices.</p>
<p>The ultimate aim must be to increase economic growth and eradicate unemployment. But to achieve these objectives the government must revise its expenditure priorities.</p>
<p><a href="https://journals.co.za/content/journal/10520/EJC-1077140800">Expenditure</a> on civil service remuneration, social grants and interest on government debt currently equates to 70% of the government’s tax revenue. This is clearly untenable. If not addressed, South Africa will face a fiscal cliff – the point at which these three expenditure items account for all government revenue and make spending on anything virtually impossible.</p>
<p>At the same time, Mboweni will have to work closely with Pravin Gordhan, the Minister of Public Enterprises, on the restructuring of state-owned enterprises. The precarious financial position of a number of state-owned enterprises is placing a heavy burden on taxpayers. Removing this burden will release resources that can be used to stimulate the domestic economy. Mboweni must therefore help with tough decisions about unaffordable vanity projects.</p>
<p>And, finally, Mboweni must sort out the challenges facing <a href="https://www.timeslive.co.za/sunday-times/business/2018-07-27-pic-staff-want-bosses-suspended-to-be-free-to-speak-out-on-corruption/">the Public Investment Corporation</a> which is responsible for managing civil servants’ pension funds and is worth over R1,5 trillion.</p>
<h2>Restoring trust</h2>
<p>South Africa is in serious economic difficulty. It also faces a trust deficit owing to the state capture project of the Zuma administration. The golden triangle of trust between the government, the public and the business community has been broken. No country can succeed without this. Mboweni can play an important role in restoring it.</p><img src="https://counter.theconversation.com/content/104701/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 serves as Governor. </span></em></p>South Africa’s new finance minister comes with considerable skills and political finesse needed to steer the country out of its economic quagmire.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/760402017-04-17T08:30:30Z2017-04-17T08:30:30ZThe markets can stomach a captured Treasury but South Africa’s poor will suffer<figure><img src="https://images.theconversation.com/files/165114/original/image-20170412-25888-1a4ahdc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's cabinet reshuffle saw Malusi Gigaba become finance minister and Sifiso Buthelezi his deputy.</span> <span class="attribution"><span class="source"> REUTERS/James Oatway</span></span></figcaption></figure><p>The formal economy might find it a lot easier to live with a (partly) <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">captured</a> national treasury than many might imagine. This is bad news for people living in poverty who would then lack friends in high places to resist the capturers.</p>
<p>In trying to restore calm, after the <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">firing</a> of Finance minister Pravin Gordhan and his deputy Mcebisi Jonas, the spin doctors of the governing party, the African National Congress, say the markets will adjust. They point out that the appointment of previous finance ministers also spooked the markets, only to attract something close to hero worship once they settled in. Thus the new minister of finance, <a href="http://www.ujuh.co.za/zumas-cabinet-reshuffle-points-to-the-rise-of-malusi-gigaba/">Malusi Gigaba</a>, would also come to be loved by the markets.</p>
<p>Just about no-one believes them. Their reassurances do not gel with the understanding of everyone opposed to the change and even some who welcome it. The change in minister is widely seen not as the replacement of one politician by another but as the capture of the Treasury by a faction which is interested not in the health of the economy but in using public money to feed the <a href="https://theconversation.com/why-state-capture-is-a-regressive-step-for-any-society-56837">patronage networks</a> of a connected few.</p>
<p>At issue is far less the policies the new Treasury leadership will proclaim than the likelihood that they will relax controls which hamper patronage politicians and connected businesses. And so it’s widely assumed that the economy is now to be laid waste by <a href="https://theconversation.com/after-the-downgrade-south-africa-should-copy-brazil-and-impeach-its-president-75706">looting</a> which will place the market economy in great danger.</p>
<p>It’s hard to argue against much of this account. The only plausible reason for Gordhan and Jonas’s removal is their campaign to prevent public resources and state-owned enterprises serving particular private interests. There would be little point in courting a ratings downgrade and other upheaval unless the purpose was to ensure that Treasury didn’t stand in the way of those interests who Gordhan and Jonas were frustrating.</p>
<p>But the rest of the story is not self-evident. In principle, the view that the ‘captured’ Treasury leadership is certain to lay waste the marketplace and make war on the owners of capital may be far less obvious than it seems. The marketplace and a Treasury which gives a helping hand to special interests may tolerate each other far more readily than we are being led to assume.</p>
<h2>The economy will be hurt</h2>
<p>Before the argument is drowned in a wave of indignation, it’s important to stress exactly what this may mean. The new Treasury leadership is not the victim of prejudice. It’s likely to remove barriers to particular businesses and politicians which have prevented them <a href="https://theconversation.com/why-state-capture-is-a-regressive-step-for-any-society-56837">profiting</a> from the public purse. This will weaken the economy and delay movement towards much-needed changes. Even if a captured Treasury really wanted to discuss vitally necessary economic reforms, it’s unlikely that either business or labour would trust it enough to join the dance. </p>
<p>But, while the new leadership will not take the economy forward, it could serve its special interests while keeping in place enough of the current framework to enable markets to continue operating much as they do now. </p>
<p>Gigaba and his deputy Sifiso Buthelezi won’t stay there long unless they remove some of the obstacles which have frustrated the patronage faction. But they could choose to do this in a way which keeps the market economy ticking over much as it does now. Whether they can pull this off is unclear. But it’s far from impossible.</p>
<h2>Market and patronage can coexist</h2>
<p>There is a myth behind the expectation that a captured Treasury is certain to devastate the formal economy. The myth is that market economies function effectively only when everyone plays by the rules. In reality, market economies can co-exist with all manner of favouritism, patronage and even dodgy dealing.</p>
<p>Consider the <a href="http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/south-koreas-chaebol-problem/article24116084/">South Korea experience</a> which shows how markets can tolerate patronage politics. Every head of state who presided over the Korean economic miracle was jailed for corruption. The apartheid economy is another example of how markets can co-exist with a limited, but fairly high level, of <a href="http://www.sahistory.org.za/article/despite-1994-political-victory-against-apartheid-its-economic-legacy-persists-haydn-cornish-">patronage</a>.</p>
<p>One of the great ironies of the last years of apartheid is that left critics consistently denounced its ‘monetarist’ adherence to fiscal discipline when it was really awash with spending, much of it linked to connected insiders, which aimed to buy apartheid out of trouble. Formal business may have opposed this, but also lived with it far more easily than it might care to admit.</p>
<p>Therefore, the new political leadership can choose to be captured in a strategic way. They can give connected interests some of what they want while making sure that the basic financial architecture is kept in place. They may well ensure that business learns to live with them and adjusts to what they are doing.</p>
<p>A captured Treasury which operates in this way wouldn’t be trusted by business. But they might well put up with each other – and make deals with each other – to ensure that the economy keeps running. Decades ago, David Yudelman, then a Wits academic, published an important <a href="https://www.questia.com/library/3024101/the-emergence-of-modern-south-africa-state-capital">book</a> on this subject. It showed that, even when business and government dislike each other, they need each other and find ways to cooperate to keep the market economy afloat. If the new Treasury leadership plays its cards competently, it could prove him right yet again.
To many, this argument will seem too optimistic. It is, in reality, deeply pessimistic.</p>
<h2>The poor are on their own</h2>
<p>Whatever the capture of Treasury does or doesn’t do to the formal marketplace, it’s sure to make life even more difficult for the poor. The <a href="https://theconversation.com/the-real-risks-behind-south-africas-social-grant-payment-crisis-73224">social grants scandal</a> shows clearly how easily patronage politics produces arrangements in which the poor are sacrificed so that the insiders can enrich themselves. </p>
<p>Since the poor are also politically weak, the new Treasury is unlikely to worry much about them when it gives the green light to patronage deals.
Last time there was an attempt to capture the South African Treasury, poor people were saved because the organised interests in the market economy united to stop this. </p>
<p>But, if the new Treasury leadership do manage to respect the core market rules while turning a blind eye to insider deals which its political masters need, the poor are likely to find themselves once again on their own, as they so often are - left to their own devices while the economic insiders continue to look after their own interests.
The markets may just find a captured Treasury less of a threat than they imagined. The poor are unlikely to have any such luck.</p><img src="https://counter.theconversation.com/content/76040/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>A captured South African Treasury is bad news for the country’s poor but the view that the capture is a natural enemy of the market economy is a myth.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/757062017-04-04T11:36:35Z2017-04-04T11:36:35ZAfter the downgrade: South Africa should copy Brazil and impeach its president<figure><img src="https://images.theconversation.com/files/163832/original/image-20170404-5732-dzao8l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's President Jacob Zuma looks on as his new cabinet members are sworn in.</span> <span class="attribution"><span class="source">Reuters/Siphiwe Sibeko</span></span></figcaption></figure><p>The news that South Africa’s sovereign rating has been <a href="http://www.fin24.com/Economy/breaking-sp-downgrades-sa-to-junk-status-20170403">downgraded</a> caught many by surprise. But it was long coming. The main reason for the rating agency’s decision is clearly concerns about political leadership in the country. Moody’s, which is expected to follow suit, has <a href="https://www.moodys.com/research/Moodys-places-South-Africas-Baa2-ratings-on-review-for-downgrade--PR_364595">said</a> as much, stating its decision to put the country on a negative outlook down to “the abrupt change in leadership of key government institutions”.</p>
<p>The downgrade by S&P comes on the back of a highly charged political environment in the ruling African National Congress. This culminated in the <a href="http://www.news24.com/SouthAfrica/News/why-zuma-reshuffled-his-cabinet-20170402-2">sacking</a> of the finance minister Pravin Gordhan and his <a href="http://www.ujuh.co.za/zumas-cabinet-reshuffle-points-to-the-rise-of-malusi-gigaba/">replacement</a> with Malusi Gigaba. While the <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">cabinet reshuffle</a> is the proximate cause of the downgrade, South Africa’s political and institutional malaise goes deeper.</p>
<p>So how does the country surf through these turbulent waters? </p>
<p>One hopes that the credit downgrade could help to focus the mind of the country’s political leadership to the task at hand, and that this will inject much-needed urgency for political change and economic reforms. The S&P assessment <a href="https://www.standardandpoors.com/en_US/web/guest/ratings/search/-/search/searchType/E/searchTerm/south%20africa">casts a ray of hope</a>:</p>
<blockquote>
<p>We could revise the outlook to stable if we see political risk reduced and economic growth or fiscal outcomes strengthen compared to our baseline projections. </p>
</blockquote>
<p>Piecemeal efforts towards change will not be enough. Bold leadership is required. But it’s inconceivable that the kind of action required can happen under President Jacob Zuma’s leadership. </p>
<p>The real chance to turn the country around is to do precisely what the Brazilians did last year – to <a href="http://www.bbc.com/news/world-latin-america-37237513">impeach</a> the president while building momentum in civil society to achieve political renewal as the basis for sustained economic recovery. </p>
<h2>South Africa failed to heed warning signs</h2>
<p>For nearly a decade now, international financial institutions and other international organisations have warned South Africa about a number of dangers. These include policy uncertainty, the consequences of low growth for social stability, and the need to attend urgently to industrial relations, especially in the mining sector. </p>
<p>Dire warnings are contained in a number of reports. These include the International Monetary Fund’s latest annual <a href="https://www.imf.org/en/News/Articles/2016/07/11/13/25/PR16322-South-Africa-IMF-Executive-Board-Concludes-2016-Article-IV-Consultation">assessment</a> of South Africa’s macro-economic conditions, the Organisation of Economic Cooperation and Development (OECD) <a href="http://www.oecd.org/eco/surveys/South-Africa-OECD-economic-survey-overview.pdf">periodic survey</a> and the World Bank Economic <a href="http://www.worldbank.org/en/country/southafrica/publication/south-africa-economic-update-promoting-faster-growth-poverty-alleviation-through-competition">Update</a>. </p>
<p>South Africa experienced downgrades in <a href="https://www.moodys.com/research/Moodys-downgrades-South-Africas-government-bond-rating-to-Baa1-outlook--PR_256159">2012</a>, <a href="http://www.treasury.gov.za/comm_media/press/2013/2013011101.pdf">2013</a> and <a href="http://www.stanlib.com/EconomicFocus/Pages/FitchdecidedtodowngradeSouthAfricascreditratingtoBBB.aspx">2015</a>. These should have been read as a harbinger of worse things to come. Government had ample time to draw appropriate lessons from these warnings, but chose to stick its head in the sand in the hope that problems would varnish. Meanwhile, the ruling party elevated factional battles above interest of the country. </p>
<p>South Africa could have also drawn lessons from Brazil which was downgraded by S&P and Moody’s to <a href="http://www.reuters.com/article/us-brazil-ratings-s-p-idUSKCN0RA06120150910">sub-investment grade status</a> in 2015 . This was in the wake of political unrest over a massive <a href="http://www.bbc.com/news/world-latin-america-35810578">corruption scandal </a>at the oil giant Petrobas, declining business confidence, growing policy uncertainty and President Dilma Rousseff’s weak leadership. </p>
<p>The downgrade further worsened Brazil’s growth outlook, with capital fleeing the country. Less than a year later after the downgrade, the Senate had thrown Rousseff <a href="https://www.theguardian.com/world/2016/aug/31/dilma-rousseff-impeached-president-brazilian-senate-michel-temer">out of office</a>.</p>
<h2>What’s to follow the downgrade</h2>
<p>In a sense, credit downgrades shouldn’t come as a surprise. They are like a medical report showing defects in the vital organs in the body while the patient is still alive and can do something about them, albeit requiring uncomfortable surgical procedure and a strong dose of medication. </p>
<p>In evaluating South Africa, S&P took into account the effectiveness of policymaking and stability of political institutions to respond effectively to socio-economic challenges, and found these wanting. The S&P <a href="http://ewn.co.za/2017/04/03/read-the-full-standard-and-poors-statement-south-africa-credit-rating-junk-status">statement</a> specifically singled out the risk of cabinet reshuffle on fiscal and growth outcomes, the possibility of increase in the contingent liabilities of the state – in particular the likelihood of state-owned enterprises such as <a href="https://theconversation.com/why-south-africas-power-utility-isnt-in-great-financial-shape-68441">Eskom</a>, the power utility, to draw down on government guarantees – and increased political risks in general in the current year. </p>
<p>The consequences of this downgrade are not difficult to discern: they will trigger a disposal by pension funds and other institutional investors of South African debt, since these funds are not allowed to hold sub-investment grade (or speculative) bonds. Sub-investment grade status will increase South Africa’s borrowing costs from global markets. </p>
<p>Interest rates are likely to go up, with debt-laden consumers bearing the brunt. Capital will flee in search of safer havens for healthy returns. </p>
<p>There are political implications too. Government spending will be constrained, including for welfare programmes and delivery of various public services, raising prospects of waves of political unrest in the run up to 2019 elections. </p>
<p>And there’s likely to be more pressure on the government to increase public servants’ salaries. </p>
<p>Further accentuating the strain on the economy is the fact that growth is likely to remain in the doldrums; with the employment outlook remaining bleak for the foreseeable future. Export growth is projected to remain flat during 2017 and 2020. As S&P notes, economic growth is unlikely to come from business investment, since business will be withholding capital in the face of heightened political risk. </p>
<h2>Solutions</h2>
<p>Bold political and economic reforms are urgently needed. Tough times such as the ones South Africa is headed can also be crucibles for transformative leaders who are willing to break rank from the small-mindedness of their parties, and chart a different course that delivers real change. </p>
<p>Zuma has already squandered his credibility, and showed himself as out of kilter with the realities of the economy. The major task of pushing for structural reforms in the economy and to restore stability lies with the Minister of Finance, who ideally should have relative autonomy from the president and able to corral his cabinet colleagues to behave responsibly. Disappointingly, Malusi Gigaba, the new minister, started on a bad footing, peddling <a href="http://www.treasury.gov.za/comm_media/speeches/2017/2017040101%20Speech%20by%20Minister%20of%20Finance%20Malusi%20Gigaba%20on%20his%20new%20Portfolio.pdf">rhetoric</a> and taking ambiguous and contradictory positions in his early days in office. </p>
<p>So what would a package of reforms look like? Government needs to send a clear and strong message about the direction of economic policy. This must be followed by a bold set of actions that could immediately restore confidence and gain the support of the private sector. There’s also a need to restructure state-owned enterprises, improve efficiencies and restore good corporate governance.</p><img src="https://counter.theconversation.com/content/75706/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mzukisi Qobo 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 best chance South Africa has of recovering from sub-investment grade credit rating status is to have leaders who are prepared to break rank with the small-mindedness of the ruling party.Mzukisi Qobo, Deputy Chair: SA Research Chair on African Diplomacy and Foreign Policy, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/755492017-03-31T12:01:19Z2017-03-31T12:01:19ZSouth Africa has lost a key line of defence against corruption. What now?<figure><img src="https://images.theconversation.com/files/163448/original/image-20170331-31747-shdpgu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The sacking of South Africa's Finance Minister Pravin Gordhan has created uncertainty about the future of the country's finances.</span> <span class="attribution"><span class="source">Nic Bothma/EPA</span></span></figcaption></figure><p>South Africa’s currency and bond markets <a href="https://www.bloomberg.com/news/articles/2017-03-30/south-africa-s-rand-extends-slump-as-zuma-fires-finance-minister">plunged</a> after a dramatic late night <a href="http://www.thepresidency.gov.za/press-statements/president-zuma-appoints-new-ministers-and-deputy-ministers">announcement</a> that South Africa’s President Jacob Zuma had fired the Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas as part of a major cabinet reshuffle. </p>
<p>It’s no exaggeration to say that the removal of the finance minister is the greatest threat to public finances experienced in democratic South Africa. </p>
<p>Let’s be clear, the motive for removing the minister and his deputy had nothing to do with the responsible and safe management of South Africa’s economy. Rather it has everything to do with Gordhan and his team’s intent to safeguard the fiscus against irresponsible and corrupt activities. It follows that whoever replaces them will be amenable to facilitating such activities.</p>
<p>It’s hard to overstate the harm that a corrupt finance minister could cause. The first consequence – which became apparent when Nhlanhla Nene was <a href="http://www.fin24.com/BizNews/zumas-blunder-on-nene-costs-sa-billions-when-will-taxpayers-call-enough-20151213">fired</a> and also as speculation mounted about Gordhan’s removal – is based on a simple loss of confidence. This is reflected in the <a href="https://www.bloomberg.com/news/articles/2017-03-30/south-africa-s-rand-extends-slump-as-zuma-fires-finance-minister">sharp depreciation</a> of the rand before and after Zuma’s announcement.</p>
<p>The rand is likely to suffer further. The cost of government borrowing in the market will rise, further compounding the impact of a formal downgrade by ratings agencies which is likely to follow. Higher borrowing costs will mean less money for expenditure, along with a reduced ability to borrow. Imports will become more expensive, potentially fuelling inflation and a hike in interest rates. </p>
<p>There’s also likely to be an outflow of foreign investment, further exacerbating the weakened exchange rate. At its most extreme this could lead to a balance of payments crisis. All of this will harm already low economic growth.</p>
<p>And there are a number of key decisions – such as the approval of an expensive nuclear deal – that could get the green light, severely damaging the country’s fiscal position.</p>
<h2>So why now</h2>
<p>When Zuma <a href="https://www.businesslive.co.za/bd/opinion/2017-03-28-zuma-recalls-gordhan-from-high-profile-roadshow-as-the-world-watches/">summoned</a> Gordhan back from an investor roadshow in the UK earlier in the week, he is said to have to have acted on the back of a flimsy <a href="http://www.heraldlive.co.za/news/2017/03/29/zuma-justify-gordhan-axing-intelligence-report-sources/">intelligence report</a>. Few believe this to be the real reason.</p>
<p>Others speculated that Zuma’s reason for making the move now might be linked to court cases involving the Gupta family and their associates, or the manufactured crisis relating to the distribution of social grants. </p>
<p>The <a href="http://www.fin24.com/Economy/zuma-joins-gupta-court-battle-to-file-motion-against-bank-20170327">court cases</a> relate to attempts by the Guptas to get the executive branch to intervene in the decision of commercial banks to close their bank accounts. They are also linked to an attempt by the Gupta’s associates to <a href="http://citizen.co.za/news/news-national/1471048/treasury-to-respond-to-gupta-associates-bank-bid/">purchase</a> a controlling share in an existing bank. There certainly seems to be a sense of urgency, with the last bank servicing Gupta companies reported to have started closing accounts. </p>
<p>But my premise on why this has happened now is much simpler. The timing of it ensures that the new finance minister, and other new appointments, have a month’s grace before a vote of no confidence in parliament can be tabled in parliament. Two opposition parties have already called for one. </p>
<p>A vote of no confidence against Zuma could succeed if the ANC caucus turned on Zuma and ANC members joined opposition parties to make up a 51% majority. There were hints of such a <a href="https://theconversation.com/zuma-lives-to-fight-another-day-but-fallout-from-latest-revolt-will-live-on-69587">revolt</a> in February ahead of Gordhan’s budget speech. The chances of it actually happening this time are probably much greater.</p>
<p>But an imminent vote isn’t possible because parliament starts its 2017 Easter <a href="https://www.parliament.gov.za/storage/app/media/Programmes/parliamentary-programme-framework-2017.pdf">recess</a> on the 31st of March, and only returns in early May. My reading of the Constitution and the Rules of the National Assembly suggests that recalling parliament before the recess ends will be difficult, if not impossible. That means that in the absence of some other process to block the president’s machinations, his cronies will have a minimum of four weeks to implement whatever nefarious plans they have devised for the finance ministry.</p>
<p>A lot of damage could be done in that time. </p>
<h2>Harm that can be done</h2>
<p>The consequences of Gordhan’s removal could be potentially dire on a number of fronts. They include, for example, the finance ministry withdrawing from its involvement in various court cases relating to the Gupta family. </p>
<p>Other possible consequences include the worsening of <a href="http://www.fin24.com/Economy/sars-at-risk-of-imploding-20170305-2">mismanagement</a> of the South African Revenue Services and untrammelled corruption at state-owned enterprises. </p>
<p>The approval of the expensive and unnecessary nuclear deal also becomes a real possibility. Eskom already holds hundreds of billions of rand in <a href="https://theconversation.com/why-south-africas-power-utility-isnt-in-great-financial-shape-68441">debt guarantees</a> from the National Treasury and the nuclear deal would likely be financed through the issuing of further such guarantees. </p>
<p>The combination of irresponsibly issued and utilised guarantees, along with an increase in borrowing costs, a ratings downgrade and falling revenue collection, would lead to a dramatic worsening in various public finance metrics, such as the debt-to-GDP ratio. </p>
<p>Corresponding harm could be done to critical institutions that fall under the Ministry of Finance. These include the <a href="http://www.gepf.gov.za/">Government Employees Pension Fund</a> and the <a href="http://www.pic.gov.za/">Public Investment Corporation</a> which are responsible for trillions of rand in public sector pensions. Institutions like the <a href="https://www.fic.gov.za/Pages/Home.aspx">Financial Intelligence Centre</a> and <a href="https://www.fsb.co.za/Pages/Home.aspx">Financial Services Board</a> could also be compromised. And there are significant funds that could be appropriated or misdirected from development finance institutions such as the <a href="http://www.landbank.co.za/">Land Bank</a> and <a href="http://www.dbsa.org/EN/Pages/default.aspx">Development Bank of Southern Africa</a>.</p>
<h2>Where to from here?</h2>
<p>As long as principled, competent public servants remain at the helm of the country’s National Treasury it might be harder for the new minister of finance to engage in corrupt, illegal or irrational actions. To do so he would have to suspend or dismiss numerous officials leaving himself open to legal action on various grounds, including labour law. The presence of good officials also means that there is greater scope for whistleblowing which could inform action by civil society, the judiciary and the legislature.</p>
<p>In principle, parliament should be able to exercise significant oversight over the National Treasury, including the budget. But Parliament’s primary source of technical support has shown itself to be <a href="https://theconversation.com/explainer-the-nitty-gritty-of-south-africas-annual-budget-72901">unable or unwilling</a> to tackle politically sensitive issues. On top of this the Financial and Fiscal Commission, which also advises parliament committees on such matters, currently has no permanent leadership. </p>
<p>It therefore remains to be seen whether there’s sufficient political will and technical competence in the legislature to significantly mitigate the harm that the recent reshuffle will cause. In that context, the best South Africans can hope for is that somehow the harm can be minimised for four weeks, and that the president and his new cabinet are removed shortly afterwards.</p><img src="https://counter.theconversation.com/content/75549/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seán Mfundza Muller is affiliated with the Public and Environmental Economics Research Centre (PEERC) at the University of Johannesburg, and previously worked for the Parliamentary Budget Office.</span></em></p>The removal of South Africa’s finance minister, Pravin Gordhan, is the greatest threat to public finances experienced in the post 1994 era.Seán Mfundza Muller, Senior Lecturer in Economics, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/732862017-02-21T08:40:21Z2017-02-21T08:40:21ZReplacing South Africa’s finance minister, or his deputy, would carry a heavy cost<figure><img src="https://images.theconversation.com/files/157660/original/image-20170221-18664-9zq029.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Finance minister Pravin Gordhan, his deputy Mcebisi Jonas, and Reserve Bank Governor Lesetja Kganyago. </span> <span class="attribution"><span class="source">GCIS</span></span></figcaption></figure><p>Many see <a href="http://mg.co.za/article/2017-02-17-brian-molefe-to-be-sworn-in-as-a-member-of-parliament">the decision</a> by South Africa’s governing African National Congress (ANC) to send the <a href="https://www.businesslive.co.za/fm/features/2016-11-03-state-of-capture-report-reduces-brian-molefe-to-tears/">disgraced</a> former CEO of the power utility Eskom to parliament as the precursor to another <a href="http://www.huffingtonpost.co.za/2017/02/17/brian-molefe-becomes-an-mp-next-stop-finance-minister/">attack</a> on the National Treasury and to remove finance minister Pravin Gordhan. </p>
<p>The decision to give Brian Molefe a seat in the country’s parliament has led to widespread <a href="https://www.dailymaverick.co.za/article/2017-02-20-life-of-brian-mexican-standoff-looms-for-zuma-of-guptas-new-cabinet-deployee/">speculation</a> that he is being positioned for a cabinet post – either as finance minister or as deputy finance minister. While some commentators believe that President Jacob Zuma has his sights set on appointing Molefe as finance <a href="http://www.timeslive.co.za/politics/2017/02/17/Molefe-as-MP-seen-as-a-bid-to-oust-finance-minister-Gordhan">minister</a>, others <a href="http://www.huffingtonpost.co.za/2017/02/17/whats-the-real-plan-for-brian-molefe/">argue</a> that the real target is Deputy Minister Mcebisi Jonas. The deputy minister <a href="http://www.fin24.com/Economy/mcebisi-jonas-takes-on-ajay-gupta-over-saxonwold-meeting-20170217">blew the whistle</a> on an alleged bribery attempt by a member of the Gupta family which is at the centre of a political storm amid allegations that it has attempted to exert undo influence on Zuma.</p>
<p>Either way, there is no doubt that Molefe’s appointment to either position would cause substantial turmoil in the country’s financial system and cost South Africa billions of rand. </p>
<h2>The cost of the rand taking a knock</h2>
<p>South Africa would take a massive economic blow because its currency would depreciate dramatically. The rand <a href="http://www.xe.com/currencycharts/?from=USD&to=ZAR">fell</a> through the floor the last time Zuma made a misbegotten attempt to <a href="https://theconversation.com/why-zumas-actions-point-to-shambolic-management-of-south-africas-economy-52174">install</a> one of his cronies at the helm of the National Treasury in December 2015.</p>
<p>This should worry South Africans. The country’s current account <a href="https://www.imf.org/external/pubs/ft/scr/2016/cr16218.pdf">deficit</a> in the third quarter of 2016 was 4.1%. This means that the sum of imports and external debt – borrowing from abroad – is larger than the sum of its exports and lending abroad. Mineral products, machinery and chemical products alone <a href="http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/zaf/all/show/2014/">constitute</a> more than 50% of South Africa’s imports. A weaker rand would make these more expensive since the country would have to pay more rand per dollar value. This means that prices for everything from consumer products to transportation would go up. South African firms, which often depend on intermediate inputs from abroad, would face a rise in the cost for their products and an erosion of their profits. As a consequence, fewer people would invest in the country.</p>
<p>A currency depreciation would affect investors in other ways too. A weaker rand would diminish their returns and they would therefore be more likely to look for investment opportunities elsewhere. Not only will they stop investing, they would also likely unwind their existing positions. This in turn would drain liquidity from the financial system, making banks less likely to provide new loans for businesses. The knock on effect would be lower growth and higher unemployment.</p>
<p>It is difficult to put a number on the impact of a sudden depreciation of the rand. But some simple back-of-the-envelope calculations can help. South Africa spends roughly US$10 billion more on imports than it gets from exports. This corresponds roughly to R130 billion per year. If the rand weakens from 13 to 14 Rand per US$1, the country would need another R10 billion to finance its trade imbalance. </p>
<p>South Africa has watched this movie before. Between November 2015 and January 2016 when Zuma installed the backbencher Des van Rooyen as finance minister the rand weakened from R14.4 to R16.9 per US$. This R2.5 increase per US$ corresponded to additional R25 billion cost to finance our trade deficit. On top of this <a href="http://www.biznews.com/undictated/2015/12/15/cost-to-sa-of-zuma-v-rooyen-gordhan-nene-r171bn/">private investors</a> are estimated to have lost R171 billion after finance minister Nhlanhla Nene <a href="http://ewn.co.za/2015/12/09/New-finance-minister-announced">was fired in 2015</a>.</p>
<h2>Secondary effects</h2>
<p>Removing either the finance minister or his deputy would also result in rating agencies downgrading the country’s investment rating to junk status. </p>
<p>Zuma has shown in the past that he has no clue about the impact of ratings on the country’s finances. Amidst threats of downgrade late last year Zuma was <a href="http://www.fin24.com/Economy/zuma-we-take-the-ratings-agencies-very-seriously-but-20161025">quoted</a> as saying:</p>
<blockquote>
<p>But although they’re important, their ratings don’t necessarily have an impact on the agreements and commissions South Africa have entered into with other countries.</p>
</blockquote>
<p>This simply is not true. A downgrade affects the interest rates on every new bond issuance. Every year some of our outstanding R2,000 billion <a href="https://commodity.com/debt-clock?off">domestic</a> and R141 billion foreign denominated debt has to be <a href="http://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/7195/08Statistical%20tables%20%E2%80%93%20Public%20Finance.pdf">rolled over</a>. Debt services are already at roughly R150 billion per year – the second largest position in the country’s <a href="https://www.fanews.co.za/article/economy/43/budget-2016/1390/budget-2016-all-about-debt-stabilisation-and-a-social-compact/19856">budget</a>. A 5% increase in the country’s refinancing cost would already cost South Africa additional R7.5 billion every year. Money that is missing to finance social grants, healthcare, police or student bursaries.</p>
<p>The banking group Absa did some <a href="https://businesstech.co.za/news/finance/145453/fears-over-south-africa-junk-status-this-is-how-it-will-affect-you/">sample calculations</a> on how a ratings downgrade would affect the average South African. It concluded that every adult person would lose roughly R2,000 because a ratings downgrade would mean that the banks themselves would face higher refinancing costs. These would be passed on to their customers. </p>
<p>These numbers mirror a World Bank <a href="https://businesstech.co.za/news/finance/145453/fears-over-south-africa-junk-status-this-is-how-it-will-affect-you/">estimate</a> that a ratings downgrade in South Africa would result in a reduction of R1,000 per capita by the end of 2017.</p>
<p>The numbers paint a clear picture. Zuma’s last attack on the National Treasury cost South Africa <a href="http://www.biznews.com/undictated/2015/12/15/cost-to-sa-of-zuma-v-rooyen-gordhan-nene-r171bn/">billions</a>. Molefe’s appointment would be seen as another attack on the institution given that he was implicated by the former public protector Thuli Madonsela in her state capture <a href="http://mg.co.za/article/2016-11-02-breaking-read-the-full-state-capture-report/">report</a>. The effect of his appointment would be equally costly for the country. </p>
<p>South Africans should not allow this raid on the National Treasury to happen. The last time Zuma and his allies attempted to capture a well-functioning institution for their own personal gains the private sector gave them a hiding. The good news is that it is likely that markets will show a strong reaction this time, too. The question is whether ordinary South Africans realise the threat that a captured National Treasury would pose to their wallets and stand up before it is too late.</p><img src="https://counter.theconversation.com/content/73286/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Co-Pierre Georg is a Policy Associate at Economic Research Southern Africa. He writes in his private capacity.</span></em></p>The decision to give former Eskom CEO, Brian Molefe, a seat in the country’s parliament comes with the potential to cause great economic pain for South Africa.Co-Pierre Georg, Associate Professor, UCT School of Economics; South African Reserve Bank Research Chair in Financial Stability Studies, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/678702016-10-30T10:48:51Z2016-10-30T10:48:51ZRoot causes of limp economic growth in South Africa are not being tackled<figure><img src="https://images.theconversation.com/files/143660/original/image-20161028-15783-uqdx4r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Pravin Gordhan is fighting against economic predators.</span> <span class="attribution"><span class="source"> Reuters/Siphiwe Sibeko</span></span></figcaption></figure><p>Protecting and growing the formal economy is important. But so too is changing it in ways which enable many more to enjoy its benefits. This was the most important message in Finance Minister Pravin Gordhan’s Medium Term Budget Policy <a href="http://www.treasury.gov.za/documents/mtbps/2016/">statement</a>.</p>
<p>Since there seems to be some confusion on what this statement is meant to do, it is worth pointing out that it is not a “mini-budget”. It is a statement of broad budget policy, whose details are filled in by the annual budget speech. So its impact should not be judged on whether it provided a detailed account of government tax and spending plans but on whether the approach it spells out is what the economy needs.</p>
<p>To illustrate this, the speech made it clear that student protests have pushed higher education to the front of the spending queue (confirming that inevitable political reality, that those who shout loudest usually manage to push to the front of the spending line). But it also seemed to confirm that free tertiary education for all is not on the cards: this is a broad policy goal so, if the government had embraced it, it would have said so.</p>
<p>Looking at the speech as a broad priority-setting exercise, it does meet the demands of the hour –- although it is not yet clear how the National Treasury hopes to turn intention into reality.</p>
<p>The context of the statement was clear to all who heard it. The National Treasury –- and the formal economy which it serves -– is under threat as <a href="https://theconversation.com/why-state-capture-is-a-regressive-step-for-any-society-56837">patronage</a> politicians and their allies in business and government seek to turn public finances into private piggy banks. The minister himself, of course, is personally in the firing line of this <a href="https://theconversation.com/south-africas-finance-minister-is-vindicating-the-law-by-ignoring-police-unit-64535">assault</a>. Growth has faltered and anxiety about recovery prospects are focused on the threat of a ratings downgrade. </p>
<h2>Social contract under threat</h2>
<p>Inevitably, the statement was viewed as a way of showing the government was willing and able to tackle these threats. It contained much which was designed to do just that –- the pointed references to the need to combat corruption, enforce procurement rules and cut down on waste and ineffectiveness in the government. </p>
<p>Declaring that “our social contract is under pressure”, Gordhan pointed to the need to change patterns which “have put unnecessary hurdles in the way of realising our potential and implementing our development plans”. These included unclear or conflicting policies, “institutional instability” which derailed implementation, and investment which is held back “by uncertainties and erosion of trust”.</p>
<p>If that was all the speech said, it may have achieved the most pressing goal -– showing that the National Treasury is taking seriously the need to rebuild confidence in the market place. But it would also have signalled, at least for now, that <a href="https://theconversation.com/high-stakes-drama-as-south-african-president-and-finance-minister-square-off-47698">protecting</a> the economy from predators is the priority and that economic change, if it happens at all, will need to wait. </p>
<p>And so it would not have addressed the root cause of the <a href="https://theconversation.com/south-africa-can-expect-zero-growth-its-problems-are-largely-homemade-62943">growth crisis</a>, the survival, over two decades into the new political order, of policies and practices which exclude many from the market place and ensure that it cannot tap the energies and abilities of everyone.</p>
<h2>Structural change needed</h2>
<p>Gordhan also signalled National Treasury’s view that fairness and sustainable growth require not only that the economy be protected but that it change. He urged business, labour –- and everyone else –- to join a national dialogue aimed at achieving this. </p>
<p>Warning that “all too often in history, the benefits of progress have been appropriated by narrow elites”, Gordhan declared that the economy needed ‘structural transformation’ which “rests on a partnership between government, business, organised labour and all stakeholders who share our commitment to inclusiveness in our development path”.</p>
<p>The speech urged a “national dialogue to seek common solutions and concrete actions to slow growth and poverty”. The aim was to ensure that “no-one should be left behind”. </p>
<p>Gordhan stressed several times that the aim was inclusive growth, not simply protecting what currently exists. This meant “opening up opportunities and broadening participation in an expanding economy”, better services for “marginalised communities”, “decent work prospects for all” and extending the frontiers of education to those who wish to learn.</p>
<p>This aspect of the speech has received little attention –- either because it is seen as a low priority given the current need to <a href="https://theconversation.com/why-south-africa-faces-a-train-smash-if-its-finance-minister-is-removed-66953">protect the economy</a> or because it seems to substitute platitudes for concrete plans. In reality, it is essential to the economy’s prospects.</p>
<h2>Beyond symptoms</h2>
<p>An approach which simply focuses on ensuring that government does not make life difficult for business can work only in the short term. While predatory politicians and power struggles are certainly part of the problem, they are symptoms, not causes. The real malaise is that the economy continues to <a href="https://theconversation.com/south-africa-needs-to-fix-its-dangerously-wide-wealth-gap-66355">exclude</a> millions, creating opportunities for politicians who win support by distributing other people’s money. </p>
<p>And, in a society divided between economic insiders and outsiders, it is common for private and public actors to work together in their own interest at the expense of the public. If these problems are ignored, sustainable growth which benefits most citizens will continue to elude us. And they can be tackled only by change which makes the economy less of an exclusive club.</p>
<p>This is a task which is beyond the power of any of the economic interests acting alone. Ramming changes down the throats of a society which privileges business over everyone else will cause huge instability –- ignoring business’s interests will ensure economic decline. And so the path to growth lies in a bargain between all the major interests on how to include those who the economy now excludes.</p>
<p>It is important that the National Treasury recognises the need to look not only at the immediate needs of the hour but at what is needed to free the economy from a continual crisis by negotiating an end to the barriers which exclude people. </p>
<p>Whether the National Treasury can make this approach work depends not only on whether it can navigate the politics which prevent government from tackling this issue. It depends too on whether it can persuade business and labour to look beyond the short term and to talk about what needs to change to ensure that many more have a stake in a growing economy.</p><img src="https://counter.theconversation.com/content/67870/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>South Africa’s Finance Minister Pravin Gordhan spoke of protecting the economy from predators. This is commendable but not enough to build an inclusive economy.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/669532016-10-12T16:42:14Z2016-10-12T16:42:14ZWhy South Africa faces a train smash if its finance minister is removed<figure><img src="https://images.theconversation.com/files/141489/original/image-20161012-13485-1pqeqd2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Pravin Gordhan before delivering his 2016 budget address to parliament in February. Will he deliver another?</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p>The relatively trivial nature of the <a href="http://ewn.co.za/2016/10/11/Finance-Ministry-Hawks-taking-calculated-steps-to-maximise-damage-on-economy">charges</a> against South Africa’s Finance Minister Pravin Gordhan, and the way in which the prosecution has been pursued, leads to the conclusion that this is a trumped up charge. It also suggests that Gordhan is being prosecuted for <a href="http://city-press.news24.com/News/charges-against-pravin-gordhan-are-nothing-but-a-personal-war-in-politics-20161011">reasons unrelated</a> to the law and order mandate of the body that has laid the charge, the <a href="https://www.npa.gov.za/node/8">National Prosecution Authority</a>. </p>
<p>It is shockingly obvious that the only way to explain the charge against Gordhan and his two co-accused and the manner of its serving is <a href="http://www.dailymaverick.co.za/article/2016-10-11-sars-wars-the-scope-creep-of-a-malicious-prosecution-same-case-different-charges/#.V_5d6uh97IU">malicious intent</a>. The charges are widely viewed as an attempt to remove Gordhan from office without formally firing him, or to justify doing so soon.</p>
<p>These developments bode ill for South Africa. Because of the nature of events, including the circumstances of the <a href="http://mg.co.za/article/2015-12-09-nhlanhla-nene-removed-as-finance-minister">firing</a> of Minister Nhlanhla Nene in December 2015, all reasonable observers will expect the quality of financial management to deteriorate in a post-Gordhan scenario. They will expect that the reason for Gordhan’s removal is to loosen controls over the country’s National Treasury.</p>
<p>The expectation of most will be that the budget deficit will rise, unaffordable projects will be supported for bad reasons, state-owned enterprises that are under incompetent management will get more bailouts, guarantees, or capital injections, and government finances will quickly deteriorate. Ratings will fall, funds will leave South Africa and the rand will grow even weaker. South Africans with assets will seek to move them abroad, and younger South Africans with marketable skills will look for jobs in countries with better prospects, including many in Africa. </p>
<p>Simply put: it will be a train smash.</p>
<p>But how did it get to this? What lies behind this latest attack on the finance minister?</p>
<h2>Gordhan’s record</h2>
<p>Gorhan has served two stints as finance minister – from 2009 to 2014, and then again when he was asked by President Jacob Zuma to return to the job in December last year <a href="http://www.sabc.co.za/news/a/7b4733804dade5ddaee8ffcfeb4bc468/Zuma-defends-decision-of-appointing-Des-van-Rooyan-20160730">after abandoning the disastrous appointment of Des van Rooyen</a>. </p>
<p>When he first assumed office in May 2009 he faced the very difficult task of helping to lead South Africa out of a recession brought on, in part, by the global financial crisis. However, the constraints on him were not excessively severe at the time.</p>
<p>The financial circumstances were strong. South Africa had run a budget <a href="http://www.treasury.gov.za/documents/nationalbudget/2008/review/chap3.pdf">surplus</a> for two years in the financial years ending 2007 and 2008.</p>
<p>There were several reasons for the surpluses. One was that far better tax collection and management systems were developed by Gordhan and his team from the time of his appointment as deputy commissioner of the South African Revenue Services in 1998. Not only were the systems better, but the budgeting and spending policies and practices of then Minister of Finance, Trevor Manuel, gave South African taxpayers the confidence that their payments would be reasonably well used. </p>
<p>Moreover, growth and profit rates were higher than expected in the middle years of the 2000s. Manuel’s Treasury steadily brought down the debt owed by Treasury to the relatively low level of <a href="http://www.tradingeconomics.com/south-africa/government-debt-to-gdp">28% of GDP in 2008</a>. </p>
<p>In addition, South Africa’s banking system survived the global financial crisis better than many, partly due to good supervision by the Reserve Bank and the Treasury and partly due to the relatively good margins, by global standards, they earned.</p>
<p>Strong finances meant that bold expansionary policies were possible in 2009 to countervail the crisis. South Africa confidently <a href="http://www.treasury.gov.za/documents/national%20budget/2011/review/Budget%20Review.pdf">swung</a> from a small budget surplus of 1.7% in 2008 to a small deficit of 1.1% in 2009 and a very large budget deficit of 6.6% in 2010.</p>
<p>The expectation remained that the global economic crisis was of limited duration and that South Africa’s economy would turn around when the rest of the world did. These expectations continued for several years and consecutive budget deficits of well over the unwritten guideline of 3% followed each other without great concern.</p>
<h2>Fiscal consolidation begins to bite</h2>
<p>Gordhan and the Treasury had a cushion of low debt in his first term as finance minister in 2009. However, in spite of prudent policies under his successor, Finance Minister Nhlanhla Nene, by 2016 government debt had risen to levels that had the ratings agencies doing their sums. Was it going to be greater than 50% of GDP? How much greater than 50% and for how long? 50% had become the red-line for budget deficits since the 1990s. </p>
<p>The latest budget review is forecasting gross government loan debt to GDP at 50.9% for the 2016-17 financial year.</p>
<p>As a responsible government leader, Gordhan was obliged to continue down the fiscal consolidation path along which Minister Nene resolutely marched. Fiscal consolidation means saying no more often. No to spending more, and no to guarantees being issued to spendthrift state-owned entities. </p>
<p>Gordhan had other pressures to contend with too. During his first term as finance minister the economy grew by 2.5% to 3.5%. This was lower than in the middle years of the 2000s when South Africa grew at an average of 5.5% per year. Although not optimal, the situation was still manageable. Suddenly in 2015 the expectation fell to between 1% and 2% growth. </p>
<p>Then in 2016, the question was: would South Africa grow at all, and if it did, would growth be closer to 1% or to 0?</p>
<p>This massive deterioration in South Africa’s expectations derives from several factors. Firstly, in my view, the South Africa’s recession in 2009 was far worse and more damaging than many thought. Because the banks didn’t fail, some were sanguine, despite the fact that the country lost 8% of all jobs – more than a million of them. </p>
<p>South Africa’s crisis was particularly bad because it was hit by a double whammy. Like many developed countries, it suffered a consumer credit crunch – households were badly over-borrowed and had to cut back sharply when economic conditions tightened. And like many developing countries South Africa also suffered an export price and volume crunch – the prices and levels of demand for South Africa’s main exports fell sharply as slower growth affected economies around the world. </p>
<p>Secondly, levels of confidence fell to record low levels. <a href="http://www.bdlive.co.za/markets/2016/10/05/business-confidence-index-hits-a-31-year-low">One index</a> fell to levels not seen since 1985. That was the year in which then Prime Minister PW Botha delivered what became known as his <a href="http://www.sahistory.org.za/dated-event/pw-botha-gives-rubicon-speech-durban">“Rubicon speech”</a> that gutted business confidence and was to lead to his, and apartheid’s, downfall. </p>
<p>Similarly, 2016 has been a year of hopelessly flailing political leadership. South Africa’s economic growth performance has <a href="https://www.wider.unu.edu/publication/policy-co-ordination-and-growth-traps-middle-income-country-setting">been much weaker</a> than of many of its peers as well as many other developing countries. For example, while Africa’s performance has deteriorated, South Africa’s has got worse, quicker.</p>
<p>Unless the malicious prosecution is halted, South Africa’s economic performance will continue to be far poorer than it needs to be. Average per capita incomes may continue to decline in real terms for South Africans, <a href="https://www.resbank.co.za/Publications/Detail-Item-View/Pages/Publications.aspx?sarbweb=3b6aa07d-92ab-441f-b7bf-bb7dfb1bedb4&sarblist=21b5222e-7125-4e55-bb65-56fd3333371e&sarbitem=7470">as they have since last year</a>. This will affect the poor most severely.</p><img src="https://counter.theconversation.com/content/66953/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Hirsch is director of the Graduate School of Development Policy and Practice which has received funds from the South African government for training public officials.</span></em></p>What lies behind the decision to criminally charge South Africa’s finance minister?Alan Hirsch, Professor and Director of the Graduate School of Development Policy, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/521802015-12-11T12:57:58Z2015-12-11T12:57:58ZZuma’s leadership: political expediency versus the interests of South Africa<figure><img src="https://images.theconversation.com/files/105486/original/image-20151211-8291-3tvb0q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Justice Sisi Khampepe swears in David van Rooyen as the new Minister of Finance while President Jacob Zuma looks on. </span> <span class="attribution"><span class="source">EPA/Elmond Jiyane</span></span></figcaption></figure><p><em>South African President Jacob Zuma’s <a href="http://www.thepresidency.gov.za/pebble.asp?relid=21217">decision</a> to replace a finance minister who was widely respected with someone who is unknown has raised questions about his political acuity as well as his style of leadership. Thabo Leshilo, politics editor of The Conversation Africa, asked Mashupye Herbert Maserumule and Danny Bradlow for their views on the issue.</em></p>
<p><strong>What does the president’s decision tell us about how he runs the country?</strong></p>
<p><em><strong>Mashupye Herbert Maserumule</strong></em>: The President cannot be faulted on <a href="http://www.gov.za/documents/constitution/constitution-republic-south-africa-1996-1">constitutional</a> grounds. He is empowered by the Constitution to decide on the composition of his cabinet. </p>
<p>But his decision appears to be strategically flawed. Nene had the kind of <a href="https://theconversation.com/the-removal-of-south-africas-finance-minister-is-bad-news-for-the-country-52170">leadership talent</a> the president needs in his cabinet. Simply removing him in the way he did raises a question about the strategic ingenuity of the decision and the need to build the capacity of the state.</p>
<p>The president’s decisions, particularly in key areas such as mining, and finance, are strange. This is particularly true given that some ministers he has moved had issues with people said to be <a href="http://www.dailymaverick.co.za/article/2015-12-09-editorial-an-act-of-willful-sabotage/#.VmqTYLiGSko">connected to him</a> in one way or another. An impression can easily be created that the president’s way of running the country has begun to border on vindictive leadership.</p>
<p>The fact that he did not consult the leadership of the ruling African National Congress <a href="http://www.anc.org.za/">(ANC)</a> about firing the finance minister raises interesting questions. Consulting the ANC is not prescribed in the Constitution. In the end, it does not matter what the ANC says. The composition of cabinet is the president’s call. If anything, consultation is about party political protocol, or mere courtesy.</p>
<p>Not consulting party headquarters does not necessarily make Zuma a liability to the country. He only becomes a liability when his decisions are at odds with what is in the public interest. </p>
<p>Perhaps the issue is the amount of power the Constitution assigns to him to make the decisions about his cabinet. This needs to be looked into seriously because it has profound implications for the quality of South Africa’s democracy and system of governance.</p>
<p><em><strong>Danny Bradlow</strong></em>: The failure to provide a convincing rationale for the firing and not to announce what Nene is doing next undermines confidence in governance in South Africa. It suggests that personal considerations rather than national interest are driving policy decisions. This will adversely affect South Africa’s international position. </p>
<p>This action by the President makes it hard not to be pessimistic about the South African government’s ability to manage the difficult challenges the country is likely to face next year. </p>
<p><strong>How do you explain Zuma’s decision given the fact that South Africa faces a challenging economic environment?</strong></p>
<p><em><strong>Mashupye Herbert Maserumule</strong></em>: The country is already being punished for the president’s decision. Rating agencies are <a href="http://www.bdlive.co.za/economy/2015/12/11/nene-sacking-triggers-closer-scrutiny-of-sa">poised</a> to downgrade it to junk status. In this instance the issue is not just about Nene’s removal, but the implications of who he has chosen as the <a href="http://www.fin24.com/Economy/meet-david-van-rooyen-the-man-who-must-fill-nenes-shoes-20151210">new finance minister</a>. </p>
<p>Questions are already asked. For example, does the market recognise him? Unfortunately the answer is: not yet. By removing Nene the president disrupted consistency of leadership succession in the <a href="http://www.treasury.gov.za/">National Treasury</a> which had been established successfully and meticulously over a period of time. </p>
<p><em><strong>Danny Bradlow</strong></em>: It is hard to think of a worse time to fire a finance minister who has been doing a very credible job under difficult circumstances.</p>
<p>In Africa, South Africa is increasingly being seen as relatively less reliable and important as an interlocutor. Other African countries are growing in power and prestige. For example the Chinese are paying increasing attention to East Africa and many states are paying more attention to Nigeria than they used to. </p>
<p>As a result, for the first time in many years, South Africa risks being seen as a relatively small, uninteresting country with diminished capacity to influence global affairs or the global economy. In other words, a country that does not matter.</p>
<p><strong>This is the seventh cabinet reshuffle the president has made since he came to office in 2009. He is <a href="http://www.news24.com/SouthAfrica/News/the-anc-comes-first-not-the-country-zuma-20151108">on record</a> as saying that the ANC, not the country, comes first. What do his appointments tell us about his priorities?</strong></p>
<p><em><strong>Mashupye Herbert Maserumule</strong></em>: The president’s appointments appear to be more inclined towards political expediency than the interests of the country. Cabinet reshuffles are normal. But if they are frequent they can have a destabilising effect on the administration of the state, especially if they are for vindictive reasons.</p>
<p>In these trying times South Africa desperately needs stability in government and political executive leadership of epic proportions, with unflinching commitment to good governance. </p>
<p><em><strong>Danny Bradlow</strong></em>: I think it is the most disturbing development in SA this year. It undermines confidence in the government’s commitment to prudent macro-economic policies and in its understanding of the gravity of the economic challenges facing SA.</p>
<p>The way in which it has been done sets the new minister up for failure regardless of his skills and qualifications. He now has to try and gain the confidence of all the relevant stakeholders including investors, business, labour, the country’s neighbours and trading partners. And he has to do this in a situation that is fraught with uncertainty and in which confidence in the authority of the Treasury is shaken and stakeholders have serious questions about the reasons for his appointment.</p><img src="https://counter.theconversation.com/content/52180/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mashupye Herbert Maserumule receives funding from National Research Foundation for my postgraduate studies. I am a member of the South African Association of Public Administration and Management(SAAPAM), including being a chief editor of its Journal. </span></em></p><p class="fine-print"><em><span>Danny Bradlow 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 sudden expulsion of the finance minister makes it hard not to be pessimistic about the South African government’s ability to manage the difficult challenges it might face in 2016.Mashupye Herbert Maserumule, Professor of Public Affairs, Tshwane University of TechnologyDanny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/521742015-12-10T14:31:24Z2015-12-10T14:31:24ZWhy Zuma’s actions point to shambolic management of South Africa’s economy<figure><img src="https://images.theconversation.com/files/105255/original/image-20151210-7428-2rwtc1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nhlanhla Nene, South Africa's former finance minister. President Zuma's decision to fire him is irrational.</span> <span class="attribution"><span class="source">EPA/Nic Bothma</span></span></figcaption></figure><p>A fine technocrat who did not wear his position on his sleeve, and known for tapping into his soft power of persuasion, <a href="http://whoswho.co.za/nhlanhla-nene-7647">Nhlanhla Nene</a> has now been shunted out of South Africa’s National Treasury. </p>
<p>The man who was South Africa’s Finance Minister has been forced to make way for an obscure politician, David <a href="http://www.fin24.com/Economy/meet-david-van-rooyen-the-man-who-must-fill-nenes-shoes-20151210">van Rooyen</a>, who was on the backbenches of parliament.</p>
<p>There are very few things that are surprising about South African politics, in particular the president’s decisions. In 2012 a Constitutional Court <a href="http://www.saflii.org/za/cases/ZACC/2012/24.html">judgment</a> described a key appointment President Jacob Zuma had made in the justice ministry as “irrational”. Since then irrationality and Zuma have become synonymous.</p>
<p>One of the difficulties in analysing developments in South Africa is that political decision-making does not fit any neat theory in political science. The president is unpredictable. His policy thinking is woolly. </p>
<p>Zuma’s sense of South Africa’s political and economic vision is shrouded in destructive ambiguity. This helps him to consolidate his authority in the ruling party, but it weakens the country’s institutions.</p>
<h2>Nene’s legacy</h2>
<p>The decision to fire Nene as Finance Minister has shocked many. It immediately sent <a href="http://www.timeslive.co.za/thetimes/2015/12/10/Nene-axing-slays-rand">ripples</a> through the financial markets.</p>
<p>In understanding the president’s frame of mind it is important to remember that Zuma is not an institutionalist leader whose primary concern is to defend the country’s institutions and safeguard its economic well-being. It is a leap of faith to believe that a leader who has several times shown his inability to pronounce a figure of <a href="http://www.myvideo.co.za/lol/fails/jacob-zuma-tries-to-pronounce-939360000/">less than R1 billion</a> can preside over a R4 trillion economy and still appreciate its complexity.</p>
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<p>Nene’s appointment as finance minister in 2014 was quickly welcomed by international markets. His technocratic flare and understanding of the country’s complex economic challenges endeared him to political parties across the spectrum. Before his appointment he had been chairperson of the portfolio committee on finance and then deputy finance minister.</p>
<p>During his tenure he reinforced the importance of macro-economic stability and prudential fiscal management. He announced a cap on government spending and made a commitment to rein in the <a href="http://www.iol.co.za/business/2.1742/sa-budget-deficit-to-widen-to-4-1-1.1769144#.VmlrUrh9600">budget deficit</a> which had grown to 4% of the GDP. </p>
<p>He spoke openly about the need to cap above-inflation <a href="http://www.financialmail.co.za/features/2015/10/21/treasury-will-have-to-wipe-out-contingency-reserve-to-fund-public-sector-wage-increases">wage increases</a> for public sector workers, even though he later conceded to their higher demands. He continued along the path set by his predecessor Pravin Gordhan, eliminating wasteful government spending. This included spelling out <a href="http://city-press.news24.com/News/treasury-says-no-no-no-to-luxury-festive-spending-20151121-2">limits to expenditure</a> on flights, hotels and entertainment.</p>
<h2>Why Nene was fired</h2>
<p>The crux of Nene’s fall is not easy to decipher. But two factors seem to have driven the final nail into his professional coffin.</p>
<p>The first has to do with his hard stance on the country’s state-owned airline, South African Airways. Nene <a href="http://mg.co.za/article/2015-09-17-saas-dudu-myeni-in-nenes-crosshairs">challenged</a> the board of the state-owned airline, led by Dudu Myeni, to reconsider its intended restructuring of a fleet arrangement with Airbus. The <a href="http://www.enca.com/south-africa/nene-says-no-saa-bid-renegotiate-airbus-deal">restructuring</a> would have had fiscal implications with the government being forced to make good on its guarantees.</p>
<p>Second, it is apparent that Zuma found the National Treasury, and Nene in particular, a stumbling block to a <a href="http://mg.co.za/article/2015-02-12-exposed-scary-details-of-secret-russian-nuke-deal">nuclear deal</a> the President is believed to have promised the Russians. It is estimated that the deal could cost as much as R1 trillion. Nene’s allocation of a mere R200m towards research for this programme must have been seen as an insult by Zuma’s cronies and insiders.</p>
<p>Zuma believes that this nuclear deal will be a magic bullet for South Africa’s urge to undertake industrialisation on a large scale, address energy deficits and create employment. He may turn out to be right on some of the outcomes, but the push to flout procurement rules and avoid accountability signifies a destruction of institutions.</p>
<p>The likely, and more menacing scenario, is deepening corruption. This is more so given Russia’s impoverished <a href="http://www.corporategovernancereport.com/corporate-social-responsibility/poor-governance-a-tax-on-russias-innovative-companies/">corporate governance</a> culture. The nuclear deal, if implemented, could create a feeding trough on a gigantic scale for cadres and cronies while acting as a debt albatross for future generations.</p>
<p>At the heart of both the South African Airways saga and the nuclear deal is the failure by the country’s leadership to adhere to accountability and transparency mechanisms, especially the <a href="http://www.treasury.gov.za/legislation/pfma/">Public Finance Management Act</a>, as well as to grasp the implications of irrational decision-making on the fiscus and the economy.</p>
<h2>A bad omen for South Africa</h2>
<p>The markets or economic actors are not familiar with Van Rooyen, Nene’s replacement at the helm of National Treasury. He clearly is someone Zuma considers malleable. The appointment itself was handled clumsily with no forewarning to the markets. This was a serious mistake given the strategic importance of National Treasury. The department stands at the nexus between the domestic economy and global markets.</p>
<p>What we can draw from these changes is that National Treasury has now lost its place of pride as a premier economic nerve centre for government. The cavalier manner in which Zuma has treated this crucial institution will have implications for the economy.</p>
<p>Investor confidence will be negatively affected, and trust in the ability of the ruling party to provide economic leadership severely eroded. Further, there will be a heightened sense of political risk, making it even harder to convince investors about South Africa’s profile as an investment destination.</p>
<p>The public debt, which is already hovering close to 50% of the <a href="http://www.bloomberg.com/news/articles/2014-10-22/south-africa-to-sacrifice-growth-to-skirt-risk-of-debt-trap-">GDP</a>, will balloon, with implications for fiscal sustainability in the future. Delivery of quality public services, public sector wages, and ability to modernise infrastructure will suffer further.</p>
<p>To hope for faster economic growth and job creation under such a scenario is a pipe dream.</p>
<p>What will get South Africa out of the quagmire is a revolt within the ruling African National Congress to challenge Zuma to explain himself and to provide a credible plan to reform and manage the economy. </p>
<p>Second, the local government elections due to be held in early 2016 should be a platform to rebuke government for its shambolic management of the economy.</p><img src="https://counter.theconversation.com/content/52174/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mzukisi Qobo 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 difficult to analyse political developments in South Africa. Decision-making does not fit any neat political science theory. President Zuma is unpredictable and his policy thinking is woolly.Mzukisi Qobo, Associate Professor at the Pan African Institute, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.