Insights

PETER ATTARD MONTALTO: The sound of screaming in run-up to elections

July 31, 2023
Insights

In case it isn’t yet obvious — the pre-elections madness has already started.

Blame the Reserve Bank — tick. Blame the big banks — tick. The ANC has decided it’s a separate entity to the people in government and lashing out — tick. Blame the colonialist Western imperialist overlords for everything including load-shedding — tick. Facts are warped as necessary to fit whatever the narrative of the day is — tick.

This happens in every election cycle. We are still six months away from manifesto launches and probably seven months away from proclamation — but it’s all systems go. The ANC national executive committee is in full election mode discussing manifestos and strategy, the deputy president is convening coalition framework legislation workshops with all parties, and informal coalition talks have already started bilaterally between the main parties.

Presidential imbizos are taking place around the country and ministers are out and about “inspecting” things at quite a pace.

Yet if you stand outside Luthuli House and press your ears against the decals of struggle heroes at the front … you will hear the sound of screaming.

It’s a big mistake to think the ANC doesn’t know what’s going on, or what is coming down the road — that would be far too easy a get out of jail free card. There is, of course, the prioritisation of other issues, lack of capacity and (a favourite of this column) just a completely different sense of timescales in a crisis. But that is not the same thing as not knowing.

This is why an election is so interesting. It cannot be delayed, forgotten about, or just done when one gets around to it. It comes at you like an inevitable wall of certainty.

As an aside of course there is some small amount of wiggle room for the optimal date next year — a tension between the 30-year anniversary of universal suffrage, and the seasonality of load-shedding — there isn’t really a right answer.

The original plan was that the budget would have sufficient wiggle room in it to extend the social relief of distress grant to offer a smattering of small election baubles at the medium- term budget policy statement (MTPBS), and then if growth was looking better in the year ahead and load-shedding coming to an end (hmm indeed), then the budget in February could offer more significant baubles.

Deep shock

A deep shock has now crystallised into the fiscus and this pathway through the elections is no longer available. It’s important to note that no other election had this issue.

The year 1999 was just before the rand crunch, 2004 was a boom and 2009 saw room for countercyclicality in the global financial crisis given debt levels were so low, 2014 was an “OK” period for fiscal before the destruction on the economy of state capture was wrought (though countercyclicality was being pushed beyond its limits already), 2019 was about overoptimism on growth recovering into fiscal and so we are here now today.

SA, of course, has stood out among emerging market peers in not having an electoral-fiscal cycle of loosening. Instead, there is a small smattering of spending baubles and, yes, some hard decisions, often delayed, on expenditure and revenue.

Put simply, there has never been a major crunch into an election before. We also have not had elections before with this kind of dysfunction.

Reassurances by finance minister Enoch Godongwana about the expected fiscal strategy were given at the start of this year at the ANC’s lekgotla, and in a similar way electricity minister Kgosientsho Ramokgopa has reassured with a high degree of certainty that load-shedding could be ended by the elections at various ANC NEC meetings earlier in the year.

Hence the screaming now as reality dawns.

Both issues should have been obvious earlier in the year. At the time of the budget, we were already sounding alarm bells that despite a higher nominal GDP forecast than Treasury (a larger tax base) we were coming in about R32bn below them for revenues. The latest data for June suggests that revenues for this year are far worse — this being a key month for corporate tax take, and revenues for the full-year will come in about R99bn below the budget estimate or about 1.8% of GDP — this is huge.

The cost of corporates to mitigate load-shedding as well as the turn in the terms of trade cycle and general slower growth from power outages have all hugely weighed. There is no room for any real baubles now and the Treasury is trying to push departments and entities to make huge cuts into this MTBPS — most of which is likely not be politically possible.

We have always moaned about the cabinet’s inability in “weak” but “OK” times to make any serious fiscal choices — now will be impossible. It will mean that instead of the 0.9% GDP primary surplus this year we likely end up with a -0.3% GDP deficit and that in the medium run the primary deficit will not reach back to where it needs to be to stabilise debt.

The outcome will be a steeper yield curve and slower growth while the Treasury cuts around the edges and just holds the fiscus on the right side of the cliff edge.

The same is true on load-shedding which continues and will cycle higher into October and then February and then post-Easter next year (assuming demand doesn’t increase — which is a factor most people forget to mention).

Too slowly

The issue is broader though — it would have been easy enough for anyone in the ANC or the electricity minister to run a spreadsheet of new electricity capacity supply and demand and look at the gap and how it moves. There is simply no way any such effort would have told anyone that a call to end load-shedding before the elections had any credibility — unless of course you simply took various reassurances about the energy availability factor (EAF) at Eskom at face value and magically everything adds up.

Solid progress on reforms is being made, though too slowly to bear fruit before the elections, and too esoteric to be of much care yet to voters until real world impacts are felt. Equally the test of the ANC’s underlying (relative) fiscal conservatism likely survives another cycle.

Perhaps it is this underlying conflict of a deep inner conservatism on fiscal combined with expectations mismanagement which is leading to the angst. The screaming in private will lead to more lashing out and fact checkers will have to be at the ready.

It’s time to buckle up — the roller-coaster ride has already begun and the cycle calmness of the ANC in previous elections is not going to be quite the same this time.

• Peter Attard Montalto leads on political economy, markets and the just energy transition at Krutham.

This article first appeared in Business Day.