This resource is hosted by the Nelson Mandela Centre of Memory, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.
Interview with Trevor Manuel
Lionel Barber, editor of the Financial Times, and Alec Russell, southern Africa correspondent, interviewed South African finance minister Trevor Manuel in Johannesburg on 28 March 2007
FT: South Africa's growth rate has been at about five percent. How do you achieve the higher levels of some other developing markets?
TM: Prior to 1994 in the decade before 94 the trend line was in the order of half percent growth. There were some years that were good. In the early 80s when the gold price was as high as it was. It was a no-brainer. Then that period you referred to when you were in Washington (in the late 80s) when there was debt standstill and so on. There was high inflation. The country was forced to run a surplus on the current account. It was kind of stuck. There were periods of zero growth. It was a very difficult period. Moving out of that in 1994, and certainly after 96, there was a change. The macro economic policies we introduced in June of 96, which included much stronger deficit reduction and a series of administrative changes we introduced. On the macro side we got rid of some of the state-owned enterprises. We cut the deficit, made very significant changes in fiscal policy generally. Monetary policy was still out there. The net effect of that was to see over the n ext decade the growth trend line go up towards three percent.
In 1996 it clearly was the big fiscal side, but by 99 we were looking more strongly at the monetary side ? introduction of inflation targeting. A series of very tough changes were given effect during that period. If you look at the trend line now, it's somewhere between four and a half to five percent. Our analysis would indicate that without doing a heck of a lot else that is sustainable. But I think we would be the first to say that the growth is insufficient to deal with all the challenges in front of us.
We started working about two years ago with an international team of economists a number of them Harvard-based, also from MIT, from LSE from SOAS?and we're focusing on an approach to dealing with the binding constraints. The most recent work published on this was by Danny Roderick and Ricardo Hausmann. We are advancing on that in ? There is a series of issues that clearly need fresh attention. Top of the list is the skills constraint. And in developing approaches to that there are a number of things we have to do differently. We have to significantly increase the number of graduates in the quantitive areas, maths and science.. commerce. In order to get there on a sustainable basis, we have to make better investments in the schooling system. And also what we are doing is to facilitate the streaming of some people after ten years of schooling to further vocational training. Which is the variation of the earlier binary system of vocational education that you can t ake people off to do other things and probably have slightly less pressure? where we need to advance in maths and science. Amongst other things there is a programme called Dinaledi, which means the stars. It is focusing on schools across the country, many in poor communities where there is a much stronger emphasis on the teaching of maths and science.
Also we have announced programmes for bursaries for teachers to facilitate and attract people into education but also offering people who are currently teaching an opportunity to enhance their skills and professional qualifications. A retooling of education system is important but the gains of that for the market are slightly more longer term.
A second area is, the deputy president is leading something called JIPSA (Joint Initiative for Priority Skills Acquisition). It is actually working quite well. It is as broad based as you can get it, government is there, the tertiary institutions are represented there, the private sector and the trade unions. There are some of these areas that one takes for granted. If you say we don't produce sufficient rocket scientists we don't need to spend too much time talking about that. But this country also has huge deficits in some skills areas, artisanal skills for instance. Sasol is importing pipe-welders from Thailand because we haven't produced these over a long period. If you are building refineries you can't just take people off the streets, give them a welding machine or an oxycetylene torch and say weld the pipes. There is a very significant investment in training. Whilst in an arena where there is unemployment you need to manage these kind of things so no one says you are ignoring our own training needs and bringing in people. So you need some of the politics that Jipsa offers ? so the skills area is very important. The deputy president can also tell you if you asked her how many people are studying which engineering discipline in which university in which year. Push her she might give you some names.
FT: Is it important to know that, that kind of detail?
TM: She is very focused, because we don't want to lose people too easily. I think there is a new spirit of collaboration with the deans of engineering at various universities, which is beginning to transform this. Within their structures they have been feeling a bit orphaned as well. So they see this as an opportunity to raise their own prestige. Within the Accelerated and Shared Growth Initiative the skills would be one of the areas. There are also. We remain under pressure on the macro side.
FT: Some economists might question why at this stage you are running a budget surplus? You are going to go into deficit, but by European standards 0.4 0.6 in two years time, this is pretty tight given the level of unemployment? There is a feeling that you could take a few more risks to generate more economic growth. How do you answer that question?
TM: Growth in revenue performance has been quite phenomenal. There has been a very significant shift in composition. Twelve years ago corporate taxes made up about 10 and a half percent of total tax take. Corporate rates just before 94 were 48 percent. They were reduced to 40. Secondary tax on companies was introduced. Now our rate is 29 percent. But the base broadening exercise has seen a shift of 23 percent of composition.
What we opted to do was lower the rates, take out some of the complexities of the tax code and simplify what we were doing. If you look at that against value added tax, again a straight 14 percent, with an exception of ? Our personal income tax, which has a threshold of 43 thousand rand a year, and a marginal rate of 40 percent. In rate terms we are not way out of kilter. I know that the Chancellor last week ? would have dropped the corporate rate one percent below where we are now. In rate terms we are not significantly out of line. You have seen this performance. But built into it is actually a fair amount that would be cyclical.
Metals are still a very important part of our economy. You look at gold and platinum, coal prices. The durability of those revenue sources?
FT: So that's why you are being conservative?
TM: We are running a kind of counter-cyclical policy. If you look at the spending departments and you look at growth and real growth in spending of nine and a half percent in the last three years, that kind of growth is not sustainable in the long term. It is not as though there is a parsimony that prevents us from spending. I mean I am perfectly comfortable with it. Some of the advice I have had from these people I referred to earlier suggests we should have an even larger surplus. We would have difficulty.
FT: You would have difficulty selling that?
TM: In the current fiscal year? we will run an unplanned surplus as well, partly because of revenue overruns partly because of some under-spending because infrastructure spending does not quite happen according to plan. I remember about eight years ago there was a similar problem in the UK where the infrastructure spending was not coming through fast enough.
FT: We put on a hair shirt in the first term and then opened a spigot in the second. Stop go spending is one way of looking at it.
TM: If you look at the infrastructure trends lines it has actually increased very significantly and I am not talking about 2010 (Soccer World Cup) stuff. In the provinces where the social infrastructure ? schools, clinics ? A few years ago I had to take money away from the infrastructure because they weren't spending. Now you are starting to see it come through. It is one of those capacity issues that changes very significantly. Our approach to infrastructure spending and 2010 ? in the budget now there is 8.4 billion rand for stadiums themselves and nine billion rand for the surrounding transport infrastructure for instance. For us it is an opportunity to get out of this legacy of having cities that don't function very well. So we will put in rapid bus transport? spend significantly to increase the metro rail systems ? both in the quality of the service provided, better coaches, more coaches, better frequency. All of those things are being done. We are ra mping up so we can swing through 2010 ? For us the durable legacy of the better functioning cities is going to be a far more important outcome than merely to focus on the games themselves..
FT: I didn't hear the word privatization in your budget speech; it was applauded in many ways. Is that (privatisation) a dirty word now?
TM: No it is not a dirty word.
FT: Or maybe to use a less emotive term, is it a little bit neuralgic for some people in the party?
TM: I actually checked Gordon's (Gordon Brown, UK Chancellor of the Exchequer) speech last week. He didn't use it either.
FT: That's because we have privatized just about everything. We don't have any left?
TM: If you look at the enterprises, there is Eskom, which is under enormous pressure. It's one of the comparative advantages we have always had as a country is low cost thermal energy. (We are) right up against the threshold of capacity?a number of power stations are being taken out of mothballs ? a decision to look at sources other than thermal coal for energy including all of the nuclear options going forward. The need to relook at this southern African grid and examine the scheme on the River Congo.. Energy issue has to be hugely important. There has to be a huge lay out of delivery of electricity going forward. I don't know if apart from a few private equity funds people buy to invest ?
FT: Private equity funds invest is into infrastructure all over the world. There has got to be opportunities here in South Africa.
TM: Part of the challenge that has not been met is the social demand for energy. It is not as though there is a lot of pressure on us. I thought that after California there would be a bit more calm about how people approach these big infrastructure issues. Energy being one ? and after the mess in rail in a number of countries - we sha'n't name them ? I thought there would be some calm about how you deal with both passenger and freight train.
FT: I can't imagine which country you would be referring to.
TM: Apart form the US where Reagan nationalised Amtrak there might be a few others but I can't remember..
FT: You are suggesting that privatization is somewhat discredited. Isn't it a tool that you would like to use in the mix?
TM: One of the newspapers today - there is a case of privatisation gone wrong? said that government has now decided to get out of commercial forestry? So there is a privatization of commercial forests. The decision was taken a few years ago. The competition commission was concerned about the risk of the kind of problem emerging with the transfer of monopoly to private hands ? Those issues have now been resolved. We were able to take this decision. There is another article there about the ? threat of nationalization. Whereas ten, twelve years ago people were looking to you to say the words as a test of ideological commitment either way. Now we are judged purely on the basis of a set of pragmatic choices that we would exercise and announce. And it's unlikely to attract the same headlines that it would in another area.
FT: But this administration has a high degree of confidence in the state to deliver the right judgments on the economy.
TM: Tell me what you think?
FT: The first example was when you were saying how the deputy president knew the names of all the people.
TM: There is a passion that says we can't afford to fail. The choice about who gets enrolled, what people get enrolled for, what gets taught at universities, that remains squarely in the autonomy in the institutions. We follow some trends and we have regulators in a number of areas. They actually exercise some pretty strong oversight over what government might ? There was meant to be a launch of ports regulator today as it happens. There is a rail regulator, a communications regulator. You have government departments and in some instances very competent people who have left those department because they remunerate better than the public service does. But I think that we are saying that we have the responsibility. This government is not going to stand back and have a belief in laissez faire fundamentalism. We believe that we have a responsibility to facilitate economic growth in a series of areas. We think that some of the infrastructure spending that we w ill ne ed will contribute to growth, will create the opportunities for training people and the creation of skills for elsewhere. We think that in partnership with the private sector we should be exploring some of these enormous challenges.
FT: How much will Public Private Partnerships play a role in these projects? These are public spending projects.
TM: They are. We have a public private partnership unit based in the treasury. There are some exceedingly good projects from our perspective where the risk for the management of these projects is shared. I hold up the Albert Luthuli Hospital in Durban as one of the star performers in this area. In an earlier period the private sector was there queuing up at our door with ? bids. When we started winning awards for being more competent issuers and the rules became clear, the kind of pipeline of interest dried up. Some of these PPPS take a bit of time to work through. But the other area where PPPS are working remarkably well is with the roads agency. Transfers to the roads agency are miniscule.. In fact the bulk of backing would be by way of guarantees because they go to the capital markets. They enter into these long-term arrangements with the private sector. You are talking of 30 year arrangements. The bulk of our roads are managed ? tolls. I don't think t hat we can be accused of being blind to sharing risks.
We haven't accelerated as fast as some other countries. If you ask me what the PPP unit is looking at now, amongst other areas it is the issue of schools. I also want to make the point that in South Africa there are chunks that have traditionally been run by the private sector. In the UK you have the NHS and it would cover everybody. In this country 20 percent of South Africans have access to private heath care, which is expensive and quite advanced, very highly specialized and the remaining 80 percent are dependent on public sector health care. You have two very discrete systems. The Albert Luthuli hospital happens to be in the public system. We would like to multiply those. There are some public hospitals. Groote Schuur would be a case in point. They have a floor where part is now private and part of it manages patients on a cost basis for the NHS. For some of the elective surgery areas the waiting lists are too long. They take some of the burden off. T hose p eople come to South Africa for treatment. If it were a purely state system, if ours were akin to the NHS the operations in the private sector ? might look a bit different. Similarly in education ? what you call public schools, we have a number of private schools ? and then behind that we have a system of education, which was premised on the old Model C. A number of them are exceedingly well -endowed, formerly white schools, which charge fees and some charge pretty high fees and they use the fees to hire additional teachers and maintain facilities. The gap between those and the private schools is not very big. And then you can move through the income trajectory, we introduced since last year focusing on the lowest quintile of residential areas, where we have introduced no fee schools. Over the period we are going to have to get the balance right so you don't ghettoise some schools ? because they happen to be the children of parents who in areas where the endowment is poor. We have a range of experiences. One of the big changes introduced as early as 1995 was the Schools Act ? places school governance in the local community, the aegis allows hiring and firing of teachers. The school governance is made up of parents and teachers ? The problem is it works wonderfully where parents have the confidence and knowledge to be able to deal with the system. It works not at all where parents are functionally illiterate. So the desired outcome of local control does not always work. You can look at a range of services. Swaths of it would be already in private hands. And the move is to on the margins on the cusp to construct these private/public partnerships but again I am saying the unit exists the rules are clear and we would examine these things going forward.
FT: Ten or so years into BEE there is a concern in the business community will this go on forever? Businessmen ask would it not be better if we were free from some of these regulations so we can not only make money for our shareholders but also contribute to South Africa's growth. Do you think there should be a time-limit to this process? Is this an issue?
TM: Let's separate the issues out. On the one hand we have a responsibility to minimise the compliance and administrative costs. Two issues that would be very pertinent in this regard. We have just recently taken a decision a regulatory impact unit in the presidency supported by the treasury so that there would have to be a test on every piece of legislation ? and secondary legislation which tends to go unnoticed would receive the same kind of treatment. We are saying that as government that which is transversal in government must actually be more active in dealing with the risks to business ? The other issue we are working through is the endeavour to simplify registration processes. In respect of business registration we are looking at single processes for registration allowing businesses to register for, not just in terms of the companies act, but also for income tax, company tax, personal income tax, unemployment insurance fund, the skills levy ? to si mplify those processes because the start-up costs tend to be horrendously high.
What is dragging this as well, is the announcements of significant reforms to social security so the country will be in a better position to deal with it. So ease of administration is going to be in our interests, narrowly defined as well. So in respect of compliance generally there will always be a whinge ? Even if you went there would be whingers in Britain, Hong Kong.. I don't know who tops the rankings at the Freedom House free economy. Those things will always be there because business does not want to comply anywhere. Just accept that there is a limitation of what we can do, what is in our power to do. On the issue of BEE there would have to be a review of this. The legislation was passed two years ago. The codes in terms of this legislation were introduced just recently. In the interregnum there were all kinds of things that businesses have done, good and bad, cynical and genuine. There will have to be a review. Take as an example the introduction in the se codes of the high water mark principle. The principle of "once empowered always empowered" finds resonance. This suggests that if a Black Economic Empowerment venture acquired part of a company as frequently happens on a discount, sells it on, you can't then compel that company to provide another discount, you can't write down value in that way. But having that in the code means somewhere along the line someone is going to look. Someone is going to look at this and say "Well is this having the desired outcome?" And as you deal with those issues I think there will have to be certain changes.
There have been a number of reporting requirements that have been different. In an earlier period the Human Rights Commission required certain things. There are annual requirements in term of the Employment Equity Act, just a load of reports. You would have to simplify these things. You can't maintain them. It shouldn't be too long before this partnership with business says: But Mr President "Who has read the last report? You can just compel us to do these things when it isn't having an impact at all." I think just by its very nature there will have to be changes ?
FT: Has there been abuse by insiders in the government?
TM: I just delivered a speech to National Prosecutorial Authority in which I was very strong on the need to deal with all vestiges of corruption and abuse of the system. So there is no question about the willingness to deal with this. In the Gautrain there is an interesting case, partly because when people do this empowerment thing they frequently look for names. They wouldn't necessarily want somebody who may be able to contribute to the company.
Somebody I know who has been a beneficiary of a number of these BEE transactions says that you know he'd be called and advised he's being included in a transaction and in the nature of things people don't say no to some revenue stream which comes without having to do anything. He says all of his offers to then help with the company beyond just attending the four board meetings a year or whatever happens all of those attempts are spurned.
"We want you there. You are a good man. But actually we don't need you close to what we do. We will run the business but we have bought a licence and an insurance policy through you." In an instance like that there would be an abuse from the side of the issuer.
One of my colleagues, Minister of Education, had her name come up in the context of Gautrain. Before she was in the executive as a backbench member of parliament, she joined a large forum called the black management forum and they decided to establish an empowerment company or a kind of investment company, it required those willing to participate to invest the princely sum of 7500 rands. This would have been maybe about a decade ago.
As a member of the BMF she complied, she put her 7500 rand into the pot. In Gautrain the BMF secured I don't know one percentage but a miniscule percentage and her 7500 rand would entitle her to half a percent of the total BMF's contribution which might be as large as three percent of the total. I don't even know what the numbers are.
If you do a scan, through the companies' office her name will come up as a shareholder. I don't know what she would earn off the 7500 rand in the Gautrain but she would be nowhere near any decision-making, whether in the black management forum or perhaps in a wider black economic empowerment consortium and forget about ever coming close to any decisions about the Gautrain. It does reflect negatively. She was quite shocked by this.
FT: You said something very strong ? something like I have no interests ? which seemed to imply ?
TM: The question was put to me: Are you the minister without business interests? I said I am one of the ministers without business interests. I can't tell you who all of the others are. But I can speak for myself. I can say unequivocally I have no business interests. There are a number of my colleagues who have no business interests. And then there would be colleagues who find themselves, like Naledi does, and she went and shared with us, when she found that on the (companies) list where she is a director including something called, something like jobs for all. Now she serves on something called the business trust as a cabinet representative on there and businesses put money into it and they do all kinds of interesting things ? they train people in tourism and IT and so on, very strongly focused on jobs and skills. She happens to be nominally a director for what it is worth. So if a list is done she would be seen to be a director of a company from which s he wil l earn not a dime. Is it a business interest, broadly defined: yes. Is it a business interest narrowly defined: no.