One would expect Malusi Gigaba as new Minister of Finance to consider avoidance of further down-grades by rating agencies as his top priority. Policy confusion and instability coupled with growth unfriendly strategies already caused the Fitch and the Standard & Poor downgrades. However, Gigaba’s comments yesterday indicated that he is more concerned about growing black owned enterprises than about growing the economy or receiving value for public money.Stating that Treasury would use its 500 billion rand annual procurement budget to transform the economy by giving more support to black-owned businesses, Gigaba said at a business dinner in Johannesburg “the state getting value for money is important but this aim should be considered in conjunction with our economic history.” (http://af.reuters.com/article/southAfricaNews/idAFL8N1IH7OD)
It is important to recall that during Gigaba’s 4 year spell as Minister for Public Enterprises (2010 – 2014) he was at loggerheads with Pravin Gordhan during the latter’s first spell as Minister of Finance. Gigaba in 2013 pushed for the R827 billion capital procurement programme of the State owned Enterprises (Transnet, the always bordering on bankruptcy SAA, Eskom, SAPO, PetroSA, PRASA, and the 170 plus other entities) to be exclusively set aside for “black-owned businesses”. Treasury refused considering that as unconstitutional. This led to stark differences between Gordhan and Gigaba: SA Construction News of 26 June 2013 described the tensions as far more robust than usual (http://www.saconstructionnews.co.za/advertise-with-us/11-construction-industry/144-minister-seeks-more-preferential-procurement-for-black-owned-firms)
When Gigaba did not get the “black only” procurement path he had pushed for, he attempted to get the procurement system laced even stronger in favour of black-owned enterprises. Gordhan and Treasury again countered that Government already on contracts below a million rand put 20% on the table to cater for less than competitive bids by black-owned enterprises. On contracts over a million rand the premium to cover non-competitiveness was 10%. Gigaba, backed by the Black Business Council, believed these premiums were insufficient. Treasury argued that Government was already receiving less value for money and that losing more would add to the lower service delivery levels.
Preferential treatment (whether 10% or 20% or more) amounts to a tax on the poor since public money would go that distance less than what it could have achieved without the preferential premiums. (It should be noted that the thresholds have already increased that tax on the poor: 20% now apply to contracts up to R10 million with 10% applying tolarger contracts.)
It appears as if Gigaba, backed by the Black Business Council, are more concerned about boosting far more profitable procurement contracts for black-owned enterprises than to achieve maximum delivery for the poor. It is a manifestation of an anti-growth and an anti-poor strategy. With unrest about lack of services or poor service delivery rampant, it would amount to a dangerous choice…