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Can the SA budget afford #FeesMustFall demands and other social spending? 23 February

Speaker: Patrick Bond
Date: Tuesday 23 February 2016
Time: 12:30-14:00
Venue: CCS Seminar Room 602, 6th Floor, MTB Tower, Howard College, University of KwaZulu-Natal

Wednesday's 2016 Budget is generally anticipated to be an opportunity for Standard & Poors, Fitch, Moody and the financial markets to demand major concessions from South African society, including from university students who in 2015 demanded that #FeesMustFall and who thought they had won after they protested at the last Budget Speech on October 21, and then at Luthuli House and Union Buildings the next two days. But Finance Minister Pravin Gordhan is being squeezed by financiers to cut the budget deficit from its 2016-17 target of 3.3%, and economists have lobbied for lower social grants and a reduction in labour-protecting regulations and exchange controls. Under this pressure, will R35 billion become available so universities can meet student and worker demands? And what about hundreds of billions of rands worth of nuclear energy, coal rail lines, dig-out ports, BRICS New Development Bank start-up capital, the 2022 Commonwealth Games preparations and other mega-projects that are allegedly in the state's funding pipeline? What is the potential shift in the balance of forces required to counteract the power of credit ratings agencies, so the SA state can fund an expansive, job-creating, welfare-sharing, smart-asset-investing economy?

Patrick Bond is CCS Director and also a professor of political economy at Wits University. He authored Elite Transition and a dozen other books about South Africa and the world economy.

Only pressure on society’s elites can ease university fee stress
(originally at The Conversation, 21 October 2015) View as PDF

As a faculty member at both UKZN and Wits, I and no doubt nearly all my colleagues agree with both students and low-paid workers who plead that out-of-pocket education costs are too high, and that out-sourcing has reduced low-paid workers to below a living wage. UKZN and Wits officials need to meet these arguments head on, but it is also worthwhile to consider how to ratchet up the demands to national level.

In combination with allies across the social and labour movements, all of us need to consider how best to make four simple arguments: 1) there is a need for more state funding for higher education; 2) the SA state has the ability to raise such funding; 3) the social spending component of the fiscus has been far too low; and 4) interest rates should be decreased, which would allow for more state borrowing (although exchange controls would probably need to be re-imposed) and also reduce South Africans’ extreme debt load, including that of recent graduates whose repayment rates are miserable.

1) There is a need for much more state funding to higher education

First, the recent Report of the Ministerial Committee for the Review of the Funding of Universities found “the amount of government funding is not sufficient to meet the needs of the public university system… Government should increase the funding for higher education, to be more in line with international levels of expenditure.”

The same mandate to correct our institutions’ race and class access bias came from Deputy President Cyril Ramaphosa last Thursday at the higher education summit in Durban:

Africans account for 79% of the population in the country, yet their gross participation rate in higher education is less than 15%. The low participation rate of the majority of South Africans is untenable – both from a social justice perspective and in terms of meeting the demands of the 21st century and the needs of our economy. Higher levels of funding and the expansion of the capacity of the higher education system will be needed in future to ensure that higher levels of participation of African and coloured students are achieved.

A statement the same day by the Democratic Alliance’s Belinda Bozzoli concurred:

[the Ministerial Committee] found that South Africa’s budget for universities as a percentage of GDP was only 0.75%, which is lower than the Africa-wide proportion of 0.78%, the world-wide proportion of 0.84% and the proportion spent by Organization for Economic Cooperation and Development (OECD) countries of 1.21%. The report also noted that between 2000 and 2010, state funding per full-time equivalent student fell by 1.1% annually in real terms, while fees per each of these students increased by 2.5% annually in the same period… While President Zuma announced that a Task Team will be established to find short term solutions to student funding challenges, this Task Team will be set up to fail if it does not include representation from Treasury. More needs to be done, urgently.

The penultimate sentence is vital because even the centre-right (‘neoliberal’) DA accepts that the National Treasury has been hiding during this ferocious debate. Behind the fiscal conservatism of Treasury (in Pretoria) are the men they report to in the biggest financial institutions and credit rating agencies (mostly in Sandton), not that far from Braamfontein, a short hop for student protesters who last week showed impressive mobility when blocking Wits entrances and shutting the university for three days.

2) State borrowing could be higher

Second, the targets should logically scale up, as the student movement goes national, because after all, the state can afford higher levels of funding. In the last comparison available (from Barclays Bank), both South Africa’s total accumulated public debt and annual deficit are below that of many peer economies.


Also, in historical terms, the public debt today is by no means at an excessive level.


3) Social spending is far too low

Third, not enough state spending goes to society. The most recent OECD comparison reveals that SA spends at half the level of Russia and Brazil:

4) Interest rates are far too high

Fourth, neoliberals run not only the Treasury but also the Reserve Bank, which has a policy of imposing excessively high interest rates on the state and student borrowers alike. The main way that the largest Northern governments (US, EU, Japan, UK) have dealt with their own recent fiscal squeeze – especially as bank bailouts mounted into the trillions of dollars – was printing currency (“Quantitative Easing”).

In contrast, the SA Reserve Bank keeps inflation in the 3-6% band using extremely high interest rates, which are entirely inappropriate given the economically depressed state of the economy. Today, measured by 10-year government bonds, only Russia, Turkey, Indonesia and Pakistan have higher interest rates than South Africa.

Source: (3 October 2015)

The four arguments above face both intellectual and policy resistance. First, there is the fatuous SA Reserve Bank claim that SA has an insufficiently low savings rate, which allegedly justifies high interest rates. Yet there is plenty of loose funding as witnessed by how much money sloshes around in the Johannesburg Stock Exchange.

The JSE’s record market capitalisation


Neoliberals do have a valid rebuttal to the arguments above: if interest rates are lowered and social spending and state borrowing raised, there will be even worse capital flight. This is indeed a very serious problem, in terms of both Illicit Financial Flows and licit outflows of profits, dividends and interest, especially given that South Africa’s total foreign debt is now in excess of $150 billion (the same share of GDP as PW Botha faced in 1985 when he defaulted), as distinguished from public domestic debt which is still manageable.

The solution is reimposition of exchange controls. I spent last week at a University of Nicosia conference on sustainability, and all the Cypriot political economists I met endorse the government’s capital controls as necessary to survive their 2013 crisis. As John Maynard Keynes explained, “In my view the whole management of the domestic economy depends upon being free to have the appropriate interest rate without reference to the rates prevailing in the rest of the world. Capital controls is a corollary to this.”

In contrast, Finance Minister Nhlanhla Nene this year relaxed exchange controls, allowing wealthy individuals to take R10 million out of the country each year (up from R4 million) while at the same time cutting grants to poor people by 3% in real terms.

In other words, to solve universities’ fiscal stress will require imposing political stress on the Treasury and SA Reserve Bank, and in turn some well-deserved financial stress on the Sandton banksters and corporate elites who have enjoyed some of the world’s highest profits and at the same time have engaged in massive offshore looting (Ramaphosa apparently included).

If the EFF’s popular cry, “Pay back the money!” and the recent anti-corruption marches reflect a healthy populist anger at the looting, and if even the DA agrees that neoliberal austerity should not deny kids a good education, then the challenge ahead is crystal clear.

(Note: inclusion of graphics does not imply endorsement of sources’ policy stance, just their data.)

There’s plenty of money for students – and other poor South Africans – if we reprioritise
(The Star, Cape Argus and The Mercury, 28 October 2015)

How to make good on the 0% university fee increase committed by President Jacob Zuma after such courageous student protests last week at Union Buildings, ANC headquarters and parliament?

South Africa’s R1.451 trillion state budget for 2016-17 must expand or be rejigged by just 0.3%. True, in addition to the immediate R4.2 billion shortfall, much larger sums will be needed to subsidise free tertiary education for those unable to pay, as well as to end out-sourcing of university workers.

So where can the state find the funds? According to some, Zuma’s government is just too broke. As my Wits School of Governance colleague Graeme Bloch claimed last week in The Conversation (albeit without supporting data), “There are many problems for the government, including the state of the world economy, which ensures that there is not enough money” for free university education.

But if a 2012 government commission set up by Minister Blade Nzimande (and hidden away since) as well as even the conservative SA Institute for Race Relations agree that free tertiary education is affordable, why the resistance?

The vast power of financiers and international credit-rating agencies means South Africa suffers a slow-motion version of austerity. The threat of a “junk-bond” rating always looms, and last Wednesday, Finance Minister Nhlanhla Nene’s freeze on new state programmes and civil service hiring revealed the Treasury’s paranoid fear of Standard&Poors, Fitch and Moody’s.

So even while South Africa’s world-leading inequality is generating unprecedented public debate, Nene chose to squeeze 17 million beneficiaries of state grants, including children. “The old-age, war veterans’, disability and care dependency grants have each increased by R10 per month from 1 October 2015 to bring the annual increase in line with long-term inflation.” The goal, he said, was to “ensure that the value of grants keeps pace with inflation.”

Sorry, it isn’t: a year ago, the main old age and disability grant was R1350/month. In February, Nene announced a rise to R1410, and last week to R1420. The 2015-16 pro rata R65/month increase therefore amounts to 4.8%, yet the national Consumer Price Index inflation rate for the same period – according to Nene’s own budget document – is pegged at 5.5%, rising to 6.0% in 2016 and 5.8% in subsequent years.

However, food and electricity prices are rising far faster than the overall inflation rate, and since they are a much larger share of a poor person’s income, an inflation figure closer to 7% would be more accurate. So Nene has, this year, effectively shrunk poor, elderly people's budgets by more than 2%.

Where is the money, then? A glance at the Treasury’s spending gives an indication of how to fund student fees, to end low-paid university workers’ outsourcing, and to raise poor people’s grants.

First, if South Africa were a more peaceful society as a result of higher social spending and lower interest rates, two items could be cut quickly. Security cluster spending – R184 billion next year – is growing quickly in part because of the 20% rise in ‘violent’ community protests last year, to nearly 2300. The state allocated itself R3.3 billion extra for personnel and armaments against civilians, including high-pitch sonic sound cannons. The epidemic of self-destructive, extreme brutality suggests police weapons should be holstered, not amplified.

Another item desperate for a cut is payment of interest, which will cost R144 billion next year. Instead of raising interest rates to a level which is now the world’s fifth highest, the Reserve Bank should reduce rates and with them, repayment costs. (That would also require imposition of exchange controls to halt the resulting capital flight.)

In addition, the Treasury’s category “economic infrastructure” includes many ill-considered projects. Consider just two voracious White Elephants promoted in the 2012 National Development Plan (NDP) and Presidential Infrastructure Coordinating Commission (PICC). As former eTV head Marcel Golding exposed in court a year ago, PICC projects were promoted generously on eNews by Economic Development Minister Ebrahim Patel in exchange for favours never delivered.

The first PICC project is Transnet’s proposed 464 km railroad link from the Waterberg’s coal fields in Limpopo to Richards Bay. With funding of R40 billion, the parastatal’s Siyabonga Gama reckoned four years ago that the line could raise the area’s coal exports from 4 to 80 million tonnes a year.

In reality, local coal prices peaked at $170/tonne in 2008, but by 2012 had fallen to $80 and today are just over $50. Nene’s budget document anticipates further decline in coming years, especially with climate change a growing crisis. Even the industry’s leading expert, Xavier Prevost, admits coal exports are now a money loser. Should that vast project – plus the R60 billion worth of Chinese locomotives ordered for mainly coal transport – not be reconsidered?

The second PICC project to rethink is Durban’s port-petrochemical expansion, which at a cost of R250 billion, the NDP estimated would facilitate an eight-fold rise of container traffic: from 2.5 million annually the last few years to an astonishing 20 million by 2040. Yet no one else thinks this is possible, given global shipping stagnation (not to mention resulting damage to SA manufacturing). Moreover, using the old airport site for the new ‘dig out port’ is uncertain since the Department of Energy and KZN provincial government also want it for a nuclear energy reactor.

The biggest infrastructure bill is for Eskom’s coal-fired power plants, backed by a World Bank $3.75 billion loan (its largest ever, but one whose repayment should be deeply discounted thanks to lack of Bank due diligence). Eskom chair Valli Moosa improperly allowed the ANC’s Chancellor House to front for Hitachi on a R60 billion rand tender that drove the price up by many more tens of billions, as 7000 welds needed to be redone at Medupi, now seven years behind schedule. Recall too, that the world’s biggest mining house, BHP Billiton, will continue to get subsidised Medupi electricity: in recent years it cost just R0.12 c/kilowatt hour, i.e., a tenth of what we ordinary consumers pay.

Such generous “corporate welfare,” rife within Nene’s three-year R800 billion mega-infrastructure budget, makes it hard to end the White Elephant breeding, to better insulate South Africa from adverse world economic trends, and to protect the environment.

And much larger beasts loom on the horizon: the R300 billion share Pretoria has committed to capitalising a BRICS bank for corporate infrastructure, a project that even its new South African director Tito Mboweni condemned in 2013 as “very costly”; and the trillion rand estimated for eight nuclear reactors, which in July Mboweni announced the BRICS Bank could finance.

Subsidies gifted to the rich and powerful by corrupt politicians are typically ignored by commentators with a neoliberal bias. But as Zuma himself put it rather unguardedly last month, “I always say to business people that if you invest in the ANC, you are wise. If you don’t invest in the ANC, your business is in danger... This organisation does not make profit, but we create a conducive environment to those who make profit."

The great merit of the fury unleashed by the students last week was not simply that their protest against Nene, Nzimande and Zuma and their short-term victory will inspire both a closer reading of the budget and a revolt against it. It is also that the outrage society felt at how badly the students were treated has rapidly turned to confidence that protest works, redirecting funding that is so desperately needed for social progress.

South African coal price (US$/tonne)


South African Treasury: mid-term budget review, 21 October 2015

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