PETER BRUCE: Enoch Godongwana’s budget was inadequate

Possibly because he spent such a long time behind the scenes as an ANC party hack spewing wild economic policy proposals, finance minister Enoch Godongwana doesn’t always inspire the levels of confidence you might look for in the occupant of the office he now holds.

And his budget on Wednesday was everything you expect from the ANC since Thabo Mbeki was removed from power in 2007 — a largely incoherent assemblage of problems, threats, promises and priorities with no identifiable target or focus other than survival.

It was inadequate. I understand the difficulty of the moment, what with Covid, deep division in the ruling alliance and the lack of investment. And yes, it takes some political courage to hold the line on the basic income grant, tax increases so loved by the Left, and public sector wages.

But the good news — the commodity boom and its attendant tax windfall — is last year’s news. The rest were promises. More promises. Typical. With the Ramaphosa administration everything is up in the air until it lands or is forgotten.

"Some state-owned companies will be retained, while others will be rationalised or consolidated," said Godongwana.

What does he mean? What does a "rationalised" state-owned company look like?

Here’s the whole answer: "The National Treasury will outline the criteria for government funding of state-owned companies during the upcoming financial year."

Or, "Regarding the Umzimvubu Dam [a fanciful project to dam the silt-sodden river that empties at Port St Johns], we are at an advanced stage of resolving the project issues. We will make further announcements on this in the MTBPS [the medium-term budget policy statement in October]".

Or, "I am pleased to inform this house that a provisional allocation is set aside in this budget for R17.5bn over the MTEF [medium-term expenditure statement] for infrastructure catalytic projects. We look forward to engaging with specific proposals in this regard."

In other words, will investors please put their hands up? We can’t see you.

"We do not aspire to be a below 2% growth economy … in this regard we are refining proposals for an expanded reform agenda — to shift our economy towards a higher growth trajectory."

Refining. Engaging. Further announcements. The can-kicking is endless. The government keeps telling us about the party it’s about to throw but you have to ask if the invitations might not still be in the post.

Where is the first application to build 100MW of generating capacity, to take advantage of the important reform lifting the limit on private sector generation from just 1MW?

But they ignore the elephant in the room. The elephant is cadre deployment, the glue that holds the ANC together

To be fair to the government, it is stuck. Politicians would naturally want to make being stuck look intentional, but as the state has leant increasingly on international institutional lenders, so its room to manoeuvre has shrunk. It cannot easily tap international bond markets because we have lost our investment rating. And we have already borrowed so much from domestic banks and insurers.

So the state, the ANC, has turned to a once unthinkable source — the World Bank and the International Monetary Fund (IMF), formerly the bad guys of international finance. Borrow from them if you were a developing country and they’d smack you with a raft of conditions over and above mere repayment of their money. This would be "structural adjustment" where the West would impose market-driven policies on poor countries just trying to get along and be good socialists.

Today the bad guys have cleaned up. Now you get support and guidance rather than conditions, and SA has found itself knocking on open doors in the past few years. And the money is cheap. When Covid struck in 2020 we went straight to the IMF’s rapid financing instrument, taking $4.3bn, 100% of what was available. In 2021 we went back to the IMF for direct budgetary support, taking another $4.2bn, again 100% of our available quota, "to help build foreign exchange reserves and build confidence".

We have also just done a deal for our very first sovereign World Bank loan — $750m — and have taken $2bn from the New Development Bank (the Brics bank) and $300m from the African Development Bank.

The EU and Germany, Italy and France have put up $880m in budget support loans and $50m in grants.

The World Bank says SA has requested a facility of up to $800m to pay for Covid vaccines and another $250m to help decommission Eskom’s Komati coal-fired power station in October. As Eskom’s plans to decommission more than 11,000MW of coal-fired power before 2030 progress, so will its need for more soft loans.

Fortunately, the IMF and the World Bank seem happy to help. They lent $660m to an unnamed SA municipality when Covid arrived and $185m to one of our big banks at around the same time. Who knew?

A smaller bank got another $10m and another municipality had $600m of its bonds snapped up by the World Bank.

So we are starting to owe these guys big time and, being banks, they love lending. Here’s the World Bank after signing a new country partnership framework with SA last winter: "Since 2018, the government has taken decisive steps to overcome the effects of recent disruptions and is going through a period during which governance [state capture] issues are being tackled and where the government intends to strengthen the social contract.

"Agreeing on a reform package that will necessarily hurt some short-term vested interests is made even more delicate during a recession. These risks will be mitigated through continuous monitoring of political developments among others."

In other words (apart from "localisation" and its attendant protectionism), they completely buy the prevailing government economic narrative — recovery from apartheid, state capture, Covid. Oh, woe is us.

In the past few weeks I have read hundreds of pages of IMF and World Bank documents about lending money to SA. For the most part, they say nothing any South African following the news would not already know. They take at face value big plans like the integrated resource plan (which maps our energy mix until 2030) and quietly write those targets (the Komati decommissioning, for instance) into their loan "guidance".

But they ignore the elephant in the room.

The elephant is cadre deployment, the glue that holds the ANC together. Before they lend money to anyone in SA, officials from these giant institutions spend a great deal of time with local officialdom. There seems little realisation, though, that no matter how serious or deliberate their local counterparts, the majority would almost always have been put there by a small group of ANC officials, meeting secretly. The fact is that when you do business with the SA government you’re in large measure also doing business with the ANC.

Perhaps that’s not necessary, particularly if you think you’re already on the bridge. Have a look at this letter from World Bank staff to their board, last November:

"The February 2022 budget [for the fiscal year ending in March 2023] is an opportunity to put in place a credible growth-friendly consolidation package to stabilise debt and then set it on a declining path.

"This would require reining in pressures to deviate from a medium-term adjustment plan, including containing wage inflation — currently undermined by a compromising agreement with unions — and streamlining government transfers to inefficient SOEs.

"The consolidation effort will need to be based largely on expenditure to address the current distortions while protecting social spending and productive public investment."

Godongwana could not have put it better himself.