ETIENNE LE ROUX: Finance minister can learn from CFOs

Citizens are holding their collective breath as we await a difficult budget speech tomorrow. With no commodity windfall to cushion us this time, an inflation rate that is dropping far more sluggishly than it rose, ongoing load-shedding, a conflict-battered global economy — and, let us not forget, an election year — it’s going to be a tricky job balancing critical expenditure with budget cuts.

Finance minister Enoch Godongwana needs to find money from somewhere to fund the deficit, but without hiking taxes or cutting social spend and infrastructure, all of which are likely to lose the governing party votes. His task seems impossible, and not a job many of us would want right now. But I would argue that the minister’s job is not all that far removed from that of a CFO at a firm — except his business is the country.

Over the past five years I have seen the role of the CFO shift from being purely concerned with financial governance (“policing”) to playing a key role in informing and moving forward the company’s strategy and vision. Working closely with the CEO and leadership team has become integral to business success. The finance minister also plays a key role in driving the agenda of the country. The minister and the president must work closely together and remain tightly aligned if they are to achieve economic prosperity.

As a CFO you still need to be the shark spotter — that voice of warning who must occasionally stop the frolicking in the water for everyone’s safety. You must ask the kind of questions that force people to thoroughly think things through before delving into the company’s resources. Emotion and ego sometimes want to push certain decisions, and it is our role in effective governance to ensure appropriate processes are in place. Playing this role is hardly ever easy, but it is fundamentally important in a successful entity. 

The same can be said for managing the expenditure of a country. Sure, telling a comrade he cannot fly himself to a major sporting event on the public dime is not going to win you any friends, but it is necessary. Similarly, accepting populistic proposals without making sure the necessary funding is in place would amount to an abdication of his duties by the minister and result in a failed state. 

Commercial outcomes

CFOs are primarily concerned with guiding so that the desired commercial outcomes can be met. In my experience one of the best ways of doing this is to spend time in the business to thoroughly understand, practically, how we make money. On a spreadsheet, the high-level levers to execute commercial outcomes always seem easy to pull. But unless we transpose these levers into an employee’s reality and translate what they mean practically, their significance will soon be lost in a pretty but never-again-double-clicked PowerPoint deck. 

Thus, I believe it’s important for the finance minister and Treasury to work closely together with the various governmental portfolios, helping them grasp what their budget priorities are from an expenditure perspective, and what are the nice-to-haves. It is the role of finance teams to help departments understand the drivers of their revenue and expenses and empower departments to have a clear plan on how to increase revenue or reduce expenditure. 

The public sector needs to understand the important role it plays in our country’s wellbeing, as well as how the National Development Plan (NDP) — the country’s strategic goals — is directly linked to their daily functions. 

In business, the needs of our stakeholders have changed, and will continue to keep changing. The demands of shareholders have increased. Management teams need to deliver returns despite the economic environment offering scant growth. In addition, there is a growing focus on environmental, social and governance (ESG) principles, which are critical to our sustainability and part of our responsibility to our communities.

At the same time we must continue to uphold our promise to our customers, ensuring that they get affordable solutions that meet their real-life needs. CFOs need to walk this tightrope and ensure they are balancing these needs while always acting in the best interests of their stakeholders.

Like in business, government has many stakeholders. They are responsible, first and foremost, to citizens. They need to account for where they spend our taxes. They’re also accountable to various international bodies and, of course, to governing party members. Apart from stakeholders to serve, government needs to determine how we solve structural problems such as inequality and unemployment with dwindling revenue.

While I would never deign tell the finance minister how to do his job, he has asked for the input of South Africans. In my time working as CFO for a large corporate in SA there are a few important lessons I have learnt, which may come in handy. 

Aligned and engaged management teams. Remember that as a minister you are accountable first and foremost to the people of this country, just as a CFO is accountable to his or her stakeholders. It is therefore imperative to make clear to parliament the realities of our finances. If we look at how our national debt has nearly doubled since 2018, we should be concerned. Working from a common understanding of the problems we face can help with alignment in terms of solutions.

Smart resource management. Invest in areas that will make the country win financially. Ensure less critical areas are run in a leaner manner. To make this practical, the country will not fall apart without certain state-owned entities. However, investing in the SA Revenue Service to ensure we optimise and improve revenue collection is critical. 

Understand where revenue comes from. Have a firm grasp of all the sources of revenue for the state. For example, mining and farming generate significant tax revenue for the country. How can we make mining and farming more attractive for these businesses and, in doing so, ensure they generate more tax revenue for the country? 

Outsource services. A government does not need to be responsible for delivering all services, but it is accountable. By outsourcing (with good procurement governance) to private entities where appropriate, we can create jobs and address inequality.

More incentives. Just as the carrot is sometimes more effective than the stick, so was the solar incentive, announced last year, a step in the right direction. There are so many of us who are passionate about our country. Why not consider implementing more similar tax incentives rewarding South Africans with money in their pockets for the right behaviour while encouraging them to actively play a role in solving the country’s challenges? 

Banish wasteful expenditure. More can be done to combat irregular expenditure, which remains a key challenge. Governments should govern and invest in capable governance processes, people and systems.

Leverage automation and digitalisation. Who has stood in a home affairs queue of late? There are ample opportunities to target inefficient processes and install relevant systems to improve government service delivery. This will result in job creation (albeit for a different skill set), improve client satisfaction and create expense efficiencies. It could even mean more foreign investment as fewer visa delays will be the result.

Work closely with those who share your vision. The private sector understands that for business to thrive its communities need to be healthy and happy too. Big corporates typically invest a great deal in their communities as they understand this more viscerally than most. We share the same vision as government and the citizens of SA: we also want a prosperous, economically secure country with no unemployment, poverty and crime ... with functioning infrastructure and reasonably priced eggs. So work with us. Together we can make the change we need.

• Le Roux is Metropolitan CFO.