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 protracted slump after the ravages of the Covid-19 pandemic that has seen activity ground to a halt since the end of March. Yet, one could be forgiven for believing there’s a wedge between the state’s main actors tasked with resurrecting a country that may see its jobless rate rise as high as 50% due to the impact of the lockdown.
The Minister of Finance Tito Mboweni and Minister of Trade, Industry and Economic Development Ebrahim Patel represent the sharp end of these differences. While the two serve on the same Cabinet, the camps are likely divided into pragmatists who believe fiscal responsibility and reforms should be prioritised at any cost, and others who believe the responsibility falls on government to aggressively invest its way out of the economic crisis that the pandemic has caused.
Economists have taken a dim view of South Africa’s prospects this year in light of the pandemic, with some estimates of job losses as high as seven million. Business confidence levels are now at their lowest point since the establishment of the SA Chamber of Commerce and Industry’s index in 1985.
Treasury projects that the economy could contract as much as 16.1% in a worst-case scenario, while recently created forum Business for South Africa expects a decline between 10% and 16.7%, Fin24 previously reported.
The Bureau of Economic Research chief economist, Hugo Pienaar, said South Africa instituted one of the strictest lockdown regulations in the world, in the interests of health, but its effects on the economy will be reflected in historic declines.
Singing different songs
These startling forecasts come amidst signs that Mboweni and Patel are singing from different hymn sheets. The ministers represent two diverging interests that in the African National Congress (ANC) that have been competing to have the last word in terms of policy.
As the executive head of National Treasury, Mboweni will be responsible for the handling and disbursement of the R500 billion in relief and support for the South African economy, aimed at softening the blow of the coronavirus as the subsequent national lockdown. The Reserve Bank has also announced a set of measures to ensure liquidity in the market, such as lowering interest rates by 200 basis points and buying R11.4 billion worth of government bonds from the secondary market. The combined fiscal and monetary package is R800 billion.
Mboweni is also a point of contact between government and the international investor and financing community, holding discussions with institutions such as the International Monetary Fund, the World Bank and the New Development Bank on a regular basis.
The current Department of Trade, Industry, Economic Development and Competition comes as a result of a merger of the departments of trade and industry and economic development at the beginning of the sixth administration of President Cyril Ramaphosa.
The former ministry of economic development was established by former president Jacob Zuma and is widely considered as a concession to the African National Congress’ allies in organised labour. It concerned itself mostly with busting large corporate cartels and pursuing companies engaged in anti-competitive behaviour. Patel is the minister of the now-merged department.
National Treasury said Mboweni is part of the National Coronavirus Command Council, on which Patel also serves.
“The government (all departments involved) is collectively working to combat the virus and its social and economic impact,” said Treasury.
Goodbye, free agent: hello, collective
Judging by the comments made by Mboweni in a tweet this week, the deliberations have not been without contestations. He complained that prior to joining government he was a “free man” and that now he finds himself being bound by “majority collective decisions”. His comments drew the ire of the governing ANC National Executive Committee.
A key example is the ban on cigarette sales, to which Mboweni has said he was opposed. The Fair Trade Independent Tobacco Association is now challenging the ban, which government said was made in the interests of health.
At a briefing to members of Parliament last week, Patel noted that the lockdown would impact the SA economy in a “deep and significant” way. Patel said that the health response and the economic response were not separate, however, but integrated.
“If we have a rapid spread of the virus in the society, it would have a direct effect on the economy,” he said. This has been the reasoning behind the risk-adjusted process to reopening parts of the economy; government wants to avoid a mass resurgence of infection.
So, how well can the different viewpoints sit together? Asked to comment, spokesperson for trade, industry and economic development Sidwell Medupe said: “I would say that they work okay. I am 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 cluster.”
Political analyst Somadoda Fikeni said Patel had a trade union background and would prefer stimulus instead of austerity. He said this was bound to create constituency and ideological difference with the more pragmatic Mboweni.
“I would say their observations are striking different notes. I simply take it to being informed by their positionality. If you are Mboweni and every decision has financial implications and the state is nearly bankrupt and you have made significant commitments,” said Fikeni.
Investors may be concerned about how a lack of unity in government in the short term may impact medium-term growth through structural reforms, said Peter Attard Montalto, head of capital markets research at Intellidex.
“It is this deeper ideological split that is more alarming and more impactful in the medium run,” Montalto said.
Cosatu parliamentary liaison office Matthew Parks said the labour federation wanted to avoid getting involved in personality contests or office politics. Parks simply said Cosatu wanted Mboweni to table his revised budget soon.
“We welcome the relief measures announced by the president. We also called for a new budget to be tabled in Parliament. The finance minister committed to do that on Tuesday, but government needs to move with greater speed on that,” said Parks.
Parks also called for more aggressive stimulus measures, saying South Africa needed a stimulus plan of R1 trillion over and above the R500 billion if it was to recover from the pandemic on a better footing. He said the R1 trillion stimulus could come from multiple sources.
A broader schism
The subtle differences between the two ministers, however, run deeper than simply their approach to the coronavirus pandemic. Economist Thabi Leoka said the rift between the two ministers’ views underscored the rift in different parts of the economy, adding that government interventions that benefited one sector of the economy did not yield the same benefits for another.
“For the two ministers, I think that they are talking from their individual vantage points. I get where Mboweni comes from when he says we can’t continue to bail out SOEs, give out parcels forever.
“For DTI, because they deal with incoming investment, they want us to see us growing for investment, which is something the president has bought into. One is looking at the cost and the other is looking at the opportunity,” said Leoka.
Old Mutual investment strategist Izak Odendaal said while government was dealing with a crisis for which it had “no playbook”, mixed messages were unfortunate, even if they were to be expected.
“If you look at the markets, you can see this being priced into our bonds, where we trade at quite a big discount. The markets don’t seem to have a lot of faith in our reform story.
“Brazil has been hammered by the virus, and there is a huge gap between where our bonds trade and where their bonds trade,” said Odendaal.
Noting the ideological differences between those in government and among different social partners, Pienaar said that while it was easy to get consensus on the health response, getting consensus on the economic approach would naturally have taken longer.