OPINION

Nhlanhla Nene: Caught between a rock and a hard place

Daniel Silke says the ANC govt has chosen to prioritise the political and the ideological over the economic

Nene's Budget stymied by political realities

South Africa's National Treasury are going to be nervous this coming week - particularly nervous given the disastrous outcome of now infamous Sate of the Nation Address (SONA) on February 12th.

The 2015 Budget presentation from Finance Minister Nhlanhla Nene is likely to be more closely watched by both foreign and domestic investors than ever before.

They will be looking to Minister Nene to shift sentiment as the country lists in uncharted waters populated by a series of icebergs which include a debilitating power crisis, industrial unrest, flagging GDP levels, a plethora of unresolved regulatory legislation and the twin budget and current account deficits.

Minister Nene's job certainly got tougher thanks, in part, to the drubbing President Zuma received as a consequence of SONA. The lack of policy clarity on the Eskom crisis coupled with renewed question-marks about intervention in the market economy for ideological reasons have made many jittery - not to mention a questioning of the credibility and performance of Parliament itself.  

While the President did substantially better in his response last Thursday, a renewed sense of despondency and insecurity was certainly present in financial and business circles this last week.

Clearly, the revised GDP figures for the coming year will be of interest. But, the Minister will need to really dig deep into a psychological bag of tricks to at least sound in charge and to acknowledge the importance of the country's business linkages to the outside world. Above all else, he will need to reassure investors that whilst the door might be open to them, they will be met with a warm welcome.

But here's the rub. And it's called politics. Treasury find itself beholden unto an increasingly skittish ANC looking over its divided populist and workerist left flank.

With the advent of EFF and COSATU tensions, it looks as if the Zuma administration has prioritised an attempt to stave off further electoral losses to the Left. To this end, President Zuma has probably now become the first South African President to at least explore implementing aspects of the Freedom Charter - often called for at successive ANC national congresses but never actioned.

A raft of legislation including the Expropriation Bill, the Protection of Investment Bill and the proposed Land Holdings Bill are all interventionist in scope while their attempts at redress may be viewed by investors as representing interference in the free market economy, testing tenure rights and - by implication - the boundaries of the constitution.

In the field of labour, President Zuma's announcement that temporary work will not exceed three months is a direct result of EFF pressure - an issue that pulls the political rug from beneath Malema.

Similarly, the size and citizenship limitations of farm ownership and the re-opening of a broader debate about farm labourers' rights takes the battle to the EFF on their core turf.

The ANC have therefore defined both a potential breakaway by a NUMSA-oriented United Front and the erosion of support to the EFF as their core threat to continued electoral dominance. The ANC's history and the current threats it faces means it can easily slip into shoring up its Leftist/populist flanks at the expense of centrists or the business community.

With this in mind, Minister Nene is caught between the proverbial rock and a hard place desperately trying to fire some investor-friendly salvos at a time when flagging sentiment threatens growth further and at the same time trying to boost the fiscus.

Pity poor Nene as he has to deal with seemingly bottomless bailouts for SAA (R6.5bn) and Eskom (R23bn) amongst other SOE disasters like the Post Office. With little political stomach for any large-scale privatisation of either, ideology will once again trumps economic prudence.

Politics also makes life difficult for Minister Nene. Above-inflation wage increases for civil servants - very useful in creating dependency and fostering support for the government - has been a bad habit for too long.  Ending the cycle of increases is a risky business especially as we move to another election season.

And, with a reported R4bn backlog in unpaid electricity bills from Soweto alone, the Minister would have to have high levels of political courage to take this on. Non-payment of municipal bills should make for tough sanction. Instead, the political reality of using Eskom to act - in effect - as a subsidy for the poor by condoning non-payment has the making of a revenue disaster.

This is Minister Nene's first major budget and comes 15 months before the critical 2016 local government elections. It would seem a long-shot to hope that he draws a line in the sand although he may certainly mouth the rhetoric of prudent spending while calling for the payment of outstanding service charges.

Add to this the on-going demands of the 16m plus social income grant recipients and the imminent rollout of the National Health Insurance and you have the makings of a looming fiscal cliff. Now, mix in the promised (and much needed) infrastructure spend and you have severe pressure. Pravin Gordhans 2014 promise of R847bn over the next 3 years seems literally ‘ a bridge too far'.

So, once again, politics will be the subtext of this year's budget. Analysts might look for fresh policy initiatives and perhaps we might be pleasantly surprised. After all, no-one - including the ANC hierarchy - want a further rating agency downgrade taking the country down the path to junk bond status.

But raising revenues will be the real focus and that will dominate the post-Budget analysis. So, while South Africa really needs a Budget to encourage growth, deregulate and stimulate consumption, we may well end up on Wednesday with a more expensive Whiskey in our hands as we bemoan an increase in the marginal tax rate, capital gains tax, fuel levy or even VAT.

Once again, creating wealth may take the back seat while redistributing will be prioritised. And, bailing out the ideological failures will be the cherry on top. Now there's the rub.

* Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. Views expressed are his own. Follow him on Twitter at @DanielSilke or visit his website.

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