…Battle of the Bulge…..July 2020
It is plain to see that the country’s major liability in terms of over-expenditure is the massive public sector wage bill which, by any standard, is totally out of proportion to that spent by other countries, let alone in the developing world. However, when any suggestion is made of trimming this down, or even cutting down on the regular cycle of pay increases, such proposals are immediately met with a threat of a government shutdown by the union front.
Both sides in this constant and wearisome ideological battle on the subject of who actually runs government service, goes right back to the outcomes thrashed out during the 1991 peace negotiations at Kempton Park, the chief negotiators at the time being Cyril Ramaphosa and Roelf Meyer.
Paying the piper
Over subsequent years since the CODESA multi-party talks took place, the peace formula has produced a kind of “don’t you dare touch this” mantra with the trade union movement. Clearly, ownership of the public sector was seen as the tool that the new governing party would need to change the country.
As time has passed, this thinking has become embedded in the politics of the country. It has nothing to do with the country’s Constitution, its legislation or its government structures. Legislative authority is held by the Parliament of South Africa. Executive authority is vested in the President of South Africa who is head of state and head of government, and his Cabinet. Nevertheless, there is always a doubt who is at the controls when it comes to the pay-packet.
Hitting the rocks
The subject of control of the public sector has now become very real as a result of the coffers running dry. At the last Budget in March there was an indication that it was about to happen and the need for a Supplementary Budget in July indicated that it had. At that point, Minister Tito Mboweni shot off to Washington and convinced the IMF, in a letter signed by himself, that a loan, small by international terms, was necessary to see South Africa through the COVID 19 backlash. It seemed at the time he had Cabinet backing, of a sort.
This application for an international loan was with total disregard of the ANC Alliance’s known dislike of the IMF and the World Bank, mainly as a result of the tight “rules” or encumbrances that come with such loans. Ebrahim Patel, for example, has clearly shown his dislike for the World Bank in parliamentary meetings two years ago when involved with International Relations at meetings at Union Buildings.
The feud with the ANC goes back to the dawn of democracy with the loans surrounding the GEAR initiative. Many, like Minister Patel, on the Left seem to think that strict terms imposed by World Bank or IMF bankers “undermine South Africa’s sovereignty” and many have said so recently.
Out of the blue
In fact, the “ANC Alliance Secretariat” issued a statement, upon learning of the Minister of Finance’s departure which confusingly read, ”The ANC Alliance affirms the need to safeguard South Africa’s democratic national sovereignty, the fundamental right to self-determination, our independence, all of which are non-negotiable, even in the midst of a crisis.”
Two things were noticeable. The ANC rarely uses the term “Alliance” in its releases and also immediately upon Minister Mboweni’s return, the minister was at pains to explain to Parliament during Supplementary Budget questioning that very little in the terms of “usual rules“ that applied to this particular IMF loan, which he had successfully obtained.
He told MPs that the loan itself was small and the IMF “was not the devil in town” that it was supposed to be. A loan payable over a period of five years at an interest rate of 1.1% can hardly be called punitive, he said.
But if one reads the letter to the IMF that Minister Mboweni wrote (which accompanied the Minister’s parliamentary presentation) the words of South Africa’s Finance Minister are carefully put. It is quite evident that the subject of SA’s bulging and expensive public service is one of the items which have now to be debated.
Minister Mboweni said he will “take any necessary measures to maintain debt sustainability” which, whilst open-ended, puts this matter on the ANC agenda whatever COSATU might like to think.
For the moment, however, and perhaps timeously in favour of the ‘radical’ faction in the ANC, Parliament has now been made aware of the report of the Commission for Employment Equity (CEE) which shows that after 20 years, whites still dominate top management positions in the private sector, which card was played by the Minister of Labour on introducing the Employment Equity Bill.
Cabinet has a dismal record of listening to common-sense on financial issues Straightforward economic thinking is often referred to as “neo-liberalism” or “colonialist thinking” and instead of listening to sensible people like Cas Coovadia and Iraj Abedian, business and industry gets exposed to such useless Cabinet expressions such as “deepening economic reform” and “the need for strategic alliances”.
Reuben Maleka, of the Public Servants Association (PSA) made another pretty pointless comment by saying a few days ago before the arbitration on the government pay increase started. He said, “If 1.2 million public sector workers don’t have money to spend then the retail environment will die. And when there is no demand from consumers, who are also public sector workers, then you are destroying a pillar of the economy.”
The cold fact is that National Treasury, as Minister Mboweni has told MPs, has “no intention of allowing South Africa to spend its way out of debt. It must control the expenses.” As Clair Bisseker noted in Business Day last week, the fact that has emerged is that the SA government will be spending almost 60% of tax revenue in 2020 on just 13 million public servants – a mere 2.2% of the population. Worse probably is the other fact that for every R1 the SA government spends, it only generates 27cents in economic growth.
Perhaps it was a good idea for the IMF request letter to be signed by Minister Tito Mboweni rather approaching the IMF with the endorsement of the country’s President, since the letter seems to only commit National Treasury and the Finance Minister to an austerity drive, letting President Ramaphosa off the hook in terms of a face-down with unions. Whatever the case, South Africa still seems to have no agreed common financial approach to its debt problems.
In the meanwhile, the public service wage bill is running rampant, Bisseker notes. Pay increases are equivalent to 40% in real terms in the last 12 years and have tripled the wage bill to R629bn, but Mboweni’s letter to the IMF clearly states the South Africa will ““take any necessary measures to maintain debt sustainability”.
Aside from cutting down on staff there is also the question of pay increases, previously mentioned, amounting cumulatively to 7% year on year, the unions stating that this “was won after a long, hard fight” therefore at the same time giving an indication that the battle starts on this subject first.
This first IMF loan is not the one that South Africa is going to need eventually from the IMF and to be approved by Parliament and, as all bankers do, they will be no doubt watching carefully from Washington what steps are taken with this initial loan with soft terms and masked as a COVID 19 matter.
Parliament is due to re-commence in September and by October this battle play must play out further with the half term October mid-year budget in mind. One hopes that National Treasury will be able to stop the landslide into further un-repayable debt.