South Africa’s economy has shown signs of modest but meaningful improvement. The country has been lifted out of recession and the Reserve Bank is cautiously optimistic that inflation is under control.
However, questions about political stability and financial management continue to cast a shadow over our economic prospects. It is important to recognise that these are interconnected, rather than distinct, issues.
We can get some sense of these interconnections by taking a closer look at the recent SAA bailout.
The state airline is effectively bankrupt and was on the verge of defaulting on a loan to international bank Citibank. Following a period of uncertainty, National Treasury has agreed to extend R3 billion to SAA to meet its immediate debt obligations and to be used as working capital.
The bailout raises a number of questions.
Whatever your policy preferences, there is no doubt that government expenditure should be much more efficient. Government desperately needs capital meet its developmental goals, and pouring cash into loss-making state-owned enterprises is drain on resources.
However, not all SOEs have equal social value. Irregular expenditure and mismanagement at Eskom or PRASA is concerning, but we can understand the vital role of energy production and metropolitan rail for keeping the economy running. But what is the value of spending billions on an international airline?
Given current concerns around ‘state capture, it’s not surprising that many people are asking questions about why government is pouring in so much cash into floundering SOEs – and asking whom precisely bailouts will benefit.
Political chatter suggests that government is planning to extract R100 billion from the Public Investment Corporation, the entity that manages a massive fund that includes public service pensions.
Most directly, rumours are swirling that allegations made against the PIC’s CEO are part of a plot to ‘capture’ the PIC and funnel cash towards corrupt ends.
The DA’s Alf Lees put the rumours in stark terms, commenting that there is “allegedly a plot to remove the PIC’s current CEO‚ Dan Matjila‚ which was reportedly a greedy attempt by the Gupta’s to hijack the PIC and loot from the people of our country.”
Treasury has strenuously denied reports regarding any plan to extract R100 billion from the PIC to bailout SOEs, calling the claims “malicious and unconstructive”.
However, a climate of suspicion and mistrust is not conducive to sustainable economic growth.
A thriving economy depends on investor confidence. Widespread fears that government bailouts are not simply wasteful expenditure but are component parts of a process of ‘state capture’ undermines confidence in the ongoing stability of the economy.
To restore confidence, government needs to reassure investors of its commitment to accountability, transparency and the rule of law.
A stable and orderly transfer of power at the ANC’s conference to elect a new leader, currently scheduled for December, would do much to reassure analysts. Unfortunately, there are indications of organisational and factional chaos in the run up to the conference, as well as fierce party infighting more generally.
The election as ANC president of a candidate not favoured by the markets could also be a blow to international confidence in the governing party.
The resulting uncertainty could see a decline in the value of the rand. Reserve Bank Governor Lesetja Kganyago has warned that the exchange rate has been the most important driver of inflation, and the resulting volatility of declining investor confidence could set back the country’s recent gains.