Ramaphosa’s state capture response will be expensive – Where’s the cash coming from?

As South Africans watched President Cyril Ramaphosa lay out the response to the Zondo Commission report into state capture, one thing was abundantly clear; it’s going to cost money to stop the theft of taxpayers’ money through state capture.

Where will we find the money needed for the implementation of Ramaphosa’s response to judge Raymond Zondo’s report?

While Cabinet will have the ultimate responsibility of overseeing the successful implementation of the response, how will actions be prioritised and where will the financial and human resources come from?

These questions lead one to wonder when our ability to service our debt will start to affect government’s responsibility to provide services, while water and electricity services are already collapsing. What will the potential cost of the implementation plan be?

Also Read: MTBPS: Kganyago urges govt to stick to its debt reduction plan

All these questions mean people are eagerly waiting for the Minister of Finance, Enoch Godongwana, to present the Medium Term Budget Policy Statement (MTBPS) on Wednesday, to see if he will say anything about how the state capture response implementation will be financed.

However, prof. Jannie Rossouw, visiting professor at the Wits Business School, warns that we should not expect too much, as everything government does now will be about the ANC internal election in December and after that, the 2024 national and provincial election.

ALSO READ: Opposition slam Ramaphosa’s ’empty promises’ on state capture-implicated ministers

Fund state capture response by cutting costs elsewhere

“Government can fund the implementation of the response by spending less elsewhere, such as spending less on state-owned entities and using the resources that they have already,” Rossouw said.

“One of the main problems that the president skipped was that of cadre deployment where people are deployed regardless of their ability to do the job, which the country will still pay a high price for.”

Rossouw is also worried about the president concentrating all the power in his office.

“If the next president is a Zuma, it will be a major problem and we must think about that now. He does nothing with that power anyway. He also seems to be creating parallel structures of government departments in his office.”

Prof. Bonke Dumisa, an independent economist, says Godongwana will walk a tight rope on Wednesday when he delivers the MTBPS.

“He will be planning for the next three years, but things are looking very discouraging now and therefore he will have to be both an optimist and a pragmatist.”

ALSO READ: Ramaphosa declares the end of state capture, time for restoration

Also deal with Eskom mess and public sector wage bill

While there are expenses that cannot wait, government will have to dedicate some money for the response implementation, but Dumisa says Godongwana will firstly have to deal with the Eskom mess and its R400 billion debt, as it cannot even raise money in the market.

“He will have to come up with an instrument that will avoid further abuse of funds.”

Also Read: Eskom will forever remain the major energy producer in SA, says Ramaphosa

Secondly, Dumisa says, Godongwana will have to deal with the public sector wage bill after the state already committed to a 3% increase, while unionists demand an increase above inflation.

“He has to budget for this, but where will the money come from?”

Dumisa warns that the credit rating agencies can review their credit rating of the country and its entities which are already negative.

He points out that Reserve Bank governor, Lesetja Kganyago, already warned that the bank will have to continue raising interest rates as long as government pushes up the ratio of government debt to gross domestic product (GDP).

“Due to the unions’ influence in the tripartheid alliance, government gave in to demands for a public sector wage increase, but this must stop, otherwise we will become a failed state like Zimbabwe. We cannot push government debt any higher.

“On the other hand, we can also not wish away the 3% increase and the Eskom debt. We must stop raising money for things that do not generate money.”

ALSO READ: MTBPS: Kganyago urges govt to stick to its debt reduction plan

Lack of specifics in state capture response

Louw Nel, senior political analyst at Oxford Economics Africa, says Ramaphosa’s keenly anticipated plan of action disappointed in its lack of specificity, as did his silence on the implicated members of his executive.

“The crucial recommendations and the ones that require Ramaphosa to show leadership, are the 95 recommendations that will require constitutional, legislative, regulatory or operational changes. Successful implementation will require the kind of non-partisan cooperation that has sadly been absent from parliament. Worse still, the legislature has become hostile territory for Ramaphosa and opposition parties might be in no mood to work him.”

Nel says as expected, Ramaphosa is big on aspiration and lofty goals, but lacks specifics in crucial places, such as taking the knife to his Cabinet. The Bureau for Economic Research (BER) at Stellenbosch University, however, made positive comments about the fact that the Investigative Directorate (ID) of the National Prosecuting Authority will become a permanent corruption-busting unit, while rules around the involvement of board members and ministers in procurement decisions of state-owned enterprises will also be strengthened with a new Public Procurement Bill.

ALSO READ: State capture report proves entire ANC was complicit in the rot

More tax revenue?

The BER says that government tax revenue is likely to handsomely exceed the February projection, thanks to higher commodity prices and tax revenue in 2022/23 could exceed the outlook provided in February by more than R110bn (1.5% of nominal GDP).

The MTBPS will lay out how much of the extra revenue will be gobbled up by additional expenditure pressures.

This will include the public sector wage bill which will be higher than the 3% government offered and according to the BER, the revised outlay on the consolidated wage bill could be more than R20 billion for 2022/23 than envisaged in February.

The BER is also concerned about more funds for state-owned enterprises, including Transnet, and whether Treasury provides for an extension of the R350 per month social relief of distress (SRD) grant and, if so, whether there are implicit tax increases provided in the fiscal framework to finance this.

“We expect an announcement on a large (probably around R200 billion) transfer of Eskom debt to the sovereign balance sheet.

“Although this will increase government debt, most investors and credit rating agencies arguably already include this as part of overall debt as the majority of Eskom’s outstanding debt is already government guaranteed,” the BER says.

The bureau says in its view, gross government debt for 2022/23 could rise to roughly 73.5% of GDP versus the 72.8% Treasury expected in February.

“A debt transfer should go a long way towards ensuring Eskom can return to private capital markets to finance much-needed operational/capex expenditure. Therefore, investors should welcome it.”