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Posted on Friday, 10 October 2014 11:54

Tough Times Need Tough Solutions - Nhlanhla Nene

By Crystal Orderson in Cape Town and Patrick Smith

Nhlanhla Nene, South Africa’s minister of finance©Julian GoldsWain for TARNene talks to The Africa Report about the need to create jobs, finance infrastructure and reduce the budget deficit, while outlining why a new development bank for the BRICS economies will benefit Africa most.

On Nhlanhla Nene's first parliamentary outing as finance minister in July, he spelt out what he sees as the grim truth.

We should be focusing on productivity in the public sector. [We need] a proper performance management system

As he set out his ministry's budget estimates, he warned of hard times coming: "Our economy is performing below its potential, and certainly way below the level of growth that is required to deal with the country's triple challenges of unemployment, poverty and inequality."

Perhaps Nene's message was intended as much for the international markets, which have been full of gloomy forecasts about South Africa's economy, as for the members of parliament (MPs) sitting in front of him in Cape Town.

Trying to reassure his core constituency in the benches of the legislature, Nene said that deficit cuts would not mean slashing health or education budgets: "The real value of our social spending will be maintained. But the fiscal limits will be far stronger and the need to ensure value for money and effective allocation of resources even more paramount."

Supporters from the governing African National Congress cheered him on and, true to form, the newly installed MPs of the militant Economic Freedom Fighters warned of policies that would betray the country's workers.

No ingénu, Nene was sitting on the parliamentary benches eight years ago, chairing the finance committee when Trevor Manuel was finance minister. Then, Manuel warned of tough times, but higher commodity prices, rising investment and a stronger rand provided buffers against the economy's structural problems.

This time around, Nene is in the ministerial chair and those buffers need rebuilding. There is much less talk about international economic pressures.

After his parliamentary debut, Nene told The Africa Report that economic problems needed stern domestic remedies: "Tough times ahead require tough solutions. We are quite committed to doing that." The priority areas are "reducing the cost of doing business and reducing the cost of living," he added.

Taming public debt

Along with those cost reductions comes Nene's determination to cut the budget deficit over the next three years.

He wants to get the balance right: "The key among our priorities is to focus more on infrastructure investment. Our expenditure should be focusing on spending more where we get the most returns, both economically and socially. The growth in our expenditure is going to be quite moderate, and [we will] also keep our debt within sustainable levels."

Another big vulnerability – in terms of market perceptions – is debt. Nene told parliament that the government's public debt was R525bn ($49bn) before the 2008- 2009 financial crisis in the US.

Since then, it has tripled and is forecast to hit R2trn within three years. Much of that borrowing has been for critical projects such as boosting the generating capacity of the state electricity company. Lack of power has been holding back economic growth.

More important than those deficit and debt figures are the job creation targets. The latest government survey shows that unemployment has increased to about 25.5% with 5.2 million people unemployed of the 20.1 million people in the formal-sector labour force.

The government wants to cut that jobless figure to less than 15% within three years. Businesspeople and government officials have often played a blame game about jobs.

A South African consultant who requested anonymity says businesses should do more about jobs: "There are some signs of a new economic structure com- ing out of this. There are at least five million jobless, many of whom are getting social wages, but some of these are being used to set up small enterprises and these need patronage from mainstream business."

Nene declines to join the blame game but strongly defends the government on labour relations against critics who argue it should have intervened more forcefully to end a five-month strike by platinum workers this year.

"When people talk about our resolve to deal with the industrial area, where there has been labour unrest, it is in our interest to keep calm and peace in that area," said Nene.

"It is also in our interest to bridge the divide between the poor and the rich, and deal with economic issues of equality."

Yet Nene argues that fixing the economy means taking hard decisions in the state sector, not just about wage rates but about how it is run: "It is the productivity of the public sector that we should be focusing on. Whatever we are paying in the public sector cannot be easily measured unless we have a proper performance management system."

What the citizens get

However technocratic that sounds, Nene is signalling some important changes planned for the state sector in the face of perennial protests about service delivery.

"As we engage with our public service, we also look at what it is that we as the state or the citizens get. We need to improve service delivery, the working conditions and the living conditions of our employees," he explains.

It was only when it came to discussing his meeting just after the World Cup in Brazil with the other BRICS members states – Brazil, Russia, India and China – that Nene was decidedly upbeat.

He says the governments should ratify the proposal for the BRICS development bank within six to 12 months. He points out that Africa will be the main beneficiary of the bank and that South Africa will host a regional bank office.

"The regional office is going to deal with project preparation. Also, we'll act as a conduit for investment into Africa. Actually, most of the investment is going to be coming to Africa because that's where we have an infrastructure gap," he said.

And after South Africa was knocked down by Nigeria from its position as Africa's largest economy this year, the BRICS bank accords what most regard as Africa's most modern economy with a key role in the international system.

"The bank presents us with an opportunity of pooling resources with the rest of the BRICS member countries," said Nene.

South Africa can thus help to bring in money to plug what Nene reckons is an annual shortfall of around $100bn in financing for infrastructure, marking at least one positive for the country in a difficult first year for the new minister. ●

 



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