Trevor Manuel has hardly referred to Gear over the past few years. But the Growth, Employment & Redistribution (Gear) framework was undeniably the basis of his success. It set the direction for Manuel's reform initiative, targeting lower government spending, lower deficits, lower inflation and lower interest rates over a five-year period. It also targeted higher GDP growth, employment and savings.
Manuel scored a bull's eye with the first set, often beating the target. GDP growth was delayed and the 6% forecast for 2000 is only now becoming a possibility. But a high unemployment rate and a low savings rate appear intractable. The real importance of Gear, however, was that it pointed the way.
In his first budget, in 1997, Manuel established an important principle when he announced he would treat the proceeds of privatisation as a capital item and use them to reduce debt, rather than to dress up the bottom line.
He also introduced an entirely new concept to SA budgeting: predictability. This represented a shift from previous ad hoc budgeting. The medium-term expenditure framework (MTEF), effective from March 1998, allowed for three-year rolling budgets and more coherent departmental planning. It expedited capital projects and eliminated the need for rollovers. Finance director-general Maria Ramos described the MTEF as "a radical and fundamental change of the budget process and the way we think about budgets", and explained that it put "policy at the centre of budget making".
The process eliminated the surprise factor which had so often spooked the financial markets in past budgets.
It also required individual spending agencies to formulate their own strategic and business plans, based on a national framework. They had to detail their objectives and how these were connected to the services required when asking for appropriations - a far more transparent process.
Asset and liability management was introduced to the national treasury in 1997. Most of the borrowing requirement was raised on the capital market, which meant that debt was not monetised (financed through bank borrowing), a highly inflationary practice. And the state's debt portfolio was streamlined to reduce interest costs.
Privatisation (described as restructuring state assets) was a key policy in 1997 and over the next few years a number of assets were sold: a R5,6bn stake in Telkom to strategic equity partners SBC of the US and Malaysia Telekom; SABC radio stations for R510m; and Sun Air for R41m. This was followed by the R990m sale of 20% in the Airports Company to Italy's Aeroporti Di Roma in 1998. Subsequently, union resistance put privatisation on the back burner.
The SA Revenue Service Act in 1997 set the scene for a new dispensation in revenue collection. The departments of inland revenue and customs & excise were merged to form the SA Revenue Service, an autonomous super agency for tax collection which got off the ground in 1998.
It is run along commercial lines and pays competitive salaries outside the public-sector guidelines to attract skills from the private sector. It has produced overruns almost every year since its inception in 1998, most of it under commissioner Pravin Gordhan. The overruns totalled R63,9bn by 2005 and could rise by R35bn this year.
Manuel and Ramos went on to reform the state's financial management system with the Public Finance Management Act (PFMA), which replaced the earlier Exchequer Act in 1999. Under the PFMA, everyone from ministers to spending agency staff became accountable for service delivery and performance.
In 2000 a merger of the finance and state expenditure departments within the treasury brought an integrated approach to financial management.
Under Manuel, exchange controls have gradually been reduced. A big step came in 2003 when emigrant rands were unblocked and an amnesty was offered to people who had contravened foreign exchange controls and tax legislation - a process that uncovered about R64bn abroad, of which 70% was unauthorised.
The rapidly changing environment within the country soon improved SA's sovereign risk profile. With Ramos orchestrating the process, SA returned to global financial markets, raising funds through a number of bond issues. Besides cutting interest costs, the exercise established a benchmark for other SA issuers, diversified the currencies in the Reserve Bank's foreign exchange portfolio, extended the maturity profile of external debt and enhanced SA's credit profile abroad.
Perhaps as important as what he did was what Manuel didn't do.
Among other things, he has avoided creating a proliferation of tax incentives to attract investment; he refers to them as harmful tax practices. He relies largely on a lower overall tax rate to make the environment investor-friendly.
Undoubtedly Manuel also had a few lucky breaks as he set out to reform SA's finances.
One was that Ramos headed the finance department when he took over. She had already created a recruitment process that eventually produced a depth of talent and skill in the department. She played a pivotal role in the process of turning around government's financial fortunes.
Ramos led the drive for better corporate governance in the public sector and more accountable public enterprises. She restarted SA's foreign borrowing programme, set in motion a new budget process through the rolling MTEF , and oversaw the introduction of the PFMA.
Another piece of good fortune was that Reserve Bank governor Tito Mboweni's monetary policy matched government's fiscal discipline. So the work of the finance department was never undermined by expansionary money creation.
Also working for Manuel was the global environment. International trade liberalisation (to which Manuel in his former role as minister of trade & industry contributed) has created more competition throughout the world. In the days of high import tariffs, it was easy for suppliers to pass on these increases to consumers.
As trade barriers were lowered, producers were forced to become more efficient to compete with cheaper imported goods. This supported fiscal and monetary policy in their attempt to produce structurally lower inflation. It did of course add to the unemployment figures, a problem often unfairly laid at Manuel's door.
