Anthea Jeffery: Actively inviting a ratings downgrade? - BizNews, 26 October 2016

To stimulate economic growth, the ANC needs to protect property rights, promote employment, and lighten the BEE burden. Instead, the Department of Mineral Resources continues to threaten mining titles under proposed mining legislation and the draft mining charter


By Anthea Jeffery

The ANC knows very well what it needs to do to avoid a ratings downgrade to junk status in December this year. However, it’s not taking the necessary steps. On the contrary, it’s still pushing for policy shifts that will further stifle growth; it’s still seeking to push up public spending in key spheres; it’s still doing little to turn failing state-owned enterprises (SOEs) around; and it’s still encouraging Eskom to embark on a trillion-rand nuclear spending spree. It’s also busy undermining the National Treasury, the institution most vital to South Africa’s economic credibility. In addition, much as it disclaims responsibility, it’s also done much to unleash the violent student protests now further eroding the country’s political stability.

To stimulate economic growth, the ANC needs to protect property rights, promote employment, and lighten the BEE burden. Instead, the Department of Mineral Resources continues to threaten mining titles under proposed mining legislation and the draft mining charter; the Department of Health is still pushing ahead with a costly National Health Insurance (NHI) scheme likely to put an end to private health care; the Department of Labour is pressing on with a statutory minimum wage sure to worsen the unemployment crisis; and the Department of Trade and Industry still wants damaging changes to patent rights. In addition, the National Treasury has finally succumbed to the self-serving black business lobby and is about to introduce preferential procurement rules under which a 20% price premium for BEE tenderers will generally apply to state contracts valued at up to R100m – a 9 990% increase on the current ceiling of R1m.

How much these shifts will stifle growth and increase government spending is difficult to say. But the NHI proposal, for one, is likely to require at least an extra R210bn in state spending on health care; while the new BEE rules will give major impetus to the fraud and inflated pricing which already eats up roughly 40% of the government’s R600bn procurement budget.

At the same time, little is being done to reform the country’s failing SOEs or safeguard the fiscus from their persistent bail-out demands. Instead, the ruling party is pushing ahead with grandiose plans for Eskom to embark on a nuclear energy programme that could easily (depending on how well the rand holds up) cost South Africans as much as R1 trillion.

In the interim, Eskom has also made it clear that it wants the government to start paying for the Renewable Energy Independent Power Producer Procurement Programme (REIPPP), under which the government has guaranteed the R200bn that will increasingly become payable to the private providers of wind and solar energy as their generation projects come on stream.

The government previously stated that there was little prospect of these guarantees ever being called upon, as renewable energy costs would be passed directly on to electricity consumers. But Eskom sees this arrangement as limiting its own capacity to increase electricity bills to fund its nuclear build, so it wants the government to start paying REIPPPP costs instead. If Eskom prevails on this – and it may be the only way to make the nuclear programme seem more affordable – this will turn a paper promise into a direct liability and bring the overall value of government guarantees to R667bn (R467bn for SOEs, as of March 2016, and R200bn for renewable energy producers).

As if all this were not enough, one of South Africa’s most important institutions, the National Treasury, is being undermined by the prosecution of finance minister Pravin Gordhan on spurious charges of fraud and/or theft. Also damaging are possible attempts to smear the Treasury’s chief procurement officer, Kenneth Brown, into whose personal home loan account various large sums, seemingly inconsistent with his normal earnings, have allegedly been deposited. Worrying too are the National Prosecuting Authority’s heavy hints that Mr Gordhan could still face further criminal charges over the alleged ‘rogue unit’ created by the South African Revenue Service (SARS) under his watch.

The ANC is also much to blame for the recent spurt of violent demonstrations and arson attacks at many universities. In January 2015, long before the #FeesMustFall movement began, President Jacob Zuma criticised the ‘annual raising of fees’ and ‘cautioned universities against excluding students on the basis of price and race’. When Fallist demands later took off in October 2015, the president duly decreed a zero increase for 2016 – even though fee increases are for university councils to decide and Mr Zuma had no authority to intervene

The ruling party has also added to the current crisis via its unmet promise of free university education for the poor, by demanding the ‘massification’ of universities, by failing to develop excellent technical training as a viable alternative – and by so eroding the quality of schooling that only 28% of the university students awarded loans by the National Student Financial Aid Scheme (NSFAS) have managed to graduate at all. The remaining 72% have little hope of repaying their NSFAS loans or achieving the better life they once saw as within their grasp.

In the past ten months, major efforts to avert ratings downgrades have been made by Mr Gordhan, many business leaders, and various senior figures within the ANC. Endeavours to rein in public spending and reduce the budget deficit will also figure strongly in the finance minister’s mini-budget today. It is nevertheless hard to discern any real momentum for reform in what the ruling party is doing. Instead, the country seems to be drifting ever closer to the point where downgrades become inevitable.

The ANC is sometimes said to be so caught up in factional squabbles that it can’t do much in response to the downgrade risk. That, however, is not true. The many damaging developments in the policy arena and other spheres are not just happenstance or ‘one of those things’. Instead, they are calculated to advance the NDR by further crippling the capitalist economy and so pushing the country ever closer to a socialist (and then communist) future.

Ratings downgrades will themselves, of course, also generate a large degree of economic damage. This, according to the perverse logic of NDR ideology, could be part of the reason why the ANC is doing so little to avert them – and so much in practice to bring them ever closer.

Dr Anthea Jeffery is Head of Policy Research, IRR 

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