The power dynamics in President Cyril Ramaphosa’s inner circle have shifted, bolstering Finance Minister Tito Mboweni’s influence.
Since his appointment in October 2018, Mboweni, 61, has been fighting an uphill battle against Ramaphosa’s opponents within the African National Congress as he strives to trim expenditure and fix indebted state-owned companies. His efforts have been stymied at times by another of Ramaphosa’s close allies – Public Enterprises Minister Pravin Gordhan.
Now the economy, which was already in its worst state since the 2008 financial crisis, has been hit by the coronavirus pandemic and the loss of SA’s last investment-grade credit rating from Moody’s Investors Service. That’s left Mboweni, a former labour minister who’s called for asset sales and an end to bailouts for state companies, in the strongest position he’s been in since returning to the cabinet.
“He is the winner,” said Ralph Mathekga, an analyst and author of books on South African politics. “Tito Mboweni is on the rise. His case has been made more real.”
Mboweni has pushed through two measures this month that were separately opposed by Gordhan, 71, and Ramaphosa’s other key ally – the labour union movement in which he rose to prominence in the 1980s.
On April 14, National Treasury told South African Airways, which hasn’t made a profit since 2011 and has survived on state bailouts, that no more funding was available. The next day it reneged on a government agreement to raise pay for more than 1.2 million civil servants. Together the actions could save the state tens of billions of rand.
While Mboweni repeatedly called for SAA to be closed or sold, Gordhan argued for the need for a national airline, and placed it in bankruptcy protection (business rescue) in December in a bid to ensure its survival. In February, Gordhan said it was “imperative” that ways be found to rescue the carrier because closing it would have “disastrous consequences” including job losses, EWN reported. The carrier now plans to lay off its entire workforce. Gordhan’s ministry has protested.
Gordhan has also been accused by labour unions and the opposition of dragging his feet in reforming Eskom, the state power utility that has about R450bn billion of debt. He also intervened to secure Eskom employees a 7% pay rise in 2018 when management wanted to freeze wages.
Gordhan’s office didn’t respond to a request for comment, while the Treasury didn’t comment beyond comments Mboweni made on April 14.
SAA may not be the only troubled state company to have support withdrawn, according to two people with knowledge of talks within the cabinet. Alexkor, a state diamond miner, may be denied further funding and the viability of Denel, the state arms company, is being considered, one of the people said. They asked not to be identified as the government has yet to comment.
Mboweni isn’t the only political beneficiary of the new economic reality confronting South Africa. It’s also helped Ramaphosa wrest control of decision-making from ANC officials loyal to former President Jacob Zuma, whose graft-ridden nine-year rule left South Africa with a mountain of debt and regular power outages.
“The positive side of this crisis is we can see how the government should actually work, without the day-in, day-out intervention by elements within the ANC,” said Theo Venter, a political analyst at North-West University in Potchefstroom, west of Johannesburg.
Mboweni, who went into exile during the struggle against apartheid, is an economics graduate who has served as central bank governor, advised Goldman Sachs and held the post of chairperson at AngloGold Ashanti.
Gordhan, a pharmacist who twice held the finance minister post, served in the leadership structures of the South African Communist Party and the ANC’s underground structures during apartheid. His staunch opposition to corruption during Zuma’s rule won him public support.
Now there’s little room to implement policies favored by the communist party or the Congress of South African Trade Unions, such as inflation-beating pay rises for civil servants and a bigger role for the state in the economy.
“Government has to make hard choices,” said Martin Kingston, the vice president of Business Unity South Africa and chairperson of Rothschild & Co.’s local unit. “It is going be very difficult to demonstrate largesse in this environment.”
Mboweni has spoken of his newfound strength. At a March 29 media briefing, he recounted how he had been told by Ramaphosa that the downgrade by Moody’s Investors Service meant he could forge ahead with economic reforms and he had responded “hallelujah.”
“The balance of power in the ANC-led government has shifted in favor of a ‘triumvirate’ consisting of President Cyril Ramaphosa, Finance Minister Tito Mboweni, and South African Reserve Bank Governor Lesetja Kganyago,” said Robert Besseling, executive director of political risk advisory firm EXX Africa. “The government will respond to the double shock of the coronavirus outbreak and the Moody’s downgrade by making long-overdue structural reforms.”