Now that we’ve accepted that Pravin Gordhan’s removal from the Treasury was no mistimed April Fool’s joke – or, rather, that the joke was on us – I think we need to contextualise Pravin Gordhan’s role in the current state of South Africa’s finances.
Let me start by saying that Thursday evening’s midnight massacre of ministers was absurd. South Africa’s precarious financial position requires stability in the leadership, not confusion. And the leadership of the Treasury cannot be clouded in a haze of nepotism and state capture, regardless of whether the haze is true or not.
Given the extent of the political opposition to this move, it is surprising that President Zuma went ahead with the cabinet reshuffle. During Nenegate, the opposition felt like a parody of itself: the housewives of white monopoly capital catching the Gautrain to Pretoria, then marching to the Union buildings to complain about the state of the nation, while sipping takeaway flat whites and carrying bottled water. And using an appropriated ‘zumamustfall’ hashtag.
This time round though, the EFF has not abstained from commenting. COSATU, the ANC Integrity Commission and the Vice-President have been more than openly critical. Pravin himself has felt comfortable enough to call for mass mobilisation. The opposition has found a figurehead, and all Zuma’s rivals are loosely coalescing around him.
Which is why this decision does not feel like the action of a confident president. It’s the kind of decision that activates and energizes the opposition both inside and outside your own party. If you ask me, the move seems calculated to mitigate short-term consequences rather than entrench a long-term grip on power. President Zuma undoubtedly has political bills to repay and actual accounts to settle before he leaves office in 2019. And I’m sure that his debt collectors are becoming more insistent, now that it appears less certain that the President will get to be kingmaker for his successor.
But at this moment, I think it’s important to separate between:
- Anti-Zuma sentiment; and
- Support for Pravin Gordhan.
They’re entwined right now. But it should be possible to criticise Pravin Gordhan’s removal as Finance Minister without sanctifying him, and/or rationalising his missteps.
So let’s talk about some of those ‘missteps’. And let me start with a Finance Minister wishlist.
What do we want in a South African Finance Minister?
I can think of a few things:
- They should design tax laws to raise sufficient revenue to cover the government’s budget. These tax laws need to be easy to understand and cheap to enforce. And the revenue collection needs to be balanced – too much means that the government constricts the economy, too little means that there is not enough wealth transfer.
- They should control government spending. Part of ‘balancing’ the revenue collection means ensuring that the government revenue is not wasted. Service delivery should be efficient and cost-effective. And the public sector wage bill ought to be market-related, at the very least. It should never happen that a public sector salary for a particular position outstrips the private sector salary for the same position. If you hold the purse strings, then you should be insisting on it.
- They should keep government spending separate from State-Owned Enterprise spending. If you’re going to have state-owned enterprises, they should stand on their own.
- They should ensure that the Tender and Procurement process for government is transparent. Government spending should not be used to promote political patronage.
And if they have the time, they might also want to design policies to promote foreign investment. Although fulfilling roles 1 through 4 are an excellent starting point.
So here is my question: how has Pravin done on these fronts?
After all, with the exception of Nhlanhla Nene’s 18 month stint in the Treasury, and David van Royen’s two day escapade, Pravin Gordhan has been Finance Minister for almost 8 years. Basically, since Jacob Zuma became president.
The Tax Collection Assessment
To avoid too much economic debate, let’s just assume that Pravin does a fairly good job of the tax front. It does seem that Treasury really tries to limit the impact on the taxpayer where it can. So he can have this one.
The Government Spending Assessment
I have two sets of numbers, taken from Pravin Gordhan’s last budget as Finance Minister.
First, let’s talk about the total number of people employed by government:
So what can we say here?
Well, whatever else has happened during his short second term, it will not have reversed the massive increase in the government payroll numbers that took place in his first term. Perhaps there were good political reasons for all those new jobs – but those new jobs have all added to the fiscal pressure.
And where there are more jobs, there are more costs. So:
Part of that increase is due to the higher headcount. Part of it is due to the fact that public sector salary increases have been regularly outstripping private sector salary increases since, well, about 2009.
So not a passing grade here.
The State-Owned Enterprise Assessment
Here’s another graph from Pravin Gordhan’s last budget as Finance Minister, including projections up to the end of 2020:
There does not appear to be any sign of a slow-down. Even if the SOE support escalated drastically under Nhlanhla Nene, Pravin basically matched it in the 2016/2017 finance year. And Pravin was budgeting for much higher transfers going forward to 2020.
This also excludes all those state guarantees that were signed. And as far as I can tell, Pravin may have delayed the occasional sign-off – but it was only ever a delay.
So also not a passing grade here.
The Tender and Procurement Process
For this one, here is Thuli Madonsela’s State of Capture report.
But let’s give Pravin a pass here as well – because this seems to be a problem far beyond his pay-grade. Although if the Finance Minister can’t help here, I’m not sure who can.
Well, once you take off the Anti-Zuma-tinted glasses, it’s all very average.
The two-time Finance Minister did an okay job at designing tax law, didn’t control government spending, didn’t really control transfers to State-Owned Enterprises, and we can’t comment on State Capture and corruption because that wasn’t under his control.
The point is:
- If this were a cabinet reshuffle being undertaken by a marginally more popular president, we would not be raising eyebrows.
- If this were a cabinet reshuffle being undertaken by the current president, and had the current president not initiated the Nene-Van-Royen interregnum, we probably wouldn’t be raising eyebrows either.
Instead, we would be saying things like:
“This was an affable and astute finance minister who never quite recovered from the overspending and lack of oversight that took place during his first five years in the office. Even though he stood up to political pressure toward the end – and for that, we are grateful – nonetheless, those early spendthrift fiscal policies have left South Africa’s finances looking dismal.”
However, there is a consolation prize here.
If you like Pravin because Pravin stood up to President Zuma, then the president’s decision to remove him might turn out to be the one that you actually wanted. Because this time, the political tide seems to have teeth.
We shall see.
PS: for a much stronger and more in-depth criticism of Pravin, check out this post. I may not feel quite as passionate about it – but there are good points.
Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.