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Some of my recent news coverage and commentary:

E-tolling and the DA’s cruel billboards

Last week Jacob Zuma signed into law the Transport Laws and Related Matters Amendment Bill – meaning the unpopular e-tolling can begin on certain Gauteng highways.

I was impressed that the President did the necessary – despite the fact that this will cost the ANC votes in the 2014 poll especially in the closely contested Gauteng and especially amongst the class of people the ANC is, supposedly, at risk of losing to opposition parties.

Of course failure to sign the law might have led to downgrades by rating agencies and an even more hostile report from the IMF … but good for him anyway!

The interesting aside is that last week huge billboards sprung up along those highways saying things like: “E-tolling – Proudly brought to you by the ANC”.

ANC-e-tolls-billboard

Of course that campaign is funded by the Democratic Alliance snapping with its sharp little teeth at the ruling party’s heals .

Or perhaps it is more like being savaged by a duck?

Whatever, it’s all part of the razzmatazz that is going to be seriously tiring in about four months’ time but for the moment is mildly entertaining.

Election 2014 – the Zuma swings and the Zuma roundabouts

The major weeklies continued their faintly mindless coverage of Election2014.

City Press ran with two stories about how the ANC had decided to put Jacob Zuma delivering 50 specific and successful infrastructure projects at the centre of the ruling party’s election campaign. Not quite the shock the screaming headlines claim it to be.

All the Sunday Papers covered the fact that last weekend’s National Executive Committee of the ANC nullified the previous week’s Provincial General Council of the ANC in Gauteng. At issue was that the ANC in Gauteng is clearly not delighted to have to front itself with this particular president and believes its supposedly more urbane, sophisticated urban voters would be better wooed by Thabo Mbeki, Cyril Ramaphosa and/or Kgalema Motlanthe.

Deep behind the chatter is the growing view that the Zuma-face of the ANC is unlikely to charm the middle classes. The basic reasons, according to feisty City Press editor Ferial Haffajee, are made explicit in the Gupta wedding scandal cover-up:

“(it was not) the first time the party has been damaged by our president’s careless ways and friendships, which morph too easily into cronyism and patronage. There is a long line of infractions, stretching from the arms deal and his relationship with Schabir Shaik, to the rape trial he faced (the president was acquitted), the news of a child born out of wedlock with Sonono Khoza, the splurge at Nkandla and the game-playing with the courts around the spy tapes.” (Said the delightful, clever and middle-class Ferial Haffajee in her column in City Press  on 06/10/2013)

The rumour mill is constantly hinting that in certain constituencies the ANC will lose votes because of perceptions about Jacob Zuma’s cronyism and his traditionalist lifestyle choices. The hints usually suggest that the ANC’s own polling information confirm the view.

Frankly it would hardly be a big surprise if certain middle class constituencies are not enamoured with Jacob Zuma. Previous elections strongly indicate that the president is wildly popular in poorer and rural communities, so things are likely to balance out for the ANC.

What would be a surprise is if government got its act together with regard to infrastructure delivery in any meaningful way before Election2014. While a burst of energy can only be a good thing, do not expect a miraculous improvement in infrastructure delivery to result from the ANC’s election campaign.

Microlending falls from favour

Microlending as a business took a number of hits this past week. Nobel Peace Prize winner and founder of the microcredit lender Grameen Bank, Muhammad Yunus, warned that microlending to finance consumption could lock the poor into a life of poverty.

More importantly from a local perspective, Futuregrowth Asset Management’s Andrew Canter was quoted in the Business Times (06/102013) saying the company would “wind down” its exposure to microlenders, including Capitec, African Bank and other unsecured lenders on “moral grounds” (unfortunately the story doesn’t specify if Canter was purely referring to Futuregrowth’s SRI funds – which would be my expectation.) Canter, according to the paper, said: “We have always backed the responsible firms, but the industry structure has provoked industry behaviours that are not good for consumers, or in our view, the nation” … but, he said, Futuregrowth would not make a “panic exit”. “If industry practices improve, or particular players create more sustainable lending products, we will look to back them.”

The microcredit industry has always been controversial and becomes more so when consumers are struggling to make repayments in declining economic conditions. With the link having been drawn between the Marikana tragedy and the extent to which the strikers where in dire straits with regard to loan repayments, it was only a matter of time before sentiment towards the lenders would sour. With sentiment this negative, government is likely to further tighten regulatory control of the sector, especially in an election build-up.

The judiciary – it’s that Jacob Zuma problem again

In a matter almost as impenetrable as it is serious, a judicial tribunal appointed to probe Western Cape Judge President John Hlophe’s alleged attempt to influence two Constitutional Court judges to rule in President Jacob Zuma’s favour when he was fending off serious allegations of corruption got under way last week.

Amongst the complicating factors is that the two judges Hlophe allegedly tried to influence, Chris Jafta and Bess Nkabinde, have indicated they do not wish to proceed with the complaint.

I am not going to pretend to be able to analyse adequately what is going on here. Follow Pierre De Vos at his excellent blog Constitutionally Speaking for all matters relating to politics and the constitution. There is going to be a lot of complex legal argument around this matter but most constitutional experts suggest that the judiciary will be harmed almost no matter the outcome.

The point we unfortunately have to keep uppermost in our minds is that politicians, and especially their machinations in internal struggles within the ruling party, have damaged our systems of law and the institutions that are important to our democracy – from the judiciary, to the prosecutorial authority and including all state sectors directly concerned with national security (including the SAPS, crime intelligence and National Intelligence Service.) And further, such damage continues unabated as powerful groups in the ruling alliance war against each other.

I am in Serbia on a social visit and I thought I would record here some of my initial observations about stuff we might learn from this country about some aspects of SA politics and culture.

Cultural Betrayal

Firstly, I am in Belgrade – a city of 1.6 million people built on the confluence of the Danube and the Sava – and a peculiar mixture of modern flash, Soviet-era bland and medieval tatty. The scars of the Nato bombings are still dramatically evident in a sort of carefully preserved tableau, a series of monuments to that seminal betrayal, that you can’t miss on your way in from the airport

Serbian/Yugoslav Army HQ? Taken a few minutes ago (thanks Jaimo) – I will double-check what the building’s original function was … before it (and a few of its neighbours) were bombed on May 1 1999, becoming (permanent?) monuments to Western perfidy

Why betrayal? Because everyone my age here has the same (as me)  … memealogy? (okay, I made it up – memes are cultural genes and you can work it backwards from genealogy). The cultural literacy is all Rolling Stones, Sam Peckinpah, Bruce Springsteen, Warren Zevon, The Alien, Bob Dylan, The Beatles and Billy Joel (you dredge up the cultural icon from the 60s, 70′s and 80′s and I bet I share it with Serbians of an appropriate age – except they are more culturally literate. Interestingly, just like in Yugoslavia, in SA we got this stuff a few years late – in SA because of apartheid and National Party awfulness, in Yugoslavia because of a slightly different set of transgressions.)

… and then one day their beloved Americans and English cultural tutors bombed them and killed the firemen trying to save people from the buildings – ostensibly to stop some new, particularly ugly, transgressions. Oh the treachery, the faithlessness …

Ethnic uniformity

The second thing that strikes me is the populace is ethnically identical. They are all white. There are no black people, no Arabic looking people; no any kind of people who are in any way different looking from what I think of as Slavic – which is just a minute variation on your bog standard white person – the men with chiseled features and the women with unusually long legs and everyone with white skin … not olive or dusky or anything, but white – in the old Apartheid conception of the skin colour.

“The city was more cosmopolitan”, my Serbian friend tells me, “before the disaster of Slobodan Milošević – before then you could see more  Croats, Bosnians, Macedonians, Montenegrins, Muslims, Slovaks …”

We are wandering down a medieval street crammed with crowds of handsome young people. I ask him to show me some individual examples of these groups that survived the virtual and literal ethnic cleansing that accompanied the collapse of Yugoslavia.

His attempt seems half-hearted, even dispirited.

“Hmm maybe she is Croat,” he says indicating a woman flicking through some blouses at a street kiosk. She is one of the tall, long-legged, light-brown haired, chiseled cheek-boned and haughty beauties that shoal in these alleys, as ubiquitous as sardines at the right time in Durban.

“Ok, maybe not” he shrugs as I frown at him in confusion.

We finally manage to agree that “those gypsies” selling knock-off Ray-Bans look ethnically dissimilar to the majority. But to me  it’s a margin call – any one of them could have been my old ‘Leb’ Catholic chinas in the Johannesburg of my youth; definitely ‘white’ under apartheid’s racial taxonomy.

Remember it took the terror of ethnic cleansing to create this level of uniformity, but even before that, in the old Yugoslavia, the full range of ethnic diversity could have been encompassed by the differences between, say Rafael Nadel and Charlize Theron …

Let’s compare monstrous barbarisms

Everyone here above a certain age seems haunted by what happened after the collapse of Yugoslavia. You would think that this lot would be immunised to bombs, betrayals, racial and religious purging and radical disjuncture in their social organisation.

It started with the Celts invading  the “Paleo-Balkan tribes” in 50 000 BCE  (okay, I’m exaggerating) who in their turn were replaced by an endless Roman occupation; sacked by Attila the Hun in 442 and then one thousand five hundred years of bloody, impossible to follow conquest, resistance, sacking, rapine, pillage … I could go on and on. It was the Byzantines, the Franks, the Bulgarians, the Kingdom of Hungary, the Crusades, the Serbian Empire (briefly) the Hungarians again, the Ottomans (for five hundred years! … and yes, they did persecute the Christians but not half as badly as the Christians did to almost anyone of any other faith during the Crusades … and there are a whole lot of beautiful and ancient churches that the Ottoman-Turk conquerors and rulers left standing) and the Austrians.

And of course, that is only before the First World War, and as you know all the important stuff happened since then.

I know our African and South African histories are important and it is appropriate that we wrestle as long as it takes – which will be forever, obviously – with the ongoing consequences of slavery, colonialism and apartheid.

But being here does tempt me to wish my countrymen and women had a slightly less myopic view of our own trials and tribulations.  I read this morning that Belgrade is trying to scrape together the finances to build a memorial to Judenlager Semlin, the largest German-run concentration camp in Southeast Europe where in May 1942 the Nazi’s proudly announced one of their first major European campaign successes: Serbia was “Judenfrei”. The men had been executed earlier, but the last 7000 Jewish women and children were killed in the camp in the first few months of 1942.

By May Serbia was Judenfrei.

And this is not a The Holocaust trumps all kind of statement – I just mention it  in the context of the previous 2000 years of European history. The Germans might have achieved a unique scale with their technological and organisational excellence, but the great rivers of cruelty and tears are old, deep and cold here and they flow through every valley of this geography – and not only to and from the mighty lake that was The Holocaust.

The Economy and the European Debt Crisis

The Serbian economy has hit the wall and the government is trying to decide on a balance between cutting public sector wages and salaries by about 6% and increasing VAT to about 22%. The options are limited and there is an absolute consensus that extremely hard times have arrived. This is the European debt crises writ slightly smaller – because Serbia is not part of the European Union.

But what I see are people eating and drinking in restaurants – and partying as hard and as healthily as it gets.

There are almost no beggars – and those that there are are obviously professionals with studied acts:

  • the near-sighted (with ridiculously cute thick glasses) slightly retarded child playing – very badly – the violin, every item of clothing and scuff on his thick medical black shoes a carefully choreographed act that everyone consents to and ignores.
  • An old hunched-backed crone, her nose not six inches from the floor, tapping along on a short, gnarled staff, an arthritis crippled hand held out blindly above her … I am convinced she is a 22-year-old actress who couldn’t find a waitressing job.

The point is there are none of the streams of dead-eyed, exhausted people searching and researching the refuse; people you will find in any South African city. There is a medieval character to Belgrade, which means there are a million nooks and crannies and little hollows in ancient buildings and monuments everywhere. In South Africa those would all be occupied – where they were fenced, the fences would be broken and tunneled under – there would be evidence that someone was eking out an existence in every hollow, in every gap.

But here, nothing.

Sure, there is an occasional drunk sleeping on a park bench, but that is pretty much as bad as it gets. I have absolutely no doubt that I am not seeing the whole picture and certainly there are large areas of the city with awful Soviet-era council housing-type tenements, covered for 10 metres from street level with graffiti that looks to me just like Cape Town’s gang signs.

In South Africa we feel like we are bursting out of our seams, with the poor competing intensely for the leavings of the rich and thereby driving some kind of desperate but highly energetic economy. Here it feels older and emptier, certainly dowdy in places, but calm and stoic.

Everyone has time for a coffee and a rakia.

Don’t get me wrong. These people descend from women who have thrown their babies onto invader’s spears; their forefathers and mothers have eaten dogs and rats and stones to stave off the inevitable rape and slaughter that awaits the fall of the castle walls; they have catapulted the last live chickens at their enemies who have besieged them for years, and successfully convinced the invaders to just give up and go home.

So I  am not exactly saying that this is tired old Europe with nothing left to do but casually sip a coffee in the shade, sneering at the inevitable heat death that comes with impossible debt, dipping personal income and stagnant growth – of the economy and the population.

I am also not exactly saying that we are fresh and chaotic and ready to burst onto the global stage with the vigour and desperate energy of youth.

But there’s something in there, some little kernel or nugget – maybe a hope that I haven’t quite allowed myself to feel yet …

But it’s mid-afternoon and so hot that it is impossible to process this any further. Time for my first rakia and 4th double espresso – I’ll think about this tomorrow.

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.

So what?

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.

I am an independent political analyst focusing on Southern Africa and I specialise in examining political and policy risks for financial markets.

A significant portion of my income is currently derived from BNP Paribas Cadiz Securities (Pty) Ltd.

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