Why the Sassa grants crisis is a massive problem for all South Africans

Research analyst at Nomura, Peter Attard Montalto, says that the South African social grants crisis has massive political and economic ramifications – with government stuck in a mess of its own making, and with few options to get out of it.

In a market note published on Thursday, Attard Montalto warned that the current Sassa crisis, in which the South African government needs to find a way to pay 17 million social grants on 1 April 2017, holds deep implications for growth and politics in the country.

“Severe mismanagement and alleged corruption have combined with a ruling from the Constitutional Court that the current operation of the social grants system by a company called CPS is illegal.

“However, the situation has not been rectified and CPS has effectively built itself a natural monopoly by owning and operating the back-end technology on social grant smart cards, which has trapped the government between accepting an illegal contract and the risk of social security grants not being paid from 1 April.”

The economic implications of missing this payment date are massive, the analyst said, with R12.6 billion per month – or 3.2% of GDP – not paid out, threatening to wipe off as much as 0.3 percentage points from annual growth – though this could be rectified later.

More pressing, is that failure to pay out the grants will wipe around 11.6% from retail sales for the month, which in turn has its own knock-on effect in the South African economy.

“We believe ‘crisis’ is an appropriate word,” Attard Montalto said.

Political consequences

The implications are also deeply political, with the ANC’s 2019 election campaigning being put under pressure if the ruling party fails to make good on the payments. The baseline assumption is that, while the party campaigns on promises of job creation and growth, it at the very least is able to keep its electorate happy through grants.

“However, failure to make a month or more of payments, means 2019 could become about the logistics of redistribution and would cause a much more deep shock into the ANC’s support level from even rural areas,” the analyst said.

“The surprise is that this issue is of the government’s own making, having had ample warning over the past nine months.”

The greater risk is that anti-Gordhan or anti-National Treasury elements in government will try and push a narrative that the grants crisis is their fault, for blocking the changes Bathabile Dlamini’s department of social development wanted to make in the grants system.

This would, in turn, reinforce and justify any changes president Jacob Zuma would want to make in an anticipated cabinet reshuffle, under the guise of removing “transformation barriers” in Treasury.

Reshuffle still on the cards

According to Attard Montalto, a cabinet reshuffle is still very much on the cards, and is most likely to hit before the end of March.

“While we still see the removal of the deputy finance minister as most likely, we think the probability of (Pravin Gordhan being removed) has risen because of increasingly belligerent comments from the Zuma camp and wider attacks against the National Treasury.

“However, the ultimate aim of a reshuffle will be to stop the increasing momentum the Zuma camp is sensing from SACP members, including those in the NT from swinging the elective conference their way in December.”

The analyst said that Zuma is running out of time, however.

“A lack of reshuffle by end March may lead to a significant market rally. A reshuffle, however, could cause major market dislocation, especially with a March (US Federal Open Market Committee) hike.

“Ultimately, president Zuma will wait for the best moment, requiring market patience,” Attard Montalto said.


Read: Social grants “Plan B” is to drive cash trucks into townships: report

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Why the Sassa grants crisis is a massive problem for all South Africans