Thursday, October 30, 2014
Sunday, October 26, 2014
Taxes roll in while all else in the public service fails. Ever ask why?
26 Oct 2014 | Tony Leon | Sunday Times
THERE were no laughs in Wednesday’s sombre medium-term budget speech by Finance Minister Nhlanhla Nene. But, given its grim context and the pain inflicted on South Africa by the markets, it evoked the gallows humour of Samuel Johnson: “When a man knows he is to be hanged, it concentrates his mind wonderfully.”
The “fiscal
space” in which government vanity projects can be indulged and hard choices can
be ducked has disappeared. Nene donned the hair shirt — even if he dared not
whisper the word “austerity” — although some of his more ideologically inclined
colleagues seem committed to their bling ways.
Like
a faded suntan, the sunny tales of the “development state”, 5% annual growth,
“countercyclical spending” and “a good story to tell” have been replaced by the
more frigid world of tax hikes and spending cuts.
“These
things are the result of rotten government. To this very day, the government is
pouring money down rat holes, and the people know it. The police are underpaid,
the hospitals understaffed, the roads are disintegrating, the people left to
build shacks for themselves on stolen land; yet there is no end to the minister
of finance’s demand for more money.”
Actually,
this paragraph of vivid vitriol was penned on January 26 1992 by the then
editor of this newspaper, Ken Owen, on the ills of the dying National Party
government.
His
words are a reminder today that it has never been the fate or luck of South
Africa to enjoy sustained periods of good governance, whether the
administration is National or African National.
A
week ago, President Jacob Zuma underlined this point when he compared his
“persecution” over Nkandla with the lack of criticism for the PW Botha airport
in George, although one suspects the public benefit of the latter will outlive
that of the former.
Zuma’s
point of comparison is striking: when you set the bar at ankle height, even my
dachshund can leap over it.
An
antidote to our rather depressing economic situation was provided on the same
day as Nene’s speech by the insightful, down-to-earth Investec boss Stephen
Koseff. He reminded a Cape Town audience that the National Treasury and revenue
service have immeasurably improved in the past 20 years, both in terms of performance
and transparency.
He
also provided a clue as to why taxes are so better collected, even though there
is a R15-billion hole in revenues — a reflection on low growth and not a
failure of collection: “When Pravin Gordhan was in charge he hired a bunch of
old whitey CAs to help with the collection.”
So
for our efficient and communist tax collector, now minister of local government
and traditional affairs, pragmatism, not ideology, prevailed.
I
was struck by this point about why the collection of taxes seems to be an
ideology-free zone of admirable efficiency and not the dumping ground for the
friends of the famous and the centre for semi-unemployable cadres that seem to
be the hiring principles on the boards of so many failing state enterprises.
I
found the answer buried in the pages of a remarkable book written in 2007 by
Paul Collier, then director of the Centre for the Study of African Economies at
Oxford University. In a library of tomes about bad governance in poor countries
and some useful solutions, The Bottom Billion stands out.
On
the puzzle of good revenue collection in a sea of state dysfunctionality, he
offers this insight: the function of raising tax revenue was taken out of the
traditional civil service because there was no realistic prospect of making the
traditional system work. But as to why so many governments in the developing
world, along with South Africa, went for the radical option on revenue but not
on service delivery, he says the answer is “depressingly obvious”.
“Governments
benefit from the revenue, whereas ordinary people benefit from basic services.
“Governments
were not prepared to let the traditional civil service continue to sabotage tax
revenues, because governments themselves were the victims.
“They
were prepared to leave basic service delivery unreformed because the governing
elite got its services elsewhere.”
The
FW de Klerk administration did not reform the revenue service, the ANC did. But
De Klerk certainly reformed the political space back in 1990 because he alone,
in comparison with his five NP predecessors, could both read the writing on the
wall and not assume it was addressed to someone else.
His
government had essentially run out of money and its ideology could no longer be
sustained, let alone funded.
Now,
24, years later, the successor government is also running out of money. Here’s
hoping this tight space leads to another “wonderful concentration of the mind”.
Thursday, October 23, 2014
The Big Reads: JZ's 'Groot Krokodil' tears
23 Oct 2014 | Tony Leon | The Times
Never mind those pesky
"clever blacks" who so irritate His Excellency the President. We have
our share of "clever whites" as well, both local and exported.
"Apparently
in the land of the rising sun Zuma means 'running horse'" Kevin Pietersen, the supremely talented batsman lost to these shores and from 2005 the key man in the English cricket team, has recently switched from on-field fame to retirement notoriety by dishing the changeroom dirt on his enemies in his team with his apparently explosive memoir, KP: The Autobiography.
But whatever his prowess in front of the wicket, he is apparently less nimble in a media interview. At the weekend he bagged the premier interview column in the Financial Times, whose "lunch with" series is the gold-standard platform for celebrities. Our Kev chose the restaurant for his interrogation with journalist Matthew Engel. Quite unselfconsciously he selected Zuma, which the sharp-elbowed Engel described as "contemporary Japanese almost opposite Harrods, but without anyone Japanese in sight. The waiters are English; the clients wealthy wanderers."
Apparently KP is not as quick with repartee as he is with the bat. The interviewer records: " 'Zuma'," I muse. "'So it's a KwaZulu-Natal restaurant?'
"It takes him time to remember South Africa's president.
" 'Oh, Jacob!' " Then he decides that's funny. He is not very hot on politics, including the politics of everyday life," Engel notes.
But we can be grateful for KP's restaurant selection as it led me straight to Google translate since, until then, I had no idea that Zuma had a Japanese provenance. Apparently in the land of the rising sun it means "running horse". This seemed very apt and localised since weekend reports suggest that our homegrown Zuma is running away from parliamentary questions, although he must have been relieved - in a universe of bad headlines - that the C word chosen by the Sunday Times was only "coward".
But both evasion of parliamentary interrogations (which, to be perfectly fair, the presidency describes as "grossly misleading") and unfair enrichment lead us back again to that once obscure KwaZulu-Natal village, now a byword for state-sponsored profligacy, Nkandla.
Since parliament has never had a proper presidential explanation for the R246-million expenditure there - either because of the tactics of disruption of the enfantes terribles of the Economic Freedom Fighters or some other undisclosed reason - we have to read the tea leaves elsewhere (perhaps this is appropriate since this president's tipple is nothing stronger than Rooibos tea).
Apparently the most powerful man in the land feels "persecuted" by the media over the expenses. On Sunday, he advised that "there was no outcry over an airport built in former president PW Botha's home town".
His reference to the airport at George is both accurate and instructive. Indeed, during the long tenure of the former strongman of apartheid and MP for George, a modern airport was built in his constituency. Doubtless, the identity of the local parliamentarian and consideration of the ease of his travel counted for a lot in green-lighting its construction. But 25 years after Botha's forced exit from public life and office, the airport still serves as a huge and necessary gateway for tourism into the southern Cape region, which long after the reign of Botha still attracts thousands of visitors. More than 600000 arrive there every year.
Any tourists visiting the former home of the "Groot Krokodil" in Wilderness might also be surprised by its modest scale, not the palace of splendour one might expect.
But this is really beside the point. Things have reached a pretty point when a post-apartheid democratic president uses as his standard of justification the excesses and outrages, or lack of them in this case, of the brutal and undemocratic system he and his party vowed to replace and improve upon.
The old struggle phrase "never again" seems to have been replaced by one that says "well, sometimes when in a corner, we will dust it off".
The PW Botha defence at least has some form, as they say in cricket. Less helpful to Zuma's cause was his invocation of geography the other day. He apparently shrugged off the mushroom clouds engulfing his administration when he suggested that corruption is a crime only in a "Western paradigm".
He might want to have a word at the next Brics summit with his opposite number in China, Xi Jinping. He doesn't have the inconvenience of being heckled by opposition MPs but, in the eastern corner of the world, he has unleashed a campaign against corruption described recently by The Economist "as the most sweeping for decades".
Since we apparently bow to China in matters of foreign policy, we might want to borrow domestically from this campaign, although in China the drive is apparently led by "party investigators and the feuding factions they serve".
We have no shortage of feuding ruling party factions in South Africa. But we are blessed with an independent public protector, one of the real gains of the post- Botha years. A pity we don't celebrate her work and not curse her existence, as some in the seats of power do.
• Leon is the author of Opposite Mandela
(Jonathan Ball) Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA
Monday, October 13, 2014
We need leadership willing to make tough calls
Patrick
Cairns | 13 October 2014 | Original Publication: Moneyweb
South Africa can't just drift along.
CAPE TOWN – Of all the criticisms
levelled against President Jacob Zuma's handling of the economy, perhaps the
worst indictment is that he has failed to provide South Africa with decisive
leadership. He has been unable to inspire the country towards a cohesive vision
of where we need to go.
There are many reasons for this, not
least of government's inability to produce and stick to a clear economic plan
in the first place. But the president ultimately has to bear the responsibility
of not being able to provide the guidance that the country has needed.
At a recent panel discussion hosted
by Sanlam Private Wealth, political commentators Justice Malala and Tony Leon
pointed to exactly this fact. They highlighted how although there has been some
outstanding leadership in South Africa's economic spheres of government, its
reputation is at risk of being undermined by the incompetence elsewhere.
“In South Africa you have the Revenue
Service, Treasury, and the Reserve Bank, which are three fantastic institutions
that seem to work pretty well, and then you have the rest of government,”
Malala said. “You have this bipolar world and unfortunately, if the world of
sloth overwhelms the world of efficiency, then we have a problem.”
For Leon, where South Africa's
leadership needs to come to the fore is in tackling the country's current
account and budget deficits. The present situation means that South Africa
remains vulnerable and another credit downgrade will have serious
repercussions.
“There are a number of money managers
who, given another credit downgrade, will pull the plug on us,” he said. “Then
our current account and budget deficits will become unaffordable and we're in a
deep crisis. So whatever the leadership does or doesn't do, there are a whole
lot of external factors barrelling down the highway that are inescapable.”
Leon said that while the Minister of
Finance, Nhlanhla Nene, has a very informed appreciation of how little is in
the cupboard, he doesn't believe that the rest of government necessarily shares
the same understanding.
“The head of the government
prevaricates between the national development plan, which is a good thing, and
the national democratic revolution, throwing out concessions to unions and
everyone else,” Leon said. “But leadership is about making tough choices. When
you have good leadership the tough choices are made and you move forward. If
you don't, then you drift along. But you can't just drift along when you are so
dependent on external financing.”
Leon noted that his three years as
the ambassador to Argentina gave him a solid understanding of how a country is
able to destroy itself both economically and politically. The case of nearby
Venezuala, which is one of the richest oil producers in the world yet still has
to import food, is another example.
However, other Latin American
countries like Peru, Colombia and Chile have managed to avoid such disaster.
And their policies are worth taking note of.
“Each used the crisis years to repair
their balance sheets, improve their governments, and create more
business-friendly environments,” Leon said. “And today they are among the
high-performing emerging market economies. So it’s no secret. Either we take
those examples and apply them, or we don't.”
Malala expressed that one of the
vital parts to achieving this is forming a new understanding between
government, business and labour. And that also means that each of the three
entities has to provide better leadership than it is currently doing.
“In a country where we have a 25%
unemployment rate by the narrow definition, you cannot say we're okay growing
at 1.9%,” Malala said.
He said that while political
leadership has been most prominently lacking, business and labour have equally
failed to offer direction.
Malala believes that there has to be
a push towards a conversation where these three critical role players in the
economy can talk without being afraid to voice any opinion.
Most of all though, what is needed is
implementation. Those at the top need to make firm decisions about what has to
be done and then there must be a cohesive drive to do it.
“At one stage we were an emerging
market darling and now we are a laggard. Emerging markets themselves are less
than the flavour of the month,” Leon said. “When we had credit coming into this
country, we didn't use those good times to take advantage and now, in more
challenging circumstances, we are going to have a hard landing. I just hope we
will have the leadership to make the tough calls that are necessary.”
Thursday, October 9, 2014
The Big Read: Only government to blame for Nobel fallout
09 Oct 2014 | Tony Leon | Times Live
As a detribalised attorney, I
am pleased that, thanks to the Oscar Pistorius trial, so many lay people are
now on nodding terms with such esoterica from the realm of criminal law as mens
rea and dolus eventualis.
“Folk in Hong Kong protesting
for democracy? Ukraine wanting Russia to leave it alone? Not on our agenda”
But it is from our civil law that we can take a concept that goes some
way towards finding the truth in the accusations and counter-accusations flying
between the mayor of Cape Town, Patricia de Lille, Archbishop Emeritus Desmond
Tutu and former president FW de Klerk (an interesting alliance) on the one
side, and the presidency on the other.
The most recent verbal mortars were fired after the announcement last
week that the 14th World Summit of Nobel Laureates had been canned in Cape Town
and would relocate offshore. This unprecedented sanction, at least in our
post-apartheid brave democratic age, which was meant to end isolation, has been
imposed on us by some of the most admired people in the world. They have done
this because of the government's refusal to grant the Dalai Lama a visa to
attend the summit.
The Roman Dutch mouthful eceptio doli generalis simply means that a defendant
can raise the defence that the plaintiff has not acted in good faith, or that
he cannot set up his own bad conduct, such as intimidation, to prosecute a
claim against someone.
For technical reasons back in 1988, the Supreme Court of Appeal ruled
that it did not apply in South African law. But it is a handy term to divine
the truth around the Dalai Lama saga, perhaps the final nail in our claims to
be a country that acts as an independent sovereign, not as a client of China.
It might also answer the question: do we still practise, not breach, the
famous Nelson Mandela 1993 formula that pinned our foreign policy to the mast
of "human rights"? On all current evidence, we do not, but let's see
who is telling the truth on this issue, not just relying on prior bad conduct
to assert a claim.
In the Dalai Lama case, the president's spin doctor (by now he must be a
specialist surgeon in the dark arts of communications), Mac Maharaj, was
furiously unequivocal.
He slammed the mayor's statement (and by implication De Klerk's as well)
as "inaccurate and misleading" and stated that the government had
been informed by the Dalai Lama's office that he would not be attending the
summit. This meant the holy man was "thus effectively cancelling his visa
application", Maharaj triumphantly proclaimed.
Well, as they say in the classics "you can't bulls**t a
bulls****er".
Entering the row next was Dave Steward, who knows a thing or two about
government communications, having headed the "Bureau for Information"
when PW Botha imposed his states of emergency in the 1980s.
From his current perch as head of the FW de Klerk Foundation, Steward
said Maharaj was guilty of a "terminological inexactitude" and
pointed out a simple fact: On September 4, the Dalai Lama's representative had
been contacted by an official at the Department of International Relations and
Cooperation [by telephone no doubt, and thus no danger of a paper trail] who
"had informed her that the Dalai Lama would not be granted a visa".
Only after this unwelcome news did he withdraw his visa application.
Talk about the exceptio doli, or relying on bad conduct to perfect your
claim, and there you have it.
The letter that 14 Nobel laureates sent to President Jacob Zuma asking
that the visa be granted received no response, and certainly not the
"terminological inexactitude" cooked up later by Maharaj.
Case closed. Except of course, we do apply a human rights, rather than a
realpolitik, standard elsewhere.
The ANC and the toy-town revolutionaries of its youth league are in full
cry sanctioning, boycotting and disinvesting from any organisation that dares
to stock chopped herring, or whatever, sourced from the gardens of
"apartheid" Israel. And if, as its ally Cosatu maintains, this should
include sanctioning the most cost-effective and medically reliable Israeli
circumcision device (after all, which country has practised this longer?) then
so be it, even at the cost of saving our own lives. Ideology comes first. Folk
in Hong Kong protesting for democracy? Ukraine wanting Russia to leave it
alone? Not on our agenda - wrong places, wrong opponents, wrong ideology.
But thinking back on the high place in the world we occupied under
Mandela, this simply proves, as Christopher Hitchens noted, that when you fall
from a great height, the descent can be very swift.
• Leon is the author of Opposite Mandela
(Jonathan Ball) Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA
Friday, October 3, 2014
Nene cannot rely on parallel universe to balance books
03 Oct 2014 | Tony Leon | Business Day
Many of the new finance
minister’s ministerial and party colleagues seem to derive their assumptions
from realm of science fiction, writes Tony Leon
WHEN former finance minister Trevor Manuel presented his medium-term
budget policy statements in Parliament, he used to adorn his speeches with
literary bells and whistles, quoting the likes of Ben Okri, before presenting
his numbers and forecasts.
New Finance Minister Nhlanhla Nene is a decent and conscientious man but
far plainer spoken than Manuel. Financially, he also has a far worse set of
books to contend with. If so inclined, he could draw from a rich seam of
quotes, from Shakespeare to the Bible and even the unmentionable (for African
National Congress ears at least, in the post-Mbeki era) Margaret Thatcher to
spice up his prose when he presents his medium-term budget policy statement in
Parliament this month.
 |
| Nhlanhla Nene. Picture: TREVOR SAMSON |
Claudius’s lament in Hamlet that "when sorrows come, they come not
single spies but in battalions" is as good as any starting point for a
description of the bleak economic canvas on which Nene has to paint his
projection for the next three years.
Our terms of trade have deteriorated sharply, and much worse than
expected, with the August trade deficit widening to R163bn (double the market
expectation), explicable by a sharp drop in exports of R77bn against a surge in
imports of about R93bn. SA is caught in the classic "double whammy", in
which currency weakness — the rand has been on the slide since 2009 — has not
led to export growth. As we import inflation, and financing the current account
deficit has become crucially dependent on foreign flows, the interest rate
needs to be competitive to compensate on both fronts, hence the rise in rates
in a year of very low growth.
Wage rises not tethered to productivity increases hardly help, nor does
the surge in public sector jobs, which do nothing to allow us to export our way
out of difficulties. They simply increase Nene’s difficulties in balancing the
books with an unhealthy 5.4% current account deficit. This places us second
only to Turkey of the 45 countries whose economic and financial indicators are
published by The Economist. Further spending will just pile on the misery, and
tax increases are hardly an option, when economist Dawie Roodt recently
forecast a revenue shortfall of R15bn-R30bn, measured against the projections
in this year’s budget estimates.
Actually, the higher figure in Roodt’s estimate coincides almost exactly
with the figure the auditor-general identified as lost to unauthorised or
wasteful or irregular spending by government departments, which suggests state
failure of a vast magnitude, the rectification of which would go a long way to
assisting Nene in his balancing act.
In the unvarnished warning of Investec chief economist Annabel Bishop,
the once beneficent global economic environment has turned sharply against us,
especially the Chinese economy, that traditional anchor of our resource
exports: "As economic growth in China has moderated, commodity prices have
eased…. Should China experience further slowdown, the rand will likely weaken
further as commodity prices ease once again.
"Quite aside from tear-gassing pro-democracy protesters in Hong
Kong and ensuring that its client states like ours keep the Dalai Lama out, the
Chinese are involved in a massive attempt to reorientate their economic model
away from manufacturing and saving, towards consumption and services, causing a
very hard landing for economies such as our own. Especially when, as the
Financial Times advised recently, the most vulnerable emerging markets, in the
wake of the removal of quantitative easing (QE) and anticipated uptick in US
interest rates in the US … are those ill-prepared for the change in the
economic weather."
Here’s where the Bible comes in handy, although quoting Hebrew prophet
Joseph might be career-limiting for a minister given the anti-Israel rhetoric
of the ruling party. Still, back in the land of the pharaoh, Joseph famously
could interpret his master’s dream of seven lean cows devouring seven healthy
ones to mean that seven years of famine would follow seven years of abundance.
His prudent suggestion to fill the granaries in the boom times to compensate
for the lean period to follow not only made him the second-most powerful man in
ancient Egypt but also provided a clue for today’s policy makers. SA went in
the opposite direction, trying to spend its way out of its difficulties, not
saving for the proverbial lean years that are now upon us.
The smart money, so to speak, is now following emerging market economies
such as Mexico, Peru and Colombia, which were recently cited as having used the
resource boom and the QE years, which coincide with the biblical seven, to
increase their savings and reduce public debt. Our savings rate (about 13.5% of
gross domestic product) and public debt (more than 40% of GDP) mean we are not
in their company.
Enter Thatcher. She once famously said: "The problem with socialism
is that you eventually run out of other people’s money to spend." Here,
Nene is spoilt for choice. South African Airways has guzzled at the taxpayers’
feeding trough and now cannot publish its results unless it gets further state
aid. This is despite, perhaps because of, its addiction to bail-outs. In the
estimates of opposition MP Natasha Michael, the airline has received, over the
past two decades, "R16bn in bail-outs and has been subject to nine
turnaround strategies in 13 years". Further state assistance, she
suggests, would be tantamount to "madness". Perhaps professional
aviation and commercial management would be the ticket, but, like Thatcher, any
suggestion of reviewing or cancelling the ruinous cadre deployment strategy is
off limits. There was something rather touching, were the track record not so
disastrous, in the proffered solution of Public Enterprises Minister Lynne
Brown to the almost across-the-board rot and ruin at state enterprises.
"An interministerial task team has been meeting for months," she
said. Well, that should help.
I went this week to visit Nene in his Pretoria office. I was reminded
that he is down to earth, has a realistic appreciation of the enormous
challenges, surrounds himself with smart advisers and actually goes around the
country, from boardrooms to the factory floor, to get a proper appreciation of
the real economy and its ailments.
But if Nene is admirably grounded, many of his ministerial and party
colleagues seem to derive their assumptions from the realm of science fiction.
In the movie Star Trek, the laws of nature are different, and its citizens
inhabit a parallel universe where the laws of motion and gravity do not apply.
Our local inhabitants of this charmed planet are to be found everywhere. ANC
policy head Jeff Radebe has decreed that the most important issue facing SA is
the "power of monopoly capital". Given that the Post Office has not
delivered letters for the past month and Gauteng residents are crippled by
water and power cuts, evidence here on planet Earth suggests he could look
closer to home, and inside his government, for the real challenges.
Another star of the parallel universe is ANC secretary-general Gwede
Mantashe, who advises that the lack of investment by the private sector is
evidence of a "lack of patriotism". Back in the real world, it
relates to a lack of confidence and the failure of the government to provide
investor certainty. The least vulnerable emerging market countries are those
that used the fat years to improve poor business climates. We have gone in the
opposite direction.
Nene’s speech will perhaps reveal that, contrary to sci-fi movies, the
laws of gravity do apply, and you can’t defy them forever.
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