Magda Wierzycka: Treasury has outsourced SA’s economic decision-making to Zuma

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Cape Town – The worst thing about the mini budget that Finance Minister Malusi Gigaba delivered on Wednesday was his admission that National Treasury has no control over government spending, said Magda Wierzycka, the founder and CEO of fintech firm Sygnia on Friday.  

Speaking to guests at a lunch hosted by the Cape Town Press Club, Wierzycka warned that National Treasury under Gigaba had oursourced economic decision-making to a ministerial committee under President Jacob Zuma.

“It is no longer a function of National Treasury. That function has been outsourced to Zuma and that is absolutely terrifying,” she said. 

In his mini budget speech on Wednesday, Gigaba said a presidential task team is examining ways in which the country could avoid puncturing its expenditure ceiling by R3.9bn.

The finance minister also thanked the “presidential fiscal committee” for its advice in drafting the budget. 

Minister in the Presidency Jeff Radebe, meanwhile, will henceforth oversee the process of prioritising spending – a function that used to lie solely with National Treasury. 

Wierzycka believes this could signify a hijacking of National Treasury’s financial decision-making authority. 

READ: Govt denies rumours of ‘super presidency’ taking over budget process 

“So National Treasury has absolutely no control over government spending – none,” she said. “It cannot control Zuma, or the provinces, or the government.” 

Turning to the content of the budget itself, Wierzycka said the situation was not as dire when former finance minister Pravin Gordhan presented the budget in February.

“In fact, we were on the road to recovery, but now we are facing a completely and dramatic downgrade in revenues, reflected in the shortfall in tax revenues,” she said. 

Gigaba projected a tax revenue shortfall of R187bn over the next three years, and R50.8bn in this financial year.

“That shortfall is a function of low growth when the rest of the world is growing at a rapid rate. At 27.7% we have some of the highest unemployment in the world with 65% unemployment among youth. We have low consumer spending.

“What does that mean? We have to borrow more just to fund the running of the economy and we’ll be taxed more,” she said. 

Wierzycka said government would likely find “creative ways” of raising taxes in February. “And I think when the February budget is presented next year, we’ll start seeing a tax revolt. Literally. Unless things change in December (when the ANC elects a new leadership).”

READ: Tax revolt may be brewing in South Africa  

The ANC will be electing new leadership at its 54th National Conference, which will take place in Gauteng between December 16 to 20.

Ratings downgrade? 

Like a number of economists and analysts, she believes that South Africa stands a good chance of seeing its credit rating downgraded further in November.

“Standard & Poor’s said they want to see fiscal consolidation and expenditure management and they want comfort that SOEs (state-owned enterprises) are managed properly.

“But instead we have the SAA bailout, we have the Post Office bailout and a looming crisis at Eskom,” Wierzycka said, adding the bailouts go against everything that S&P wanted to see to not downgrade SA’s sovereign credit rating. 

“Moody’s wants to see adherence to expenditure ceilings. So Gigaba stood up and said: ‘Not gonna happen, people.’ In fact, we’ve now breached the expenditure ceiling. And Moody’s wants to see a growth plan. Any mention of a growth plan in the budget? Bugger all,” she said. 

Both S&P and Fitch have already expressed their “shock and horror” about the mini budget, she added. “They knew the situation was bad, but they came out the day of the budget and said they didn’t expect the situation would be as bad as that.” 

READ: Gigaba’s budget a ‘red flag’ for ratings agencies – analyst 

A further credit rating downgrade would mean “massive outflows” from the bond market, Wierzycka said.

She said that South Africa would exit important indices, such as the World Government Bond Index (WGBI), if it were further downgraded.  

“That means all those asset managers who track WGBI have a three-month period in which to sell our government bonds. It means our interest rate costs will increase, and our cost of debt will increase exponentially.” 

The solution was, among other things, strong political decision-making, Wierzycka said. “But do we have it? No, we don’t.

“Instead we have a mining minister who has produced a mining charter deliberately designed to stunt any future investment in the mining industry. We have a newly appointed Energy Minister (David Mahlobo) with a nuclear energy addiction rather than going for renewables because (Russian president Vladimir) Putin doesn’t take refunds.”

Reshuffles 

In Zuma’s latest cabinet reshuffle – his second in just seven months – Mahlobo, former state security minister, was appointed to the Energy portfolio, which some understood as a means to fast track South Africa’s nuclear build programme. 

“We have a Minister of Public Enterprises (Lynne Brown) doing absolutely bugger all about Eskom. Just look at the (Matshela) Koko inquiry. And now the centre of economic decision-making has been shifted to the presidency.” 

(Suspended Eskom executive Matshela Koko’s disciplinary hearing has been postponed to November 23, after only two witnesses have testified so far.) 

Wierzycka said her so-called “low road scenario” for South Africa is one in which a parallel security state has come into play, which is capable of rigging elections, intimidation and of murder.

“We’re already witnessing this in KwaZulu-Natal,” she said. “And a state in which corruption has become a way of doing business. We’ve seen it with KPMG, McKinsey, SAP and Bell Pottinger and there are more names to come. Some will shock you.” 

In July this year, Wierzycka ended Sygnia’s business relationship with KPMG SA, after meeting with the auditing firm and not receiving satisfactory answers over their auditing of Gupta companies.

She told Fin24 at the time that, if the bottom line of a company were affected, it would be more likely to think twice about its actions in the future.

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