South Africans are notoriously bad at saving, according to conventional wisdom, which routinely berates us for spending as least as much as we earn, and often more. For that, we have an entire industry whose sole business is bailing out individuals with “payday loans” that see the hapless borrower through to the next salary day.
These “loan sharks” perform an invaluable, and no doubt lucrative, service to people who find themselves without the wherewithal to get to payday. Many of them rely on social grants, which are no sooner paid out than they are repaid to their loan shark of choice.
It’s not an ideal situation, in that the admonition to “save for a rainy day” is largely forgotten in the attempt to put some food on the table.
Now, it seems, the government itself has fallen into much the same trap as thousands of other households, having to dip deeply into our national savings simply to pay the rent.
This week, finance minister Enoch Godongwana did just that when he tabled a budget in parliament that is part pavement card trick and part optical illusion — to wit, he raided the Reserve Bank’s gold and foreign exchange contingency reserve account (GFECRA).
However, unlike the payday loans used by many ordinary citizens, this particular “loan” has been advanced without a payday anywhere in sight. This is largely because the South African economy shows little sign of growing on a scale that would obviate the need for a financial leg-up of a most unusual kind.
Godongwana’s pavement card trick lies in his ability to conceal the realities and soften the blow of a low-growth environment (while not being shy to admit that sad reality, if not the cause of it) by taking R100bn from GFECRA to help pay off debt. This, the government hopes, will put the country on a lower debt-to-GDP trajectory. Looking at the figures, that seems to be the case.
The idea of drawing down on the GFECRA, valued at R459bn, seems to have its genesis in the Covid-19 era, when the government unlocked funds from the Unemployment Insurance Fund to help people who had lost their livelihoods.
For left-wing economists and commentators, using the government’s ample resources to fund social expenditure was labelled “progressive”. Most importantly, it undermined the “austerity drive” and belt-tightening initiative the government attempted to introduce after the Treasury alerted it to looming bankruptcy at the infamous gathering at Spier wine estate late in 2023.
The [gold and foreign exchange contingency reserve fund] withdrawal of R250bn has allowed Godongwana to score ideological points among those of his party colleagues who are eager to dump neoliberalism in favour of populist nostrums perceived to be more attractive to voters
For the Left, raiding the GFECRA seemed the next logical step, inasmuch as such raiding suggests the commitment to so-called neoliberalism is wearing thin. Here, at last, was the big, caring state in action, unafraid to challenge head-on the grim austerity path on which we’d been headed, and which was seen to be doing the country so much harm.
Clearly, the government is in a bind, as its founding promise to the people was a better life for all — but only to the extent that neoliberal economics allowed.
The “debate” over South Africa’s neoliberal path had raged before the events of 1994 had put ANC brass in charge of the Reserve Bank and the Treasury. With the convenient upending of the interventionist reconstruction and development (RDP) programme in 1996, South Africa reverted to neoliberalism, marked by prudence and frugality.
Since then, a battle has raged between those who embrace neoliberalism and those who advocate a more expansionist approach. At one point, former president Thabo Mbeki, whose presidency represented the high-water mark of the neoliberal project, was said to head a government that “hated the poor”.
Parallel to this guerrilla warfare over economic policy conducted during the Mbeki era, the country experienced high levels of growth and rising employment.
The arrival of the populists, when former president Jacob Zuma prevailed over Mbeki at the ANC’s Polokwane conference in 2007, was interpreted as a new front in the battle against the neoliberal project. The election of Zuma over Mbeki also signalled to the populists that the long-awaited death knell for neoliberalism had been sounded.
It didn’t help Zuma or the country that his accession to office coincided with the sovereign debt crisis of 2008, which also heralded the age of the bailout. In the citadel of capitalism, the US, bailouts to banks and the motor industry were needed to keep those sectors in business. Too big to fail was the mantra, and if the US itself was abandoning the fiscal straight and narrow, who were we to keep the faith, as we did all those years?
Successive ANC conferences, sensing the wind was changing, called for the nationalisation of the Reserve Bank and other expansive monetary measures. They failed at first, but the advent of Covid-19 gave supporters of the generous, big-spending state the opening they needed.
The social relief of distress grant — pegged at R350, with improvements promised in the future — has become a trial run for a permanent basic income grant. While this would be a drain on the fiscus, no doubt, it’s clear to anyone who looks hard enough that this stipend is vital for millions of South Africans.
But this victory for the Left will prove to be a hollow one.
The GFECRA withdrawal of R250bn has allowed Godongwana to score ideological points among those of his party colleagues who are eager to dump neoliberalism in favour of populist nostrums perceived to be more attractive to voters.
In this vein, both the DA and the EFF are promising grants galore should they become the government after elections on May 29, so clearly the clamour for populist solutions is spreading.
The debate over austerity versus a more expansive approach to public finances is certain to rage for many years to come. In the GFECRA, the government has found a new source of funds to bankroll its endeavours and further cement its reputation.
In the careful and dexterous hands of Godongwana, the public may have little to fear from this manifestation of a government that at last has seen and recognised the shortsightedness of austerity. But will another finance minister be as judicious?
Considering that the GFECRA’s value increases as the rand depreciates, will another finance minister welcome a falling rand/dollar exchange rate simply because that will boost the rand value of the fund?
And, unlike those South Africans who pay back their loans on payday, one may ask when South Africa’s payday will come? In other words, when will this or future governments take active and decisive steps to boost the economy and create conditions for investment, both local and foreign? This will require tough decisions that may not necessarily please the ANC’s core voter support in the public sector trade unions.
Why bother with growth when you have a fund to tap to make up the shortfall in revenue and lack of growth? The minister has routinely spoken about the need for growth and the harm being done to the economy by the collapse of Eskom and Transnet. And, of course, he is right.
The Left may cheer as South Africa slays the neoliberal dragon, but in reality all we have done is kick the growth and debt challenge cans down the road.
Godongwana’s budget finesse could be the payday loan South Africa so badly needs right now. So we’ve got the easy cash, but when will payday come, Mr Godongwana?
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