It's no secret that I'm not Zuma's biggest fan (only Gwen Stefani can be crazy enough to call her newborn child "Zuma"). I believe the ANC in its current shape is a serious threat of bringing SA in a politically (and economically) very unstable position. The ANC tried to soothen the emotions last Friday by stating:
"Our continued political stability therefore depends on the vigilance of political parties, social leaders, the trade union movements, institutions monitoring democracy as well as ordinary citizens who stand to lose the most should our stability be compromised,"
Not convincing to me. The ANC is planning to radically increase the social welfare net; whereas South Africa simply doesn't have the money for this; their current account deficit is already bleeding red. A shortlistof the plans in last week's manifesto:
1. Extension of the 240 R child support grant for an additional four years until a child's 18th birthday. This will add 10 billion R to the existing 100 billion R social welfare budget.
2. An unspecified additional "care-giver's benefit" for mothers. Let's take they will give 100 R a month and assuming 2 million SA mothers, that brings an extra 2,4 billion R to the budget.
3. An undefined grant for young people between 18 and 25 to help them get into the labour market (South Africa currently has an unemployment rate of close to 25%) This could be a version of the job subsidy now being considered by the Treasury at a lmikely cost of 20 to 30 billion R a year.
4. Income support for all adult South Africans, which, if it is based in the basic income grant proposal, would be reversed for working people through taxes. In 2001, the cost of a universal 100 R monthly basic grant was calculated at 48 billion R, of which between 15 billion and 20 billion R would be a cross subsidy from taxpayers. This means a neto state subsidy of between 33 and 28 billion R.
Adding all the above together, the current 100 billion R social welfare budget would go up between 60,4 and 75 billion R. That is an increase of 60 to 75% !
Next to that, the ANC foresees additional expenses:
1. Ensuring that 60% of schools are no-fee centres by 2009. I actually believe this expense pays of as a future-investment.
2. Reducing serious and violent crime by 7-10% a year and reducing the rate of HIV infection by 50% by 2011. Noble but laughable targets considering the crime and HIV state SA is currently in.
3. Implementation of the government's mandatory retirement savings scheem. This would literally make the SA social welfare budget explode (only the old-age grant of this plan would push the bill from 19,4 billion R to 27,7 billion R).
4. One million new houses over the next five years, which roughly matches the delivery rate since 1994.
5. Putting the brakes on the escalating cost of home building, which the government plans to achive by price control or a state subsidy. Yes, you read that right....
Where the ANC plans to find all this money?
"Through higher taxes or increased borrowing". Yeah... right.
Iraj Abedian, chief executive of Pan African Capital Holding, says a programme like this would require economic growth of minimal 6% every year. At the same time, finance minister Trevor Manuel foresees SA growth of just over 3% for the next few years and most ecoomists put the figure at around 2% for the next two years.
The ANC draft manifesto also promises to increase state employment, "shield workers from the devastating effects of the global meltdown by tightening labour protection laws and plouygh more money into health and safety".
The above plans are going to be finalised byu next January; Zuma uses the phrase "continuity and change" when he refers to the plan. I still have no clue where he sees the continuity...
Brait economist Colen Garrow said it was clear that "the populist tilt to the left is definitely under way. The big question is how are they going to fund it".
The message is clear: the above plans will be funded by debt, massive debt. Manuel Trevor warned last week that the days of budget surprluses are over and forecasts that the government would slip into R41 billion next year.
Meanwhile Bloomberg announced yesterdaythat the South African trade deficit widened unexpectedly from 9,8 billion R from 7,1 billion R in September. This shortfal was (much) bigger than the 5,9 billion R median estimate. There is also word that the South Africa Reserve Bank may cut its main interest rate on next December 11th. People like Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg will try to convince you that against all logic "Lower interest rates will have a marginally positive effect on the economy, which could at least stem a possible further decline in the rand"; absurd of course: the SAR will fall when the SA Reserve bank announces a lower interest rate.
“Lower interest rates will have a marginally positive effect on the economy, which could at least stem a possible further decline in the rand,” said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg.
And I forgot that other South African nightmare: South African Airways which absorbed 12 billion R in government support since 2004. Yesterday 25% of the SAA went on strike, costing the South African tax payers 61 million R a day. Now SAA claims that it is "concerned about the image being portrayed to the international community with the Confederations Cup in 2009 and the FIFA World Cup in 2010 just around the corner". A little late in the day for concerns about international image! Nationalization of this flying nightmare is the only option left !
In december I already wrote an article: Zuma: Chavez or Lula? It's becomin increasingly clear now that my fear of last year becomes reality: Zuma inclines towards the Chavez doctrine.
