Why this man is very, very angry about the SA economy
Dawie Roodt peers down at SA from the fiscal cliff
The last time I covered one of the presentations of the insightful and brutally frank Dawie Roodt, who is chief economist of Efficient Group, I was admonished by my usually very chilled-out news editor. He told me to stick to my knitting – which is a weekly column on economics, finance, business and companies. I was reprimanded for wandering into the viper pit of SA politics.
So this time around, I will be looking at Roodt’s thoughts on the latest budget. Speaking at the Free Market Foundation, Roodt (an ichthyologist) compared an economy to the ecology of a fish tank: keep it in balance and don’t meddle with its natural dynamics, otherwise the fish will inevitably die. Roodt looked at the SA fish tank and its latest big feed, the recent budget, and found it very light in content. It was rather a case of treading water until the upcoming national elections.
He also observed some rather neoliberalist comments coming from finance minister Tito Mboweni, particularly on state-owned enterprises and the overpayment of public servants. But when you looked at the actual budget content, these views are not contained therein, with Roodt indicating this is evidence of conflicts within the government, as well as its alliances with labour.
“We have definitely gone over the fiscal cliff,” said Roodt. “State debt has exploded, the extent of cutbacks required is politically unachievable, and it is close to impossible to turn the ship around.”
He demonstrated how all our economic metrics are slow, poor or even shocking when compared to global, developed and developing-market benchmarks. They are all disappointing, from state spending to GDP per capita, fixed investment and public servant productivity. Although from a lower base, many far less developed countries are doing better than SA in terms of progress.
Of course, our state electricity utility came under the spotlight. Roodt cannot understand the R69bn, spread over three years, awarded to Eskom in the latest budget: “It is absolutely impossible for Eskom to survive on that, and there is something going on that I cannot quite work out.”
He agrees with the announced break-up of Eskom into three divisions – but only as the first step. Roodt said the generation section is not suitable for privatisation – the older power stations need so much ongoing funding that no one will buy them and the newer ones would have to be sold at discounts. He wants the transmission division to be left alone.
“It is doing fine as a natural monopoly. Perhaps award the private sector some running concessions,” he said. The distribution segment is the most appropriate to privatise. However, as a very profitable operation, Roodt foresees the local authorities trying to keep a grip on this income stream.
With the finance minister not changing anything on income tax, Roodt said he is not happy with our personal rate bands. It is a case of everything being set way too high – and kicking in way too low. Our corporate income tax is largely in line with global norms, but Roodt had hoped this could be lower, as more appropriate for an emerging market.
As SA operates within a global economy, Roodt’s biggest concern is the potential impact of monetary policy tightening. Central banks for some time have been following loose policy with low interest rates, in turn creating high liquidity. They are now reversing these trends and tightening up slightly, which, if overdone or implemented too quickly, can force economies into recession. He said he is grateful the US Federal Reserve is sitting on its hands in this regard for a while yet.
Roodt concluded that the imminent election is no excuse for doing nothing, and he unfortunately but certainly expects to see another ratings agency downgrade.