Analysis: Cautious Gordhan keeps SA on the straight and narrow

Just a fortnight after the chaotic conclusion of South Africa’s State of the Nation Address – an unseemly melee involving security guards, opposition MPs and pepper spray – politicians of all parties proved a model of good behaviour as they sat quietly for Pravin Gordhan’s budget speech yesterday.  

The respectful hearing afforded to the finance minister – in stark contrast to the barrage of invective faced by President Jacob Zuma two weeks ago – partly reflects Gordhan’s well-publicised running battles with his boss. Yet it’s also a reflection of the honesty that the minister brings to the chamber through his frequently downbeat updates on the country’s precarious financial position.

Not for the first time, the finance minister offered a sober assessment of recent economic performance under the ANC. Arguing that the country was ‘again at a crossroads’, Gordhan said that economic growth was too slow, unemployment too high, and that further tough choices lay ahead. Perhaps it could not be otherwise after a year which has seen South Africa wracked by political instability, repeatedly threatened with a credit ratings downgrade and facing the tail end of a rough commodities market.

Yet despite the brutal environment, Gordhan’s prudent fiscal strategy of balancing spending restraint with crucial service delivery appears to be delivering modest gains. Growth, brusquely dismissed as “too low and highly inadequate” by the finance minister, will improve to 1.3% in 2017 and continue on a moderate trajectory thereafter. While it remains a long way off the 5% annual growth which the country needs to bring down unemployment of 26.5%, it remains a decent improvement on this year’s dismal 0.5%, helped along by a strong services sector performance.

Other green shoots emerged during the speech. Gordhan argued that the government had stuck to its annual expenditure target, while improving patchy electricity supply issues. The rand is no longer in freefall, with the currency hitting an 18-month high against the dollar in mid-February, a boon for importers.

Yet threats to the nascent recovery loom large. Sluggish regional growth continues to weigh on manufacturing exports. The crucial mining sector, while enjoying a tentative upturn in the world commodities market, nervously awaits the March imposition of a long-awaited industry charter which could weigh on investment flows. Both sectors shed an estimated 80,000 jobs in the last year.

And while the finance minister’s job appears safe for now, having survived legal probes and a fierce political fight over his future, his room for manoeuvre remains limited. The long term ambition of reforming state corporations continues to provoke the ire of vested interests, while his bid to extract further tribute from the country’s highest earners with a 45% top tax rate may not be enough to placate the ANC’s increasingly noisy populist wing.

Besides, economic policy is likely to take a back seat in the months ahead as ANC factions jockey for influence ahead of the party’s elective conference, where a successor to Jacob Zuma’s chaotic presidency will be chosen. While Gordhan may look forward with relief to the replacement of his old foe, months of potentially bitter politicking within the movement could play havoc with a busy reform agenda.