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There are not many medals of honour, accolades, gold stars and trophies in the political analysis business (and quite right too), but I achieved an acknowledgement last week of which I am particularly proud.
Once a year the Financial Mail commissions a poll of the top 30 or so South African asset managers (life assurers, retirement and pension funds, private client investment managers and hedge funds).
This year the polled group had a total of about R3.7 trillion assets under management, a significant portion of which is the savings and pensions of ordinary South Africans.
How this business (from which I derive a significant portion of my income) works is JSE member firms (basically stock brokers) employ or contract specialists to produce research that somehow aids the fund manager in making the best investment decisions. If the research added value to the fund manager’s decision the broker would be paid either directly or in the form of a commission of some kind.
For the past year I have been lucky enough to have had a contract with Religare Noah Capital Markets to provide analysis of political trends and industrial relations to that firm’s fund manager clients. My name was thus in the pot when the fund managers voted and this is how it turned out:
I am particularly pleased to receive this award – and not only because it comes with a nicely framed scroll that, if I ever again get an office, will look quite handsome on the wall.
The main reason for my appreciation is that the ranking is based on a vote by investment professionals, who in one way or another, have to pay for the analysis.
I am about to move my main contract to a new firm, BNP Paribas Cadiz Securities which combines the strengths of powerful French investment bank BNP Paribas and Cadiz Securities, a South African-based specialist equity derivatives broking and research company.
So I thought I would use this moment and forum to thank Religare Noah Capital Markets for the work they have given me over the last year – I appreciate the support and opportunity and wish you all well in the future.
(Note: There are several names below mine on the scoreboard up there of excellent economists, strategists and other species of financial analyst who would not see themselves primarily as “political analysts” – so the fact that I have outscored them is no reflection of the value they add to the fund managers … and, in fact, several of them were highly ranked in other categories.)
Think of the various interests of classes and groups in our society as constituting an ecology in which political parties and organisations find niches to graze, hunt and be sustained.
The system can change and niches shift, narrow or broaden – and in response the denizens that live in each niche must adapt or become extinct.
Alternatively, major fauna can begin to change for other systemic (or extra-systemic?) reasons and new spaces and niches close or open in response.
And a shockwave goes through the ecosystem and a number of species appear and/or
rabidly (oops) rapidly evolve, while others disappear.
Like all metaphors this one is going to break down the closer it gets to the real world, but I think something like this is happening to our political ecosystem – as the ANC’s DNA drifts towards the lumbering, complacent and patronage-networked side of the spectrum.
The gaps that are opening are in the middle classes, in the cities and amongst urban professionals – niches which (that?) are being vacated by the ANC as it settles its rump into the comfort of a sort of conservative, patriarchal, kleptocratic, bureaucratic and ethnic politico-ecological pouf-cushion.
I make this observation as I watch (on eNews channel) the DA marching on Cosatu’s head-office in Johannesburg in a historical reversal of roles that I am struggling to get my head around.
I saw a Twitter post from Ranjeni Munusamy last night in which she said: “After the
#DAmarch tomorrow, maybe nuclear powers will march to Greenpeace offices. Will make just as much sense”.
I get her dismay completely, but I suspect that is just my old assumptions about the shape of our political ecology dominating my brain.
Why shouldn’t the DA be going up directly against Cosatu?
They are, increasingly, competing for exactly the same constituency - the constituency recently, in effect, vacated by the ANC.
That is what all this business about Zille attempting to recruit Vavi into the DA has been about.
They have been flirting - because they feel how close they are to each other – and now they are fighting, for exactly the same reasons.
On Sunday Ferial Haffajee wrote an extremely interesting piece in her City Press, pointing out that Cosatu is increasingly dominated by public sector unions - and therefore increasingly represents “a middle”, rather than “a working” class.
The story uses this graphic:
… which I think comes from a Uasa Federation study by economist Mike Schussler that points out that the employed in south Africa enjoy relatively good living conditions with an average salary of R13 200 and further that public sector workers are significantly better off than their private sector counterparts.
Cosatu has created a middle class where one did not exist in the 18 years of democracy. That it is funded by the public purse (funded in turn by you and I, the taxpayers) is neither here nor there. What is remarkable is how a federation that started as decidedly blue collar has altered the identity and social position of its members so quickly and so effectively that it could turn the public policy of tolling on its head.
So what is happening right now?
There is an inevitable frisson in the relationship between Cosatu and the DA.
Cosatu and the Democratic Alliance border the niches vacated by the ANC, namely the unemployed and the middle classes. (The unemployed and the middle classes, perhaps more than any other groups, have the most to lose from the ANC’s, at best squandering, at worst looting, of societal resources available for growth and relief.)
As the opposing crowds gather in the streets of Johannesburg, the blue DA marchers versus the red Cosatu defenders - those for the youth wage subsidy and those against it – we might be expected to conclude that these are bitter class enemies.
I still think not – to my eyes I cannot distinguish them ethnically or class-wise … (but I accept that I might just not have cracked those codes).
The ANC – as well as agents of the state, I think – will strive mightily to prevent Cosatu from finding the DA – and vice versa.
As romantic literature suggests, love and hate lie alongside each other like geological strata – always in the process of metamorphosing, one into the other.
(Note – I think my various metaphors here don’t adequately take account of the differences in Cosatu – and ultimately break down on that point. I do think the public sector side of the federation is more middle-class and the private sector side more radical and competitive. However it is easier for the ANC to keep the public sector unions – the DA’s natural allies in class terms – on side because, ultimately, those unions are dependent on the state budget over which the ANC has control. Obviously there is a cost involved in the ANC buying off those middle class unions, and it is a cost ultimately borne by the unemployed … but that is an argument for another post. I am not sure if the DA will be able to capitalise on this contradiction, but it is not impossible that is precisely what the party is trying to do in Johannesburg as I write this.)
A few days ago I published a link here to an e-tolling interview I did on CNBC Africa that someone put on YouTube.
The post received several interesting comments about an aside I made on more than one occasion during the interview that I thought users paying directly for infrastructure is probably a more efficient method than taking the funding out of the tax pool - with a long list of exceptions that had to do with social solidarity and making sure those who couldn’t pay were subsidised in some way.
I received several interesting comments and dragged myself out of bed early this morning to respond to those … but found, to my horror, my browser (Chrome) refused to visit my wordpress page, saying it contained “suspicious content”, perhaps even “malware” from something called “oulitnet.co.za”. Chrome further informed me that it had alerted the said site to the problem.
I decided to delete my last entry (to the YouTube link) and the problem seems to be gone.
I think “oulitnet.co.za” is a religious site of some kind and I have no idea why its content should have been connected to the YouTube video.
So instead of trying to work that all out I have just dumped the link and will, at some stage, return to the question of the most efficient way of paying for infrastructure … which I know is not a breathlessly exciting subject, but is probably important enough to warrant another post at some stage.
So apologies to anyone who attempted to visit that post and got the same scary warnings to stay away that I got this morning … they are gone now and it is safe to return to to the water …
I think the e-tolling saga is important precisely because my headline bastardising the denouement of John Donne’s famous poem is, in truth, wrong.
Gauteng’s road upgrade does not come for free.
The R20bn was borrowed by Sanral and lent by people and institutions (which) who assessed the risk attached to repayment on the basis that e-tolling was part of the deal.
This is a précis of what I told my clients about some of the political implications:
The North Gauteng High Court granted an urgent interdict on Saturday that will postpone the implementation of e-tolling until as late next year – and perhaps contribute to stopping it completely.
At this stage the court has ordered a full review of the process that will probably take at least two months to complete. If the court rules that e-tolling can go ahead the appeals process, all the way to the Constitutional Court, can take up to two years.
There are a number of significant risks associated with this decision .
The National Treasury itself, during the course of legal arguments, predicted dire consequences for South Africa’s sovereign risk rating and for public finances more generally.
I think they exaggerated but one could hardly blame them. The Treasury is the custodian of the public purse and its officials and political head carry the responsibility if R20bn that will no longer be raised from tolling has to be dug out from somewhere.
But the ruling is important for a deeper reason. South Africa, according to President Zuma’s State of the Nation address (and confirmed by a number of government and ANC statements in the last few months) is engaged in an infrastructure programme that is expected to cost just short of R1 trillion over the next 8 years.
This is the biggest bet for anyone hoping to invest in the country for the next ten years. Will it happen or will it – again – fizzle?
At least part of the funding model for this infrastructure programme is the ‘user pays’ system established in the planning of the Gauteng highway upgrade project. In general, I think a user pays system is a more efficient – and fairer – system of allocating capital than unwieldy central plans that draw on the central tax pile.
Further, private sector lenders funded the project on the basis of the collection of user fees – this is how they did their calculations and assessed their risk. The ruling effects government’s credibility as a borrower.
Chris Hart (economist at Investment Solutions) is reported to have dismissed this saying the delay is no big deal – less than 0.2% of planned government expenditure this year. Goolam Ballim (chief economist at Standard Bank) said if there was a contractual infringement impacting on Sanral’s ability to pay, it did not imply sovereign default risk and “will not compromise South Africa’s international credit standing in any way”.
Now those two economists are no slouches – and know more about our public finances and the basis that the rating agencies changes the investment grades of our government bonds than I ever will – but surely it is obvious that there is a degree of damage to government (and Sanral’s) credibility as a borrower? Perhaps not as much as the Treasury argued during the urgent application. But we are coming up for strike season, the Treasury has promised to hold the line on public sector wage increases, the budget is under immense pressure and R20bn is not a meaninglessly small amount.
The whole of the South African government looks weak – with the Treasury and the Department of Transport being the most obviously and immediately affected. Both are “studying the ruling” before making public statements. These issues might not swing Standard & Poor, Fitch or Moody’s against SA bonds, but there is no question that this ruling will be part of their assessment.
The risks are clearer when we look at the political back-story. There is a changed political configuration in the Ruling Alliance. The rise of Jacob Zuma was characterised by an already growing influence of Cosatu on policy making. A Thabo Mbeki led ANC would have taken a much stronger line against Cosatu’s campaign against e-tolling and would have stood much more firmly behind the Treasury’s arguments in favour. I am not necessarily cheering for that side, but I do think the Zuma administration is beholden to Cosatu in a manner that limits its options in public finance – and that limitation is being set by a very narrow interest group.
Cosatu has – as is its wont at the moment – been tactically brilliant in this campaign. It has built a classic broad front, multi-class alliance against the e-tolls and has strengthened the group made up of Zwelinzima Vavi, Irvin Jim and Numsa on the one hand and weakened the group made up of Sdumo Dlamini (Cosatu President) Frans Baleni and Num on the other. See here for more discussion on the relevant factional splits within Cosatu.
The gravitational centre of the Alliance is only weakly occupied by Zuma and “the left” in Cosatu has been able to shift the whole edifice towards itself. This is a trend that we will have to keep a close eye on during the lead-up to Mangaung, when the Zuma administration is likely to be at its most docile and weak.
And it is in this environment that Cosatu has taken on e-tolling as ‘privatisation by stealth’ and an infrastructure funding method that taps its constituency too directly. Cosatu is a sectional interest group … and is completely entitled to pursue the sectional interests of its employed worker members (employed, by definition, in ‘union jobs - and all strength and luck to them for that advantage’.)
The most important signifier issue will be how government deals with public sector wage demands over the next few months. It’s strike season, and I mentioned elsewhere, Gordhan’s budget only balanced because of the hard line he took against public sector wage increases.
To give you a sense of why that is important, this is what I said about the budget and public sector wages on February the 23rd:
Public sector wages: This is the area, to our (I wrote this with economist Sandra Gordon) mind, of least credibility with the most consequence:
Total Compensation % of total budget % yoy 2009/10 248558.0 31.8 17.7 2010/11 281619.2 33.6 13.3 2011/12 314907.2 33.9 11.8 2012/13 336959.4 33.5 7.0 2013/14 357168.2 32.7 6.0 2014/15 378148.7 32.1 5.9
Adjusted for inflation those figures in bold are heading towards zero – and remember we are talking about over 30% of the total. The public sector wage bill was R8,1bn more than budgeted for in 2011/12 and it is not an exaggeration to suggest that the whole edifice of the budget could crumble on this point.
So what? … Public sector unions set the tone for industrial bargaining throughout the economy. Our main scenario, in which 2012/13 becomes an industrial relations blood-bath, is looking ever more likely – although we await, with interest, Cosatu’s formal response to Budget 2012. This proposed spending shift – if Zuma’s ANC can hold the line – is also supportive of our construction and investment relative to consumer equity theme – with the consumer sector keeping a “look-in” by social grants increases from R105bn in 2012/2013 to R122bn 2014/15 and the promise to reassess if inflation rises further.
So the e-tolling is an ongoing threat to public finances and it is an indicator issue of how beholden … and therefore weak … Zuma’s leadership is.
But there is an upside to this story. The ANC and Cosatu did agree to postpone e-tolling after their meeting last week – and announced that they had instructed government to do this (revealingly issuing a hastily retracted statement saying they would, in fact “request government to postpone”).
But the real upside is that it wasn’t, ultimately, political weakness or fiscal slippage that led to the cancelling of e-tolling. It was judicial sensitivity to popular opposition and an assertion of the principle of the rule of law.
You will be able to tell by reading between the lines that I think e-tolling was actually the right approach, but it is clear that an unaccountable system, that never bothered to consult the public properly and that, in addition, has badly damaged its own credibility in as far as corruption and maladministration is concerned, was defeated by a judge determined to uphold legal accountability and respect for popular discontent.
It might make the Treasury’s job more difficult and it might create uncertainties about funding infrastructure development, but it has got to be positive for the South African democracy as a whole.