Monthly Archives: October 2016

Politics may trump mini budget

By Rafiq Raji, PhD

South Africa’s finance minister Pravin Gordhan delivers the medium-term budget policy statement (MTBPS) – “mini budget” – on Wednesday (26 October). Mr Gordhan has the unenviable task of persuading market participants that South Africa would remain on the path of fiscal consolidation. He would probably raise the corporate income tax rate, some suggest. Higher personal income tax for the wealthy and a new wealth tax may also be on the cards. Crucially, his views on putting state-owned enterprises on a sustainable path would be of keen interest. That is, even as he increasingly has less clout with them. Recent events, like the ‘FeesMustFall’ protesters’ demand for free education for all, suggest that even if Mr Gordhan were not facing pushback from President Jacob Zuma and some of his cabinet colleagues, he would still have a tough time fulfilling any fiscal consolidation promises. That is, if he remains long enough on the job to see them through. In any case, the authorities have already agreed to foot the bill of any university fee increase – peaked at 8 percent – for the 2017 academic year, about 2.5 billion rand ($180 million). Bear in mind, some 300 billion rand ($21.5 billion) was allocated to education in the 1.46 trillion 2016/17 budget, almost twice the allocation to health. The MTBPS and future budgets would likely need to allocate even more, if current agitations escalate: the ‘FeesMustFall’ protest might only just be the beginning, and could instigate other protests, more decent mass housing for instance. And there has been some sort of incrementalism by the student protesters in any case; seeking a reduction of varsity fees at first, then asking for free education for all and subsequently asking for decolonised education. Nonetheless, the ruling African National Congress (ANC) party could resort to populism to make up for losses it suffered at the local elections in August; even though I think the results do not require that it should: South Africans just want better service delivery.

Fiscal targets may be missed
The finance minister would expectedly set ambitious fiscal targets. Still, he would probably make upward revisions to the budget deficit projections he announced in February. Then, he set deficit targets of 3.2% of GDP for the 2016/17 fiscal year, 2.8% for 2017/18 and 2.4% for 2018/19. In my submission to Reuters, I suggest he might make revised deficit projections as follows: 3.5% of GDP for 2016/17, 3.0% for 2017/18 and 2.5% for 2018/19. Current trends and what they portend for the fiscal outlook do not support such optimism, however. My forecasts – published in September – for the likely actual levels of the budget deficit is 4.0 percent of GDP for the 2016/17 fiscal year, 3.8 percent for 2017/18 and 3.5 percent for 2018/19. The budget deficit was 16.7 billion rand ($1.2 billion) for August – the penultimate month before the end of the first half of the 2016/17 fiscal year, more than double the amount for the same period in the previous year. Mr Gordhan has no illusions about the current harsh realities, even as he remains optimistic, opining just last week that South Africa could still avoid a credit rating downgrade to junk status this year.

Politics won’t go away
Mr Zuma wants Mr Gordhan out of his cabinet. A pliant replacement might not be as fiscally responsible. Still, the president’s cabinet came all out in support of the embattled finance minister last week, after its members from the defunct armed wing of the ANC earlier took turns to deride him. Mr Gordhan is to be arraigned on fraud charges before a court on 2 November. In an unprecedented show of support, about 80 chief executives of leading South African companies have announced plans to be in court on the day. It also emerged that the prosecutor, supposedly independent, met with Mr Zuma a day before charges were brought against Mr Gordhan. If South Africa’s credit rating is downgraded to junk status in December, Mr Gordhan would almost certainly be removed. If the country is twice lucky – a downgrade was averted earlier in the year, the embattled finance minister may keep his job. But the question is this: which is more important for Mr Zuma: Getting Mr Gordhan out or averting a rating downgrade? Unfortunately, they are probably mutually exclusive. Hitherto, I thought it totally irrational that for the second time, Mr Zuma’s loyalists have tried to unsettle Mr Gordhan ahead of a crucial budget. Regardless, there are other ongoing battles within the ANC. The battle for the succession next year is already in full swing, with cadres already taking sides. There has not been a week in recent months when one controversy or the other relating to rifts within the ANC did not come about. Just this past weekend, the ANC’s chief whip in parliament, Jackson Mthembu, suggested the entire leadership, including himself, should give way for new hands, after having failed South Africans, in his view. Bear in mind, Mr Mthembu is responsible for keeping erring cadre MPs in line. Ratings agencies see these events and likely wonder how long the centre would hold.

The likely scenario I am increasingly convinced would play out is that Mr Zuma would remain in office for the remainder of his term. I also think he would see the back of Mr Gordhan, probably by a likely cabinet reshuffle before the end of the year. So even though I doubt Mr Gordhan would stay long enough to implement the likely ambitious targets he’ll set in this mini budget, he could at least take comfort in the knowledge that his efforts contributed in part to the improved but yet uninspiring growth outlook and continued market interest – albeit cautious – in South African assets, especially its debt in light of recently successful foreign borrowings. It must be said though that despite all these troubles, South Africans still have a lot going for them. Their budgets are presented as and when due, a finance minister can challenge a president, an anti-graft agency can be a thorn in the flesh of a sitting head of state, and a woman may become president and still keep her place in the kitchen and other rooms.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/politics-may-trump-mini-budget/

Advertisements

In the name of the law. And the spirit?

By Rafiq Raji, PhD

The judiciary in Africa’s largest economies, South Africa and Nigeria, have been in the spotlight lately. The controversies border on law. The rule, and the spirit; in the Nigerian case especially. Is following the rule of law enough? Or should its spirit not be equally abided by? But who determines that? Last week, Nigeria’s spy agency conducted midnight raids on senior judges in a manner bordering on the dramatic, allegedly carting away cash in local and various foreign currency denominations. In the same week, longsuffering South African finance minister Pravin Gordhan, was issued with court summons on fraud charges. It was a new twist to his continued harassment by supposed allies of the country’s president, Jacob Zuma; ill-timed in any case: Mr Gordhan is slated to present the country’s mid-term budget in about two weeks. His proposals would be crucial to persuading rating agencies not to downgrade the country’s credit rating to junk status in December. They have probably had enough regardless.

Judge the judges
Nigerian judges can be prosecuted. Erring ones have generally gotten a slap on the wrist, some argue. Understandably, the legal establishment is in utter shock. They argue the ‘gestapo’ fashion of the raids and arrests was reminiscent of the dreadful military era; and even then, judges were generally left alone. I have no reason as yet to believe President Muhammadu Buhari’s fight against corruption is not sincere. Still, the manner of this latest event is quite concerning. Mr Buhari should probably be reminded that not so long ago, when he didn’t enjoy the company of bag-pipers serenading his steps, it was the judiciary that offered him some semblance of hope.

One of the embattled judges, Justice Adeniyi Ademola, alleges he is being victimised by the attorney-general, Abubakar Malami, for once ordering his arrest and detention for misconduct when he was a private lawyer. Granting bail to former national security adviser, Sambo Dasuki, undergoing trial on corruption charges, did not go down well with the security establishment, he alleges further. No warrant of arrest was shown to him when he was taken, he says. The senior jurist asserts any purported confession signed by him was done at gunpoint and has asked for the permission of the country’s chief justice to sue the spy agency. Another, Justice Nnamdi Dimgba, alleges his arrest was because of past rulings against the spy agency. He also alleges no search warrant was presented before the raid on his residence.

Nigerian authorities say they followed due process. The National Judicial Council (NJC), the highest judicial governing body, asserts they did not; maintaining the law requires the security services to first inform it of any planned action against a judicial officer. Some senior lawyers and judges that have spoken on the issue argue there was no violation of law, however. With proper documentation, judges can be arrested and their homes searched, they assert. What about the spirit of the law, some ask. What about the constitutionally guaranteed right to dignity, others opine. The courts would ultimately decide who is right I suppose. But then, who are those in charge of the courts?

Clear your name
President Zuma has proved to be a fast learner. After this latest move against Mr Gordhan by the prosecution authorities, he was quick to come all out in support of his finance minister. No one is fooled. There is now no doubt that there is serious infighting going on inside the ruling African National Congress (ANC) party. The gloves are off certainly. ANC grandees who want Mr Zuma out are no longer being politic. Trevor Manuel, another influential former finance minister, is mobilising leading politicians and business people for his ouster. Mr Gordhan, it turns out, also has a few poisonous arrows in his quiver. The very resilient man and politician, Mr Zuma, may disappoint them yet again. At stake for Mr Zuma are a myriad of corruption cases that just won’t go away. Also, Mr Zuma is desirous of ensuring when he completes his term as ANC president in 2017, his allies would still be well-placed in the party. That way, he is able to continue wielding influence until his term as the country’s president expires in 2019.

Ultimately, it is believed Mr Zuma wants his ex-wife, outgoing African Union chairperson, Nkosazana Dlamini-Zuma, to succeed him as ANC president, thereby giving her a good enough shot at the highest office in the land. He reckons she would protect him when he is out of office. Her rival, Deputy President Cyril Ramaphosa, is already garnering support from influential labour unions. Business leaders have also not hidden their preference for the former labour leader turned billionaire businessman and savvy politician. Mr Gordhan’s troubles are partly because he is reckoned to be allied with Mr Ramaphosa. The other reason is that Mr Gordhan is a little bit too influential to Mr Zuma’s liking. The treasury, ordinarily one of the most powerful department in the South African government, with its role and independence guaranteed by the country’s constitution, is virtually now a ‘government within a government’ because of the tremendous clout Mr Gordhan carries with global market participants. With this latest move by his opponents however, he has to clear his name.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/in-the-name-of-the-law-and-the-spirit/

Time for Hailemariam to lead

By Rafiq Raji, PhD

With an economy set to grow by more than 7 percent over the next few years – after about 10 percent on average over the past five, Ethiopia is a bright spot on a continent beset by stagnation as commodity prices remain tepid. Its growing success in replicating China’s manufacture-for-export model is a source of hope for peers and partners who desire an Africa that adds more value to its resources. Cheap labour, ample power generation capacity in view, and generous investment incentives are major attractions. Still, much of what Ethiopia has been able to achieve can be traced to its stable polity, held so by an autocratic leadership that has little tolerance for the slightest dissent. Erstwhile forceful leader, Meles Zenawi, was able to hold things together, because of his credentials. He led the rebellion that freed his countrymen from the much loathed Derg military regime. Under a more genteel leader, Hailemariam Desalegn, that model has become increasingly tested. Most recently, albeit intermittently hitherto, an uprising by the Oromo and Amhara tribes – about two-thirds of the population – over land and basic human rights threatens to unravel the country’s economic miracle. It need not be so. The most recent casaulties of the face-off with authorities are more than 50, adding to about 400 believed to have been killed since 2015 under similar circumstances. About 40,000 jobs are now at risk, after protesters attacked foreign-owned establishments. For Ethiopia’s economic success to continue, the politics can no longer be ignored. Room has to be made for the quite diverse polity. Mr Hailemariam has a chance to do this. But to succeed, he would need to be his own man.

Address the concerns
The Oromo and Amhara peoples feel marginalised by the ruling minority Tigray tribe, about 7 percent of the population, which dominates the government and military. The authorities have met their agitations with brute force. This approach worked in the past, on the surface at least. Not this time: this recent unrest was triggered precisely because of the authorities’ heavyhandedness to what are widely believed to be legitimate concerns. The troubles this time could be potentially more damaging than past ones: foreign investors are being targeted. Lingering terrorist threats from neighbours are daunting enough; add unrest by a majority of the population, and you have a combustible mix. And the protests are growing nationwide; these are not isolated and distant pockets of dissatisfaction. It is widespread. And they could spread even more. Solution then? Address the concerns. The Oromo want more self-determination. The Amhara likewise. Authorities might be quick to point out that the country operates a republic of semi-independent states, with enormous leeway guaranteed them in the Constitution, including the right to secede. That is not the case in reality. There needs to be more inclusion. A devolution of actual powers to the regions might be a good start.

Allow more room for dissent and political expression
It was always going to be a huge task for Mr Hailemariam to fill the shoes of his larger than life predecessor – Mr Zenawi had a force of personality that is palpably missing in his successor. Already perceived to be weak, he likely fears those views could become entrenched if the current unrest is treated with kid gloves. Still, Mr Hailemariam has an opportunity here. It is in time of crisis that leaders often emerge; tested at least, in a manner that cements their authority to the point where they are able to make bolder moves. The longer the Oromo and Amhara protests and deaths continue at the hands of the security forces, the more hardened the protesters would get. And now they may have caught on to the one thing that would get the attention of the ruling elite: targeting foreign investors. If there is anything that has made the autocratic leadership tolerable, it is the veneer of stability it has engendered, the type investors crave. They have shown that confidence with their pockets, pouring money into manufacturing and agriculture. Ethiopia has the only other light railway mass transit system in sub-Saharan Africa outside of South Africa. And only just recently, it opened a Chinese-built railway to Djibouti, whose seaport it relies on. Its development-before-democracy paradigm faces its toughest test yet. Just as foreign investment gains have come about by the authorities’ strong grip, their reluctance to adopt a more democratic approach may be what unravels them. And frankly, a desire for equity by a genuinely aggrieved people is not farfetched. Land sold to foreign investors should be well compensated for. Locals should be given greater consideration in employment. And there should be a preference for dialogue over coercion. The Oromo and Amhara are too numerous and determined to be put to rest by force. The authorities must engage them and find a solution that is acceptable within the bounds of reason.

Tough love by powers could help
Democratic reforms would be easier under Mr Hailemariam. But to fend off likely resistance from the Tigray elite that dominates the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF), his hand would need to be strengthened. He is not Tigray. Neither is he an Ethiopian orthodox christian. World powers have leverage: about $3 billion in aid. The United States has already raised significant concerns. Together with others – German chancellor Angela Merkel visits this week, they should engage the leadership, making the point that the protests provide a unique opportunity to finally embark on much needed democratic reforms. The Oromo and Amhara are likely to be less agitated if they believe they are able to participate in the democratic process. Not the charade midwifed by the authorities hitherto: how is it that not a single seat in parliament is occupied by an opposition party? Ms Merkel has refused an invitation to address the ‘lawmakers.’ She plans to speak to opposition parties though. Fact is, it is when people feel stifled and find no means to exert their opinions that they resort to insurrection. True, the minority Tigray worry if they did that, they could be overwhelmed. That is often not the case. And even so, they might have little choice now that more than half of the population has had enough. And in this age of instant news and social media, it would be foolhardy for the authorities to think that they could quell yet again another uprising with force. A state of emergency has been declared. Sadly, the authorities may yet learn a lesson.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/time-for-hailemariam-to-lead/

#FeesMustFall protesters must negotiate

By Rafiq Raji, PhD

Quality higher education cannot be free
Students at South African universities have been engaged in protests, sometimes violent, over the past two weeks or so. Why? They want free education, an escalation from earlier demands that ranged from a freeze in school fees to a reduction. Earlier agitations seem meek now with the benefit of hindsight. Security personnel reacted forcefully when the protests turned violent, firing rubber bullets and on one campus, throwing stones at students. Their heavyhandedness has been criticized. And rightly so. Still, how is it that destroying the very facilities needed for the education you are fighting for benefits you? I am glad all sides are admonishing restraint. More fundamentally, it is important to note that the grievances expressed are genuinely felt. It is true that university school fees are out of the reach of most students. And some poor students who manage to afford the fees – with government assistance in any case – end up struggling to survive, with negative consequences for their studies. When the protests turn violent however, they diminish the prospects that these genuine agitations might force authorities to increase the necessary consideration for poor students. At the beginning of the year, South African president, Jacob Zuma, set up a commission headed by a highly respected former judge, to consider the feasibility of fee-free education. With its report only due in 2017, students have become impatient. Considering the many demands on the fiscus, expectant students may be in for a major disappointment. There is just no way the authorities could provide free education for all South Africans. But for the poor? Those are worth considering at least. Mr Zuma has called a stakeholders’ meeting for this week (3 October).

Poor should be able to go to varsity if they qualify 
There should not be any South African who is not able to enjoy the privilege of quality higher education just because he or she is poor. That is, those that manage to gain university admission in the first place. True, the National Student Financial Aid Scheme (NSFAS) is designed to do just that. That is, provide financial aid to poor students who are able to secure a place. It is well known that students rig this process in any case: some students identify a poorer relative as their guardian so as to qualify for the government-backed student financial aid scheme. Still, it is often overlooked that the major problem is actually not so much the high fees, but that many South Africans, the black and poor ones especially, cannot get into varsity. And sometimes the ones that manage to get in struggle to cope tremendously. Not just financially, but academically. A wholesome approach is required.

Mobilize student majority that wants a negotiated solution
Students at my alma mater, Wits University, voted overwhelmingly – via an SMS poll conducted by the authorities – for classes to resume this week; after about two weeks of intermittent protests that turned violent, forcing authorities to stop classes. This is evidence the majority desire a negotiated and peaceful resolution to the crisis. Classes which resume this week would put that to test. Even so, the major issue that is not enjoying the attention it deserves is university funding. Higher institutions currently get funding from government (grossly inadequate), grants, higher fees from executive programmes and foreign students, and so on. Regardless, they have proved insufficient. There is a need for increased government funding certainly. Treasury officials would be quick to say they are trying to bring down the fiscal deficit. Students would argue that it is not so much increased spending that is required as it is a re-arrangement of priorities. Government officials are probably overpaid some would argue. Some planned capital expenditure are needless in any case, the proposed nuclear build for instance. More importantly, if the authorities are determined to find a solution, they would find a way. But to think they could quell with force what is really a long-brewing agitation would be a mistake. Firstly though, student representatives have a responsibility to mobilize what seems like the majority of students who want a negotiated solution. And they must not allow the few errant ones amongst them inclined towards violence jeopardize the future of thousands of innocent students.

Finish the academic year no matter what
If you have ever experienced the anxiety and toil of a student on the final lap of his academic ‘odyssey’ you would know the terrible anguish some are going through at the moment. It would be a great injustice to them if they are forced to cough out more resources for programmes they had been relieved to think were finally about to be concluded. I don’t even want to imagine the troubles that international students and the part-time ones are experiencing at the moment. Apart from the higher fees they pay, they often have to stay at expensive ‘bed and breakfasts (B&Bs)’ for the duration of their stays. The longer these protests continue, the higher their expenses, a lot of which now they didn’t budget for. Some would probably be stuck or need to borrow money to stay longer in the hope that classes would resume. Some would simply return home so as not to run the risk of being stranded or having no money for upkeep, an untoward experience one would not even wish for an enemy. Bottomline, it is in the interest of everyone for calmer heads to prevail. What is going on at the moment is not in anyone’s interest. Parents and guardians have made fervent appeals for the academic year to be concluded as planned. They should probably start with their wards.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays). See link viz. http://www.businessdayonline.com/en/fees-must-fall-protesters-must-negotiate/