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South Africa faces its gravest test since the end of World War II almost 75 years ago, to rebuild an economy that was already in a prolonged depression after the ravages of the Covid-19 pandemic that has slowed activity since the end of March. However, one could be forgiven for believing that there is a gap between the main state actors charged with resurrecting a country that can see its unemployment rate rise up to 50% due to the impact of the blockade.
The Minister of Finance, Tito Mboweni, and the Minister of Commerce, Industry and Economic Development, Ebrahim Patel, represent the sharp end of these differences. While the two serve in the same cabinet, the camps are likely divided into pragmatists who believe that fiscal responsibility and reform should be prioritized at any cost, and others who believe that the responsibility lies with the government to aggressively reverse their exit from the economic crisis that the pandemic has caused.
Economists have had a grim view of South Africa’s prospects this year in light of the pandemic, with some estimates of job losses of up to seven million. Business confidence levels are now at their lowest point since the establishment of the SA Chamber of Commerce and Industry Index in 1985.
The Treasury projects that the economy could contract as much as 16.1% in the worst case, while the recently created Business for South Africa business forum expects a decline of between 10% and 16.7%, Fin24 previously reported.
The chief economist at the Bureau of Economic Research, Hugo Pienaar, said South Africa instituted one of the strictest blocking regulations in the world, in the interest of health, but its effects on the economy will be reflected in historical declines.
Singing different songs
These startling predictions come amid signs that Mboweni and Patel are singing from different hymn sheets. The ministers represent two divergent interests that in the African National Congress (ANC) have been vying to have the last word in terms of politics.
As chief executive of the National Treasury, Mboweni will be responsible for managing and disbursing the R500 billion in aid and support to the South African economy, with the aim of softening the coronavirus hit as the subsequent national blockade. The Reserve Bank has also announced a set of measures to guarantee liquidity in the market, such as reducing interest rates by 200 basis points and buying government bonds worth R11.4 billion in the secondary market. The combined fiscal and monetary package is R800 billion.
Mboweni is also a point of contact between the government and the international financial and investor community, holding regular talks with institutions like the International Monetary Fund, the World Bank and the New Development Bank.
The current Department of Commerce, Industry, Economic Development and Competition arises as a result of a merger of the departments of commerce and industry and economic development at the beginning of the sixth administration of President Cyril Ramaphosa.
The former minister of economic development was established by former President Jacob Zuma and is widely regarded as a concession to allies of the African National Congress on organized work. It was primarily concerned with destroying large corporate cartels and prosecuting companies engaged in anti-competitive behavior. Patel is the department minister now merged.
The National Treasury said Mboweni is part of the National Coronavirus Command Council, on which Patel also serves.
“The government (all the departments involved) are working collectively to combat the virus and its social and economic impact,” said the Treasury.
Goodbye, free agent: hello, collective
Judging by the comments made by Mboweni in a tweet this week, the deliberations have not been without answers. He complained that before joining the government he was a “free man” and is now forced by “majority collective decisions”. His comments sparked the ire of the ANC National Executive Committee.
A key example is the ban on the sale of cigarettes, which Mboweni has said he opposed. The Independent Fair Trade Tobacco Association is now challenging the ban, which the government says was done in the interest of health.
In a briefing to members of Parliament last week, Patel noted that the blockade would affect the SA economy in a “profound and meaningful” way. Patel said the health response and the economic response were not separate, but integrated.
“If we have a rapid spread of the virus in society, it would have a direct effect on the economy,” he said. This has been the reasoning behind the risk-adjusted process to reopen parts of the economy; The government wants to prevent a massive resurgence of the infection.
Idealogical difference?
So how well can different points of view sit together? When asked to comment, Commerce, Industry and Economic Development spokesman Sidwell Medupe said: “I would say they work well. I’m not sure how often they meet. I don’t have the details of what they discuss, but they do work. together. They are in the economic group. “
Political analyst Somadoda Fikeni said Patel had a union background and would prefer stimulus rather than austerity. He said this was intended to create constituencies and ideological differences with the more pragmatic Mboweni.
“I would say their observations are different notes. I just consider that they are informed by their position. If you are Mboweni and each decision has financial implications and the state is almost bankrupt and you have made significant commitments,” said Fikeni.
Investors may be concerned about how lack of government unity in the short term can affect growth in the medium term through structural reforms, said Peter Attard Montalto, head of capital markets research at Intellidex.
“It is this deeper ideological divide that is the most alarming and most shocking in the medium term,” said Montalto.
Cosatu’s parliamentary liaison office, Matthew Parks, said the labor federation wanted to avoid getting involved in personality contests or office politics. Parks simply said that Cosatu wanted Mboweni to present his revised budget soon.
“We welcome the relief measures announced by the president. We also call for a new budget to be presented to Parliament. The finance minister promised to do so on Tuesday, but the government must move faster,” Parks said.
Parks also called for more aggressive stimulus measures, saying South Africa needed a stimulus plan of R1 trillion above R500 billion to recover from the pandemic in better shape. He said that the R1 trillion stimulus could come from multiple sources.
A wider schism
The subtle differences between the two ministers, however, are deeper than simply their approach to the coronavirus pandemic. Economist Thabi Leoka said the gap between the views of the two ministers underscored the gap in different parts of the economy, adding that government interventions that benefited one sector of the economy did not produce the same benefits for another.
“For the two ministers, I think they are speaking from their individual points of view. I understand where Mboweni comes from when he says that we cannot continue to rescue state companies, delivering packages forever.”
“For DTI, because they are dealing with incoming investment, they want us to see ourselves grow for investment, which is something the president has bought into. One is seeing the cost and the other is seeing the opportunity,” he said. Leoka.
Old mutual investment strategist Izak Odendaal said that while the government was dealing with a crisis for which it had no “playbook”, the messages found were unfortunate, even if it was to be expected.
“If you look at the markets, you can see that this applies to our bonds, where we trade at a fairly large discount. The markets don’t seem to have much faith in our history of reform.”
“Brazil has been hit by the virus, and there is a big gap between where our bonds are traded and where their bonds are traded,” Odendaal said.
Noting the ideological differences between those in government and between different social partners, Pienaar said that while it was easy to reach a consensus on the health response, the consensus on the economic approach would naturally have taken longer. .
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