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… which I entirely doubt will be made glorious summer by this sun of KZN when he gives his 5th nth State of the Nation Address this evening.

I am not, as my children might have said, very amped for this.

The only ray of light so far (I am watching on eNCA) was a brief interview with Floyd Shivambu who suggested it should be a ‘state of the resignation address’ … that if the President couldn’t make it to the Cabinet Lekgotla ‘then it would be best for him to just come here to explain that he is just too old and tired and to say goodbye’ – or words to that effect.

I thought I would use the time to publish some bits and pieces that I have sent to my clients over the last week.

The winter of our discontent – as the labour relations cycle meets a secular trend

Every year at this time South Africa is engulfed in strikes as annual wage agreements are traditionally renegotiated in several sectors of the economy. Every year analysts and journalists pontificate widely about the dire labour relations conditions – and the gloom deepens because this all takes place in winter.

Three factors this year are probably going to make the outlook more negative and threatening.

Firstly, the post national election winter has, since 1994, been characterised by spikes in service delivery protests. The causes of this phenomenon are not fully understood, but it is likely that:

  • voters confronting a hostile winter and declining services levels – so soon after being promised the earth by politicians – are likely to be unsettled;
  • local politicians who failed to make party lists begin mobilising factional support, perhaps to stand as candidates in 2016 local government elections, perhaps to discredit those whose positions they covet.

Secondly, the platinum strike is being driven by a number of ‘political’ factors – as discussed previously.

Thirdly Numsa is showing clear signs that its political aspirations are, as we predicted, going to drive deeper and more robust strikes and labour unrest. One sign is the growing violence as Numsa attempts to widen its action at the Ngqura container terminal in the Coega Industrial Development Zone in Port Elizabeth.  The South African Transport and Allied Workers Union (a Cosatu union) is opposing the Numsa strike and is calling for its members to stay at work at the Transnet facility. However, both Transnet and Satawu were quoted on radio (SAFM 20h00 news broadcast 08/06/2014) as decrying the burning of houses and cars of the workers who were at work. The SATAWU spokesperson warned that the situation had similar dynamics to those that were present in the platinum sector in 2012 – that this ‘is just like what happened with Amcu (same broadcast).

Additionally, Numsa is preparing to lead 220,000 workers out on strike from the metals and engineering sector next month. “The bargaining negotiations have spectacularly failed to produce the desired outcomes as expected by the thousands of our members in the sector,” spokesman Castro Ngobese said in a statement quoted in The Herald (5/06/2014). Numsa’s core demands includes a 15% pay rise and a one-year bargaining agreement, the Steel and Engineering Industries Federation of SA (Seifsa, which represents 23 employer associations) has offered an inflation-linked increase of 6.1 percent.

So what?

This is the cycle meeting the secular trend, with each driving the other deeper than either would have been driven ordinarily. Numsa is in the  process of breaking away from Cosatu and is beginning to vigorously compete with other Cosatu unions in overlapping sectors (container terminals, the big electricity generation projects and down and upstream mining and metallurgy operations).  This is, at least partly, about Numsa preparing to set up a ‘left’ party to compete for votes in the future. Comparable (but not identical) dynamics are driving the platinum strike. A winter with ‘normally’ increased social and industrial unrest will probably become unusually bleak and unwelcoming in the months ahead. The impact on GDP growth and on the possibility of ratings downgrades are both important considerations.

 

X Rated

Both Fitch and Standard & Poor made references on Friday (13/06/2014) to increased political risk when they changed their views on the South African government’s willingness and ability to pay the sovereign debt.

Fitch revised the outlook for South Africa to negative from stable and affirmed the country’s long-term foreign and local currency issuer default ratings at BBB and BBB+ respectively. S&P downgraded both the country’s local and foreign currency ratings by one notch from A- to BBB+ and BBB to BBB-  respectively, but moved its outlook negative to stable. None of this is a catastrophe  but of interest to us here is the central role of ‘politics’ in the given reasons for both Fitch’s and S&P’s changes.

Fitch says it most baldly in the press release announcing the change in outlook (my emphasis added):

“Following its election victory in May with 62% of the vote, the African National Congress government faces a challenging task to raise the country’s growth rate and improve social conditions, which has been made more difficult by the weaker growth performance and deteriorating trends in governance and corruption. This will require an acceleration of structural reforms, such as those set out in the comprehensive National Development Plan (NDP). In Fitch’s view, the track record of some key ministerial appointments and shortcomings in administrative capacity mean this is subject to downside risks.”

Fitch gives amongst the key drivers of its more negative outlook: “Increased strike activity, high wage demands and electricity constraints represent negative supply side shock.”

Standard and Poor’s downgrade was similarly motivated but adds some additional concerns:

“While we think that President Jacob Zuma’s newly elected administration will continue the policies of his first administration, which controlled fiscal expenditure and fostered broadly stable prices, we do not believe it will manage to undertake major labor or other economic reforms that will significantly boost GDP growth”.

My initial take on the new Cabinet is supportive of these motivations.

In addition both agencies made extensive reference to the negative industrial relations environment – and the negative impacts on GDP growth and government revenues. There is a significant political dimension driving industrial unrest – as I have argued above.

So what?

The validity of the actual ratings and ratings outlook of these agencies is much disputed[1] but the issues they use to motivate their views are interesting because they (the agencies) are cautious; clinging to a sort of ‘average view’ of investors. So if political criticism makes its way into the text (as is the case in both these instances) we are obliged to consider that these may represent, or may come to represent, a general view in markets.

South Africa has a small open economy and liquid financial markets and the difference that policy makers can make to economic outcomes is limited. But even within those limitations too many political choices (certain cabinet appointments, corruption controls, delivery performance and the honest brokering of labour contestation) are either not helping or are actively negative.

[1]No-one could have failed to notice the excoriating criticism of the credit rating agencies (CRAs) after their generalised failure to accurately assess the risks associated with the collateralised debt obligations allegedly because they were mostly issued by the CRAs biggest paying clients! However, it is the opposite with sovereigns: “It has also been suggested that the credit agencies are conflicted in assigning sovereign credit ratings since they have a political incentive to show they do not need stricter regulation by being overly critical in their assessment of governments they regulate.” http://en.wikipedia.org/wiki/Credit_rating_agency (accessed 13h56 16/06/2014.

 

The National Directorate of Public Prosecutions

I  dealt with this issue last week, but it is making bigger and more anxiety provoking headlines than ever.

So what

The NDPP was drawn into the fight between Mbeki and Zuma and since that time has limped along to the rhythm of one or other faction aligned to competing interests within the ANC seizing or losing power in the institution. This is not a situation in which one could safely choose one set of ‘good guys’ and back them against another set of ‘bad guys’. The situation is complex but relates primarily to the on-going struggle to either ensure that certain senior political leaders are brought to justice or to ensure that they are not.

The NDPP is one of the most important institutions of the justice system, and without certainty and stability here it is impossible to have certainty about the operating environment for any business in the country. This is a serious problem and it appears to be getting worse under the current administration.

 

Platinum Strike

(This is a bit dated, but you might be interested in my rude remarks about the new minister.)

“Government is ready to wash its hands of the protracted wage strike by platinum mineworkers in Rustenburg” according to the Sunday Independent 08/06/2014. Mines minister Ngoako Ramatlhodi threatened to pull out his inter-ministerial task team if a settlement was not reached at the last scheduled government facilitated meeting, which is due to take place today.

In addition, a formal ANC statement delivered by Gwede Mantashe at a press conference in Luthuli House in Johannesburg last night after the ANC weekend lekgotla[1] characterised the strike in a way that seemed to destroy the remote possibility that Ramatlhodi could have made a difference anyway:

“The articulation of AMCU position by white foreign nationals, signalling interest of the foreign forces in the distabilisation (sic) of our economy.

The direct participation of EFF in the negotiations, and thus collaboration with the foreign forces.

These two factors led the lekgotla into cautioning the Ministry of Mineral Resources in handling the facilitation with care. There were questions about the role of the state in workplace disputes where there are clear rules guiding it.”

This statement is interesting precisely because it borders on the bizarre

So what

The ANC statement indicates shows just why the new ANC minister cannot be an honest or effective broker in the negotiation – and it is therefore unsurprising that he is preparing to withdraw his team. The ANC is compelled to believe that this strike is only not ‘negotiable’ in the normal manner because the real issues driving it are political  and not about wages at all. The ANC might be correct about the strike being ‘political’ but the party itself is culpable of having politicised the strike by attempting to defend its Num ally against the vigorously growing Amcu, by alienating workers by characterising their union as ‘vigilantes’ and by the ‘Marikana massacre itself.’ s – There was never any real possibility of this government mediating between the parties or influencing the outcome.

 

Concerns about property rights

The South African Institute of Race Relations and AfriBusiness (AfriSake) have recently released warnings about property rights in South Africa. A proper assessment of these warning would require specialist legal opinions, but our own assumptions have long been that the South African Constitution provides adequate protections for private property (see here) and the ANC government is unlikely to risk fiddling with these principles.

However it seems to be a basic due diligence requirement to keep an eye on the risk – perhaps more so since Jacob Zuma spelled out at his Cabinet announcement (reiterating many recent ANC and SACP statements) that we are entering a “more radical” phase of economic transformation.

With this is mind, we reproduce the basic summary of legal concerns AfriBusiness and the South African Institute of Race Relations have raised in their research (note that below is a direct quote from the AfriBusiness statement linked above):

  1. The National Development Plan has as its aim the transfer of 20% of the agricultural land in a district to black recipients, at only 50% of the value as determined by the state (in terms of the Property Valuation Bill).
  2. The verdict of the Constitutional Court in April 2013 in the case of AgriSA v the Minister of Minerals and Energy distinguishes between “deprivation” and “expropriation”. After the verdict the state is able to dispossess and redistribute property, as long as the state does not assume ownership of the property and act (sic) only as custodian.
  3. The Green Paper on Land Reform aims a radical redesign of property rights, with inter alia a type of freehold on land which will drastically limit the rights of owners. Within this context a Land Management Commission is proposed, which will have discretionary powers regarding disputes over title deeds.
  4. The policy proposal by the Minister of Land Reform, Gugile Nkwinti, for “Strengthening the rights of workers working the land” aims to transfer 50% of the land to the workers, commensurate with their term of service. No compensation will be paid to the owner.
  5. The Expropriation Bill poses that expropriation may be used for the public interest and public goal. The Bill is not only applicable to land but will cover all types of property. Public interest and public goal are determined in an ad hoc manner and both have restitution as aim.
  6. The Promotion and Protection of Investment Bill allows state intervention in investment processes. The Bill explicitly provides for expropriation at less than market value. All in the name of so-called restitution. Any property used for commercial purposes is targeted by the Bill.
  7. The Infrastructure Development Bill aims to eliminate so-called inequalities in infrastructure. The Presidential Infrastructure Coordinating Commission is granted the authority to expropriate in the public interest and for the public goal.
  8. The Spatial Planning and Management of Land Use Act aims at centralized planning of land ownership. It proposed so-called spatial justice by integrating low and high cost housing in residential developments.
  9. The Extension of the Security of Tenure Amendment Bill expands the rights of occupants and their dependents. Evictions are strictly controlled and the Amendment Bill means a significant loss in control over property.
  10. The Restitution of Land Rights Amendment Bill creates further political and economic uncertainty regarding the future of property rights.
  11. The Rental Housing Amendment Bill proposes stricter regulation of the rental property market. Rental Tribunals will be established to hear disputes and will be able to determine increases in rent.
  12. The National Water Amendment Bill and Policy Review prohibits the trading of water rights and proposes a use-it-or-lose-it principle for water rights. Equality (including racial transformation) becomes the criterium (sic) for the allocation and re-allocation of water rights.

Consume that with the requisite amount of salt but keep an eye on the detail.

 

[1]Sesotho loan word meaning court or community council meeting; used in the South African context a “lekgotla is a meeting called by government, Cabinet or the ANC to discuss strategy planning”. Wikipedia accessed 04h30 09/06/2014.

 

I have been agonising over whether to keep this website going –  or to consign it to the wastelands of the interwebs there to wander mournfully, accumulating lurid advertisements for secret ways of getting rid of belly fat and invitations from young, beautiful and lonely people, in your area, waiting by their phones for a call from you.

After weighing matters too arcane to bore you with here I decided to gird my sagging loins (that’s long and loose clothing, not that other thing you were thinking – Ed) and once more into the breach … and all of that.

So … I have written various 2014 previews. One you may have seen was for the Mail & Guardian and titled ‘What I will be telling investors in 2014′. I would have liked to give it a better edit – and I think I don’t adequately deal with the issue of the corroding effects of the original arms scandal – but you may be interested in reading it anyway. Catch it here.

I also published in early January, as part of BNP Paribas Cadiz Securities’ 2014 Outlook, the overview below. (Thanks, as always, to my main contract holder for generously allowing me to republish a few weeks later here.)

(Remember, no-one has been to the future and returned with any useful information as far as I am aware … so treat the following with a healthy degree of scepticism – Ed)

Political outlook 2014: No safe haven in the storm

Introduction

At least part of our sanguine view of South African politics has rested on the belief that the ANC had several more decades of 60%-plus support at the polls. We were of the view that while this could lead to corruption, complaisance and cronyism, it would also allow the party to keep the country, government and constitution steady while SA undertook a wrenching transformation from its apartheid past to whatever the future held.

However, several important fissures have appeared in the ANC’s support base that suggest this assumption of indefinite ruling party dominance may not be correct and, therefore, that the essentially benign shepherding of that transition is under strain.

Amcu: bridgehead in previously safe African working-class constituency

Firstly, the success of the Amcu (Association of Mineworkers and Construction Union) in the mining (particularly platinum) sector has led to the virtual collapse of a key ANC labour ally, the National Union of Mineworkers (Num). Amcu is important for a number of reasons, but in this section, the issue is that it has created a bridgehead in the ANC’s core constituency that has every possibility of linking up with new left-wing (or in other ways radical) political formations that will challenge the ANC politically in the next few years.

Julius Malema and the formation of the EFF

Secondly, the expulsion of Julius Malema from the ANC and his formation of the Economic Freedom Fighters (EFF) party damages the ANC in two important ways. It draws disaffected young black South Africans, who are experiencing unemployment rates of about 60%, out of the ANC. And it captures ideological terrain that the ANC was previously able to control and finesse, namely, the question of the nationalisation of mines and land.

A strong and confident ANC has, since 1994, essentially been able to tell its electoral constituency that patience is required for transformation and that constituency has, with mutterings, accepted the ANC’s moral authority on the matter. However, that consensus is collapsing. Mr Malema’s ‘red berets’ are attacking the president at every opportunity and arguing that the ANC has sold out the birth-right of Africans and has been bought off by the opportunity to loot the state and by juicy empowerment deals. The message has a natural resonance among poor urban and unemployed youth – but up until Mr Malema’s expulsion, the ANC was able to articulate both sides of this debate within itself.

NUMSA split: The unravelling of the ruling alliance

Thirdly, it appears that the long-standing split within Cosatu (Congress of South African Trade Unions) over its relationship with the ANC has been forced to a head by the suspension of Cosatu Secretary General Zwelinzima Vavi. A ‘left’ faction had, with a degree of discomfort, existed within Cosatu since the formation of the union federation in 1985. This faction has its roots in non-ANC liberation traditions and was concentrated mostly in Cosatu manufacturing unions, especially Numsa. The moves to get rid of Mr Vavi and close down Numsa’s criticism of the president and of ANC economic policy probably emanate from the hegemonic faction within the ANC itself, in other words, Jacob Zuma and his closest allies. Not unsurprisingly, Numsa has now formally called on Cosatu to leave the alliance with the ANC, has said it will not be supporting the ANC in the election in 2014 and has called for the immediate resignation of President Zuma.

Over time, this will impact ANC electoral support, though not necessarily profoundly in 2014. How Numsa members and their dependants vote in next year’s election was probably a ‘done deal’ prior to Numsa’s defection decision at its special congress in late December 2013. Numsa may link up with ‘left’ or ‘workers’ parties (and may actually form a ‘socialist party’ that could challenge the ANC for support in the ANC’s key black working-class constituency), but this will likely impact more profoundly on electoral outcomes in the 2019 election.

ANC swelling in rural conservative areas and shrinking amongst urban sophisticates

Fourthly, the patronage and diversion of state resources as depicted by the Nkandla saga, combined with the vigorous pursuit of the rural vote in Kwazulu-Natal, has meant that the ANC is gradually appealing less to urban Africans (although this is by no means a majority trend) and more to rural and traditional poor black South Africans. This appears to mean that parties like the Democratic Alliance, AgangSA and the EFF are picking up a degree of unexpected traction in such constituencies.

Labour environment

After a catastrophic 2012 as far as the labour environment was concerned – especially the repeated waves of illegal and violent strikes in the platinum sector – 2013 saw stabilisation, albeit at still unacceptably high levels of unrest and strike activity.

In the platinum sector, the Amcu is ‘bedding down’, but likely to continue contesting with the Num in the gold sector. The next public-sector wage round is scheduled for 2015, so we have a breather before that storm hits (and we expected it to be a big storm when it does).

The formalisation of the Numsa split from the alliance probably means that this union will begin to actively contest with the Cosatu unions and in several other sectors of the economy. We are looking for the formation of new and smaller unions in sectors where the incumbent unions have grown too cumbersome or complacent to deal with the demands of specialist groups of workers. Unionism is a growth industry in South Africa, with annuity income for those who set them up. As Cosatu shudders, there are many opportunities emerging.

Labour unrest, poor labour productivity and inflexible labour markets (price, size, skills) are among the biggest negative domestic drivers of economic growth and we expect the figures to show a slight improvement in 2013 over 2012 and a significant deterioration in 2014 and 2015 – which may have significant negative implications along the lines of the BMW ‘disinvestment’ decision.

National Development Plan: The political rise of the Treasury and fall of Cosatu

The ruling party and the ruling alliance’s approach to the National Development Plan (NDP) has appeared highly conflicted since the adoption of the plan at the 2012 Mangaung national conference of the ANC.

While our view is that the NDP is little more than a shopping list (and not the miracle cure some ratings and multilateral agencies hope it is) in the areas of large infrastructure roll-out and a disciplining/training/focusing of the public service, we may be in for upside surprises. The important political leaders to watch here are ministers Lindiwe Sisulu (public service and administration) and Malusi Gigaba (state-owned enterprises).

In several different ways, the Zuma leadership of the ANC has, over the last few months, appeared to back with a degree of fortitude previously orphaned policy thrusts from the NDP that are generally ‘financial-market positive’.

The first of these is the foregrounding of the NDP itself – both at Mangaung, but also in the medium-term budget statement in October 2013. Minister of Finance Pravin Gordhan stated that that this budget statement and all future budget statements would be ‘the accounts’ of the National Development Plan, putting the plan at the centre of government policy.

The trade-union movement – especially the now defecting faction rooted in Numsa, but actually common to the whole federation – was outraged by this, as it sees the NDP as a capitulation by the ANC to (variously) ‘white monopoly capital’, ‘neoliberalism’ or ‘business interests’.

In conjunction with this foregrounding of the NDP, Jacob Zuma has recently signed into law two major policy thrusts that are bitterly opposed by the ANC’s labour ally.

The first of these is the Transport Laws and Related Matters Amendment Act, which allows for the implementation of ‘e-tolling’ on Gauteng highways and has been bitterly opposed by COSATU and other community groups in that province. Bond-market investors and ratings agencies have repeatedly said it is crucial that the ANC implement ‘e-tolling’ if the government is to maintain credibility on the global capital markets. It is significant that the Zuma administration has grasped this nettle, despite facing (by all accounts) a significant electoral challenge in Gauteng in 2014.

The second surprising nettle-grasping activity has been the promulgation of the employment tax incentive bill in the face of united Coatu fury. This is the ‘youth wage subsidy’ of yore, and the ANC under Jacob Zuma has obviously decided to accept thunderous criticism from its ally in the hope that longer-term employment growth benefits will weigh in its favour at the polls, in both 2014 and 2019.

Together, these initiatives are surprising positives and have probably come about because the Treasury has managed to persuade Mr Zuma and his cabinet that failure to take a stand on these various measures could lead to downgrades by the ratings agencies.

Policy and regulatory risks predominate

Thus, our view is that the Presidency, bereft of any real policy direction itself (because it is busy purely with rent seeking and hanging onto power) has been persuaded by Pravin Gordhan that the country is in trouble, that the deficit is looking genuinely threatening, that downgrades are a real possibility and that if this goes south, President Zuma might go with it. The National Treasury briefly has the reins, and this gives us a moment of respite.

However, hostile mining regulations, a fiddly and interventionist Department of Trade and Industry, an overly ambitious Department of Economic Development, a hostile Department of Labour, liquor legislation, more and tighter empowerment legislation and deepening regulations on all fronts, but especially in the credit markets, mean that, on the whole, government in 2014 will be an unreliable financial-market ally.

State finances: The deeper risks are fiscal

The country’s increasing dependence for stability on social grants and other forms of social spending is a real and deepening political risk. While the social grant system has lifted millions of South Africans out of poverty and the public sector has employed hundreds of thousands of others, it has also created a culture of dependency and paternalism and is an unsustainable expense that the government will at some stage be forced to reduce. This is definitely going to be accompanied by severe social turmoil, although as mentioned previously, the real ‘fiscal cliff’ is still some way ahead of the forecast period dealt with in this report.

Election 2014

The election results will be important, but in ways that are difficult to predict.

If the ANC’s share of the national vote plummets to the low 50% range, will this force the party into a process of renewal, or will it be panicked into populist measures? It probably depends on which parties take up the slack.

If the ANC gets 65% of the vote, will it be ‘Nkandla business’ as usual – an unhealthy rural populism à la the Traditional Courts Bill, combined with activities like the significant public resources (ZAR208m) spent on building the president’s Nkandla compound and accusations of corruption?
If Mr Malema’s Economic Freedom Fighters get 10% of the vote, will that mean ANC policymaking is paralysed until 2019 as the party attempts to appease the angry and disenfranchised youth? Will it mean legislation relating to mining and land ownership swerves into uncertain and dangerous territory?

If the Democratic Alliance wins 27% of the national vote (which we think unlikely) and if it is able to form a provincial government in alliance with other parties in Gauteng (which we also think unlikely), how might that cause the ANC to behave? Better? To continue to allow the Treasury to set the tone of probity and effectiveness, concentrate on fixing education and focus on economic growth as the only guarantor of electoral success in 2019? Will this kind of threat cause the ruling party to attempt to make opposition strongholds ungovernable? We suspect different impulses are already at war within the ANC and investors should watch how that battle plays out.

Below, purely as a way of presenting our latest ‘guesstimates’, are our ‘most likely’ electoral outcomes for 2014 (these may change as campaigning performance changes before the election and as various crises emerge, eg, the booing of Jacob Zuma at the FNB Stadium commemoration for Nelson Mandela in December 2013).

votingresultsinpreview

BRICs and the uncertain rise of the SACP

A relatively new and difficult-to-unpick issue is the growing confidence the South African Communist Party (SACP) has in shaping the national agenda. The inappropriate focus on BRICS speakers at the FNB Mandela memorial (over Africans and European Union speakers, with Obama the inevitable exception) is probably evidence of the Communists having very significant influence.

We think this could have fed through into the announced Zuma/Putin ZAR 100bn nuclear deal.

This is a matter of growing tension within the ANC, with a previously dominant (under Mandela and Mbeki) group of ‘progressive Africanists’ having lost power to the Communists, who are now in an alliance with a patronage-seeking, provincial elite with strong links to state-security apparatuses and rent-seeking business interests (‘the Nkandla crew’.)

This struggle could play into succession issues and might be a driver of attempts to impeach Jacob Zuma (a strategy unlikely to succeed, in our view) over the next few years.

Succession and a ‘rescue mission’ in the ANC?

While this matter probably lies beyond the 2014 scope of this report, within the ANC, the possibility of a rescue mission is taking shape (driven, in part, by growing commentary about how many public resources are ending up on and around Jacob Zuma’s person and his tight control of security agencies). A group now on the outskirts of the party, and in very general terms representing the ‘old guard’, appears set to begin working on securing a succession process that reverses the decline (moral and in popularity) over which Jacob Zuma appears to be presiding.

This move has not yet taken shape, nor is it properly manifest, but in our view the important people to watch are previous President Thabo Mbeki, Lindiwe Sisulu, Nkosazana Dlamini Zuma, Cyril Ramaphosa and Zweli Mkhize.

As promised some comments on the politics of Pravin Gordhan’s medium-term budget … but first forgive me for expressing some of my irritation at two of his (Gordhan’s)  recent statements.

That will be followed by some of  the bits and pieces I found interesting in the weekly newspapers – if you didn’t see the ‘Zuma gaffes” selection in the Sunday Times and City Press I reproduce some of them here.

Excuse me?

Look I am not yet ready to start calling him a tubby little tyrant with the charisma of a mud prawn but Pravin Gordhan has been saying some things that are not hugely endearing.

First he told a joint parliamentary committee that negative news flow from ‘the media” was partly responsible for sovereign downgrades of South Africa’s debt. So what, he thinks Moody’s, S&P and Fitch get their understanding of government policy from the Sunday Times?  It is just a stupid thing to say and makes him sound just like a National Party ministers circa about 1986. Catch that here.

Secondly, responding to the flurry around South Africa’s cancellation of its bilateral investment treaty with Germany he “blamed lawyers serving the private sector for increasing uncertainty in South Africa’s investment environment” – catch that Business Day story here .

I didn’t personally hear Gordhan in either of these instances but there might be a pattern emerging:

Pravin (PW Botha) Gordhan

Look familiar … think PW Botha? (That’s Business Day’s photo btw, I hope and trust they don’t mind)

Okay, I am glad I got that off my chest – on with the rest.

Political messaging and the medium-term budget – all good

If political messaging was all that we were looking at in the MTBPS then we would have to conclude that Pravin Gordhan’s performance was overwhelmingly financial market positive. Obviously ‘messaging’ doesn’t determined the price of eggs or the price of much else. The believability of Minister Gordhan’s various estimates and projections is ultimately more important for determining sovereign risk, but the overt politics of the message indicates a more confident government prepared to stand on organised labour’s toes to reassure global capital markets (and other investors).

Firstly, Gordhan was on message with regard to the Employment Tax Incentive Bill. This is the latest manifestation of the youth wage subsidy and has been bitterly opposed by Cosatu and, to some degree, by members of the SACP (for reasons that I have explained elsewhere). It is unclear whether the policy will make a significant dent in South Africa’s serious youth unemployment problem (which deputy minister of Finance Nhlanlha Nene recently put at  42% for  those aged between 19 and 29) but what the rating agencies have been looking for is signs that the ANC and government can forge policy independent of, especially, Cosatu – and in this confident assertion by Gordhan they have their signal.

Secondly, the Finance minister cast the MTBPS – and, in fact, all future budget statements – as the accounts of the National Development Plan (NDP). Again, the NDP is bitterly opposed by Cosatu – and is less than warmly regarded by the SACP. It is a confident Jacob Zuma that backs his Minister of Finance to define government budgeting as : “(t)aking the National Development Plan as the point of departure”.

The NDP is little more than a shopping list and a general statement of intent but it generally conceives of the market as the appropriate mechanism for the allocation of capital (at least more so than the New Growth Path and the Industrial Policy Action plans do). It also puts the infrastructure plans and improving capacity and accountability of the public service as key planning objectives. There is no evidence that the ANC and the Zuma administration is going to succeed in moving beyond planning to implementation, but Gordhan made the right noises in his speech.

Thirdly Gordhan pressed every conceivable button in his attempts to tone down excesses in the executive and the public services. He placed a number of ceilings on luxuries, cars, travel, catering, accommodation, use of credit cards – and amongst the Twitterati the cry went out: Gordhan derails the gravy train!

Again this is good form but we have to keep an eye out for the content. After all this is a government led by a president deeply implicated in the ambitious abuse of various privileges. It is going to take a more than fine sounding words to convince the country that the gravy train has, in fact, been delayed let alone derailed.

Fourthly the key political aspect of political risk in relation to the budget is the commitment to restrain growth of the public sector wage bill and social grants – two pillars of both political stability and continued electoral support for the ANC. Obviously the minister (at this stage the apparently tough and skilful Lindiwe Sisulu) in public service and administration will have to hold the line in public sector wage negotiations – we will have to wait to see how that plays out, but Sisulu is the right person for the job of holding that thin red line.

Loud and widespread muttering about power struggles in the Democratic Alliance

It should probably be seen as a sign that the Democratic Alliance is on the verge of breaking out of its previously narrow ethnic base that the fine details of its internal power struggles are becoming a matter of national public debate. All the major weeklies discussed a putative succession struggle between the DA’s national spokesman and candidate for Gauteng premier, Mmusi Maimane and the DA parliamentary leader Lindiwe Mazibuko. The point being that Maimane’s supporters are pushing for him to be on the parliamentary list so that if the DA does not win Gauteng next year (dah!) he will still get into parliament.

So what?

Obviously the Democratic Alliance believes that it needs a black leader if it is to make a serious dent on ANC support in 2019 – but the matter is not so pressingly urgent that they are likely to dump their extremely successful and popular leader Helen Zille any time soon. I still think there is space for an amalgamation of the DA and AgangSA after that new party performs adequately but fails to shoot out the lights in 2014. That will leave the tantalising possibility of Mamphela Ramphele finding her way into the top leadership of the DA some time in about 2016. So of the three potential black leaders of the DA, Maimane probably has most township credibility and would represent the DA going out there head-to-head with the ANC for the African vote. Lindiwe Mazibuko would be the most palatable for the DA’s traditional support base (yes, we all know who I mean). And Ramphele, with her struggle credibility and achievement in academia and business seems like a perfect – and heavy hitting – compromise. She might need a charisma injection, but that is purely a personal observation.

Mozambique – Renamo rears its scarred and ugly old head

The Mozambique army overran a key Renamo base in central Sofala province on Monday last week and Renamo guerrillas hit back on Saturday by ambushing a minibus, killing one person and injuring 10 more.

So what?

This might seem like small cheese, but Monday’s government attack has forced Renamo opposition leader Afonso Dhlakama to flee into the bush and has raised the spectre of the restart of the 16-year civil war which ended in a 1992 peace pact that established multi-party democracy in Mozambique. Renamo has lost every election since 1992 but Dhlakama’s party said on Monday it was abandoning the peace agreement. In and of itself what has happened over the last week is not huge, but in the context of the hopes for Mozambique’s economic growth as that country emerges as a natural gas giant, Renamo becomes a significant risk that needs careful attention.

The Cosatu vortex is sucking in everyone in – this is a clear and present danger

This weekend the national general council of the powerful South African Democratic Teachers Union lined up in precise opposition to Numsa in the on-going and bitter struggle taking place in Cosatu. Sadtu backed the disciplinary process against Zwelinzima Vavi, it vigorously opposed the holding of a special Cosatu conference and it unequivocally backed the ANC in elections next year.

So what?

My own (perhaps counter-intuitive) view is that the only way for Cosatu to remain as a functional federation and part of the ruling alliance is for a special congress to be held during which Zwelinzima Vavi wins the popular vote, escapes disciplinary action for his various infractions (both the real ones and the made up ones) and Numsa decides to stay in the federation. However, it is looking increasingly like the ANC loyalists are going to force Numsa, Vavi and their various allies out of the federation. Note that Sadtu itself is facing something of a minor palace revolt after receiving threats from some of its own members who are angry at the suspension of the union’s president Thobile Ntola for supporting Zwelinzima Vavi. Yes the key Zuma and ANC allies in Cosatu can force the leftist critics out of the federation but that will lead to a split – and, in my opinion, cascading instability throughout the labour sector as Numsa and others compete in every workplace against the incumbent Cosatu union. This outcome is closer than ever and it appears to me can only be averted if a special Cosatu congress is allowed to take place and that a likely democratic victory by Numsa and Vavi is allowed to carry at any such conference. It would stick in some ANC craws, but it would re-establish the status quo of a restive Cosatu that remains a faithful, if critical, ANC ally.

Jacob Zuma provides some light relief

Politicians often say things that outrage some and delight others by providing grist to the social satirist’s mill.

Jacob Zuma provided a gem last week when he said:

“We can’t think like Africans in Africa, generally; we’re in Johannesburg (the N1 is) not some national road in Malawi”.

(Gauteng ANC manifesto forum – October 21 2013)

This provided the opportunity for several journalists (most notably Gareth Von Onsellen in the Sunday Time and Carien Du Plessis in the City Press) to aggregate some of Jacob Zuma’s more illuminating gaffs from the last several years. Here, purely to save you from having to dig into the papers yourself, are some of those:

“I’ve always said that a wise business person will support the ANC … because supporting the ANC means you’re investing very well in your business”

(ANC 101st anniversary gala dinner in Durban – January 12 2013)

“Sorry, we have more rights here because we are a majority. You have fewer rights because you are a minority. Absolutely, that’s how democracy works”

(President’s question time in the National Assembly – September 13 2012)

“Kids are important to a woman because they give extra training to a woman, to be a mother.”

(SABC interview with Dali Tambo August 19 2012)

“Even some Africans, who become too clever, take a position, they become the most eloquent in criticising themselves about their own traditions and everything”

(Speech to the National House of Traditional Leaders November 1 2012)

“When you are carrying an ANC membership card, you are blessed.”

 (Address to ANC supporter in Easter Cape – February 4 2011)

“The ANC will rule South Africa until Jesus comes back.”

 (Gauteng ANC special council – March 15 2004)

We don’t want to review the Constitutional Court; we want to review its powers.

(Interview in The Star Newspaper – Feb 13 2012)

So what?

When compared with other famous presidents Zuma’s gaffes are fairly benign … (hmm I am no longer as sure that those are quite as benign and cute as I thought they were when I wrote that early Monday morning … but I will let it stand for now.) What is interesting is how socially conservative some of his off-the-cuff comments are. It gives some insight into the gradually building pressures in the ANC with regard to appealing to an urban professional class versus traditional rural groups. There is no question that Zuma represents only one of those choices.

Bits and pieces

  • Pravin Gordhan’s medium-term budget statement received both criticism and praise. Cosatu’s spokesman Patrick Craven described it as “a conservative macroeconomic framework predicated on a neo-liberal paradigm”. Piet le Roux, the senior economic researcher at Solidarity (coming, in some ways, from the other side of the spectrum) said Gordhan’s mini budget was based on an “unsustainable model of deficit spending, mounting government debt and onerous taxation”.
  • The Association of Mineworkers and Construction Union (Amcu) announced on Friday (25/10/13) it would consult its members on a possible strike after it received a certificate to strike at Impala Platinum (Implats) when wage negotiations deadlocked. Amcu is demanding a basic salary of R12 500 a month for underground workers and R11 500 for surface workers.

Forgive the dearth of postings here … I was brought low by some late winter dreaded lurgy and as a result my life came to grinding halt for almost two weeks.

The big story (which I will deal with later today or tomorrow)  is the astonishingly decisively manner in which the ANC and its government is blocking Cosatu on a whole range of policy issues … immediately prior to an election.

Later today I will  attempt to assess whether the medium-term budget policy statement holds the same line, particularly with regard to the public sector wage bill. If it does then I am going to have to start reassessing whether Jacob this-isn’t-some-African-shithole Zuma is quite as soft-in-the-middle on policy as I have previously asserted. The implications of the putatively shifting position are huge and, I suspect, driven by a complex and contradictory set of factors.

Meanwhile here is an excerpt from my weekly news commentary describing the rising decibels and pitch of the moan coming from business and its representatives (and from financial markets in general) around policy, especially policy related to the labour market. The ascending pitch and loudness of the whine are undoubtedly two of the factors pushing Zuma’s showdown with Cosatu – but I think it would be premature to think of the president’s actions as primarily about bowing down to business and the diktats of global capital markets.

South Africa deteriorating investment destination

Complaints about South Africa’s hostile policy environment are getting louder.

Pepkor chairman Christo Wiese added his voice to a chorus complaining about a hostile investment environment in South Africa. In other African countries “infrastructure is improving, border crossings are becoming easier, more property development is taking place and, in some cases, they are offering more opportunities.” But in South Africa government is “certainly not cooperative” and “one is left with the impression that government sees business as the opposition, not as a partner … you can’t have German rules because we can’t administer them,”

The wizened and iconoclastic Christo Wiese held up Angola, Nigeria and, especially, Rwanda as improving business destinations. South Africa’s labour regime, according to Wiese, is becoming one of the greatest inducements to invest in other African countries. (Wiese was quoted in an interesting interview with Chris Barron in the Sunday Times 22/10/2013 – here’s a link to the republished article in Business Day … Barron is always interesting and not to be missed in your weekly news read.)

Wiese’s comments came soon after Moody’s Investor Services said in a credit opinion on 12 October that South Africa’s elevated strike activity continues to affect the investment climate. “BMW’s announcement that South Africa has been removed for consideration for the new car is tangible evidence of the negative impact that the increase in work days lost to strikes in the past two years is likely to pose for the medium-term outlook of the economy … Such decisions are likely to be repeated by other companies when such significant losses are incurred -” Bloomberg and Moody’s Credit Opinion 12/10/2013.

In the same week Amplats CEO Chris Griffith said (after the company was again battered by strikes) that it “is not possible that we can continue with these kinds of strikes, which are having an effect not only on the mining sector but all sectors of the economy. It’s hurting the economy … It is impacting jobs” – Business Day 16/10/2013.

From extensive plans to cut 230,000ozs of achievable platinum as well as 14 000 jobs announced in January this year, Amplats appears to have been steadily successfully bullied back by unions, government and the ANC from doing what it initially intended.

Read against South Africa’s scores in the recent WEF Global Competitiveness Report 2013 – 2014 (click here for a full copy) some of this anxiety seems justified. While South Africa is ranked 53rd this year out of 148 countries, the quality of the educational system is very poor at 146th, as was labour market efficiency at 116th – and ‘hiring and firing practices’ and ‘wage flexibility’ at 147th and 144th respectively. The ability of the employer to respond quickly to changing production needs for skills and size of workforce is called ‘labour market flexibility’- and aggregating our performance in these categories suggests a serious deficit compared with our peers.

Okay, so that sets the background for a follow-on post (today or tomorrow) dealing with the now unavoidable conclusion that Zuma’s government appears to be risking the wrath of its left-wing allies with regard to a range of policy measures. The important question to answer is ‘why’ is the ANC drawing the line? And why now?

 

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.

Herewith an extract from my recent political news update.

Strikes – turbulence as the cycle hits the secular trend

Num (the National Union of Mineworkers) has served notice on the Chamber of Mines (COM) of its intention to strike across the gold sector, beginning with the Tuesday night shift this week. Num represents 72,000 of the country’s 120,000 goldmine workers. The Chamber made a final offer of a 6-6.5% wage increase, while Num is holding out for 60%. Amcu, which is also represented in the gold sector (now 19% of workforce according to the COM, but possibly as high as 30%,) wants a 150% increase but has not announced that it intends to strike, and nor have Solidarity and Uasa.

There are ongoing strikes by workers in auto manufacturing, construction and aviation services and threatened strikes among textile workers and petrol station employees – but these strikes are, at this stage, part of the normal cycle.

So what?

I mentioned previously:

“South Africa has a predictable strike season, the timing of which coincides with the expiration of bargaining chamber agreements in different sectors of the economy. Every year it appears that a wave of strikes is enveloping the country, but at some time during the gloom, journalists twig to the fact that this happens every year – much of the flurry in normal and predictable” – April 29 2013.

Several such ‘predictable’ strikes are happening or about to happen as I write this.

However, the gold sector breakdown is outside of the normal cycle both in how far the negotiating parties are away from each (6-6.5% versus 60-150%) and in the complex game being played between Num and Amcu. Amcu has quietly welcomed the impending strike as a chance to prove that, in fact, Num does not represent the majority of workers at key mines. On Friday, Amcu president Joseph Mathunjwa said Num’s strike would “qualify” its official representivity of more than 60%. He urged that everyone should “watch this space”.

Business Report in the Sunday Independent argues that South Africa’s four biggest gold producers are hoarding cash and lining up access to more in preparing for an industry wide strike. “If we are, let’s say, bullied into a situation that we don’t like, we can ride out the storm for a very long period of time,” said Sibanye chief executive Neal Froneman in the Bloomberg sourced story.

The essence of the gamesmanship between Num and Amcu is Num must demand and win an increase via strike action that is satisfactory to its membership, and Amcu must try and undermine the strike action and argue that, anyway, the ‘demand’ in the Num led strike is inadequate. On mines where Amcu dominates (in the Carletonville region at AngloGold, Harmony Gold and Sibanye Gold) Amcu must attempt to force mines out of the central bargaining process by ensuring that no central agreement can achieve a sustainable settlement at the local mine or company level.

Lock-out

An interesting discussion in today’s Business Day by the always excellent Carol Paton suggests that employers with large Amcu membership, specifically at Amcu strongholds at AngloGold Ashanti’s Mponeng mine; Harmony’s Kusasalethu and Sibanye’s Driefonteing favour a lock-out because they believe Amcu will sit out the Num strike and then strike themselves once that is settled. Paton’s story suggests that by locking workers out employers force all workers into one camp. “By declaring a lockout, employers would get around this problem, through forcing Amcu into the dispute now and exhausting workers’ resources to endure a strike.”

Alliance Summit

The African National Congress, the South African Communist Party, the Congress of South African Trade Unions and the South African National Civics Organisation met in a long postponed summit over the weekend to discuss and agree upon economic policy. The premise of the discussion was “unless we make significant inroads in addressing the challenges of poverty, inequality and unemployment, the democratic constitutional gains of the first phase of our transition will themselves be eroded” – from the Summit Declaration.

The Declaration situated the discussion by arguing that:

“… stagnation continues to characterise the developed economies, there has now been a significant slowing of growth in key developing economies, including China, India and Brazil. The commodity super-cycle of the recent past is now over. This has had an impact on economies dependent upon the export of industrial minerals and coal. The attempts to refloat growth in the US with a loose money policy have created further turbulence in many developing economies like SA.”

The Summit went to some lengths to defend against the accusation that poor economic performance was in any way related failures of “the South African government, or the labour movement”. Instead, the summit declaration lists achievements in infrastructure build, land reform and youth and labour market reform.

On macroeconomic policy the summit called for:

… bold forms of state intervention, including through:

  • Financial regulation and control;

  • Progressive and redistributive taxation

  • Wage and income policies, and progressive competition policies that promote decent work, growth and address poverty and inequality.

  • A well-resourced state-led industrial and trade policy

  • Increased state ownership and control in strategic sectors, where deemed appropriate on the balance of evidence, and the more effective use of state-owned enterprises.

So what?

The Alliance Summit used all the right language to keep the different elements of the alliance together but said nothing that might reassure spooked investors.

The opposite is probably true. Just look at the words: “progressive and redistributive taxation”, “well-resourced state-led industrial and trade policy”, “increased state ownership” and “wage and income policies … that … promote decent work, growth and address poverty and inequality.”

This is not the language that Kgalema Motlanthe used as he attempted to pacify investors at the presidential mining lekgotla in Johannesburg last week, but it is precisely the atmosphere of mining minister Susan Shabangu’s words at the Africa Down Under mining conference Perth, Western Australia last week when she said investors had to “moderate” the rates of return they expected to earn on their investments so as to allow for the social expenditures that need to be made (Business Day August 28).

The ANC and government are increasingly schizophrenic in their attempts to keep everyone (constituents, allies and investors) happy. In trying to keep everyone happy the ANC and the government seem more likely to achieve generalised dissatisfaction.

Criminal justice system appropriately named

The lead stories in the Weeklies were indicative of a growing anxiety about the criminal justice system. The Sunday Times led with “Magistrates: drunks, thieves and killers” and the other papers all discussed National Police Commissioner General Riah Phiyega’s embarrassment after she announced the appointment of a Major-General Mondli Zuma and then quickly reversed that when she was told that Zuma (whose relationship to the President is unknown to me) was being tried for driving under the influence of alcohol, failing to comply with a traffic officer’s instructions to stop at a roadblock, escaping lawful custody, defeating the ends of justice and refusing to have a blood alcohol sample taken.

So what

This might look like a circus but there is a darker element to the state of the criminal justice system than is not immediately obvious in these comical stories. In the Sunday Independent, journalist Nathi Oliphant writes about the security and justice sector: “President Jacob Zuma has unflinchingly stuck to his guns in promoting ‘his own’ into key positions”.

The security apparatuses and the criminal justice system more generally has been profoundly weakened by political interference and the dismaying newspaper headlines about criminality amongst magistrates and senior police generals is just the visible tip of the problem of that, in part, originates in political fiddling in the security and justice clusters and institutions.

Editor flees from Gupta TV

“Visibly terrified and hiding in a Johannesburg hotel room, the former consulting editor at ANN7 has made explosive claims about visits by channel bosses to President Jacob Zuma, where Zuma made editorial recommendations and was ‘given assurances by the Guptas this channel was going to be pro-ANC’” – reads the lead story in City Press.

So what

Nothing, really. ANN7, or GuptaTV as it has been named in much of the South African media, continues to provide comic relief and excruciating embarrassment, in about equal measures (although I know a few professionals doing an honest day’s work there and I feel faintly protective of them). Jacob Zuma’s relationship with the Gupta brothers is probably no laughing matter, but I wouldn’t hold my breath waiting for the criminal justice system to test whether Zuma’s relationship with the Gupta brothers is in any way similar to his relationship with the Shaik brothers.

Herewith my news commentary as of yesterday morning. I thought I would republish it here because it includes my brief assessments of how to think about the Zimbabwe election, Vavi and the EFF. I also, politely, imply that the Seriti commission might be a cover-up and that Amcu’s underlying objectives in the gold sector are potentially quite scary.

Zimbabwe – grin and bear it

Robert Mugabe has won 61% of the votes (2.11 million votes) in the presidential poll, against Prime Minister Morgan Tsvangirai’s 34% (1.17 million votes). Zanu-PF won 158 parliamentary seats against the MDC’s 49.

The head of the SADC facilitation process, South African President Jacob Zuma’s office yesterday released a statement that began:

H.E President Jacob Zuma extends his profound congratulations to HE President Robert G Mugabe on his re-election as President of the Republic of Zimbabwe following the successful harmonised elections held on 31 July 2013. President Zuma urges all political parties in Zimbabwe to accept the outcome of the elections as election observers reported it to be an expression of the will of the people.

The opposition MDC has called the result “fraudulent” and has threatened not to take up its 49 seats and to boycott government institutions and “pursue peaceful, legal, political, constitutional and diplomatic remedies” (several online news sources, including BBC Africa).

The Mail & Guardian points out that monitors from the African Union and the Southern African Development Community (SADC) have stressed that the elections were peaceful and have endorsed them as ‘broadly free’. In contrast, the United States and European governments, which have sanctions in place against Mugabe over past election-rigging, “listed a litany of alleged flaws in the vote, from lack of availability of the voters’ roll to pro-Mugabe bias in the media and security services that skewed the election run-up” – M&G.

So what?
Even allowing for the myriad ways in which the MDC was (deliberately – and probably illegally) disadvantaged in this election it appears there has been a real shift away from the opposition. Perhaps this is because just by entering the unity government in 2008 the MDC both saved the economy from collapsing (and thereby saved Zanu-PF) and suffered some of the sins of incumbency. Perhaps it was how mediocre Morgan Tsvangirai has turned out and how endless have been his romantic and sexual travails. Whichever. I am not certain that the MDC will follow through and actually not take up it seats – this will only be revealed in the next few weeks.

To repeat comments I made on Friday:

  • It is deeply unfair. The election was brutally stolen in 2008 and every state resource that could be deployed against the MDC has been so deployed in the last 5 years. Slight economic upticks post 2008, the deepening indigenisation programme (or at least the promise of the goodies from the programme) combined with a host of tactical and strategic errors by the MDC appear to have allowed Zanu-PF to ‘pull off’ a victory at the edge of acceptability … and the edge of the law, but just within it. Even if that is not the opinion of the MDC or Western observers, it is going to be the formal assessment.
  • Thus, I am not suggesting that this result reflects the “will of the Zimbabwean people” … but it reflects it adequately to avoid the crisis that would result from an outright declaration that voters’ roll irregularities … and inadequate other preparations … and the historical legacy of repression and cheating … and misuse of security agencies and state media … constitute enough impact to declare the result not reflective of the will of the people.
  • Does this mean Zanu-PF’s deeply investor unfriendly, GDP growth unfriendly, economic policies will continue? Not entirely. I think Zanu-PF has, miraculously, won back a chance to control the post-Mugabe succession period. They very nearly lost it as a result of their catastrophic policies. I expect Zanu-PF to be more cautious and embracing of investors in future … including with regard to the indigenisation programme. 
  • I am less sure  of that final bullet than I was when I wrote it on Friday, but it appears to me that, at very least, Zanu-PF, will have learned a lesson from nearly losing its hold on the country and is likely to give more emphasis to ensuring that the benefits of its economic policies flow to ordinary Zimbabweans (and less to buying off Zanu-PF cronies, which has been the emphasis up until now.)

Arms probe in tatters

Last week Judge Francis Legodi resigned from the The Seriti Commission into the arms deal scandal and evidence leader, advocate Tayob Aboobaker, announced his resignation citing ‘nepotism, unprofessionalism and infighting’ (he may since have withdrawn his resignation). These ructions follow the earlier resignations of senior researcher Mokgale Norman Moabi and the law researcher, Kate Painting.
So what?
The elephant in this room is the Jacob Zuma himself is one of the individual ANC leaders whose reputation has been most tarnished by the scandal (corruption charges against him in this regard were only – controversially – withdrawn in 2009). At the same time, it is Jacob Zuma himself, in his capacity as President, that has instituted this commission, possibly in the hope that he can put the threat of the return of those charges permanently behind him. At this stage the commission is meant to begin hearings today, and among those who will be called are former President Thabo Mbeki, head of Cope and former Minister of Defence Mosiuoa Lekota, former Minister of Intelligence, Ronnie Kasrils, former Trade and Industry Minister Alec Erwin and former Minister of Finance Trevor Manuel. I think it extremely unlikely that this commission will ever pronounce on why the bizarre decisions were taken to purchase the singularly inappropriate (for the country’s defence needs) set of expensive weapons systems (including 48 Saab Gripen fighters and trainers, 4 Daphne class submarines and 4 frigates). I also think it vanishingly unlikely that the commission will find out where the kickbacks went.

I will not be surprised if it emerges that the resignations from the commission are motivated by the belief that the process will achieve the exact opposite to its apparent purpose.

Zwelinzima Vavi

Several of the weeklies speculate as to whether Zwelinzima Vavi will survive the scandal in which he had unprotected sex in Cosatu’s headquarters with a junior employee whose employment in Cosatu he had irregularly organised – and who accused him of rape and later withdrew the charge in an internal Cosatu procedure.

So what
I covered this in some detail last week, but there is an implication to what is happening here that needs emphasising.

The ANC is facing an election next year and much of the pressure Vavi has been under up until now (from ANC/Zuma loyalists in Cosatu) has been directed at pulling him (Vavi) into line, to stop him constantly accusing government leaders of corruption, to stop him criticising macro-economic policy. The ANC needs to establish a united front so that it can take on the various challenges it faces in the national election next year. 

But there is a difference between placing pressure on Vavi and forcing him out of Cosatu. If Vavi is forced to resign because of his actions in relation to the junior employee it is not inconceivable that Cosatu’s biggest union Numsa might go with him.

It is as if the ANC has been pushing a board – that it thought was solid – to get it into a better position. But the board was rotten all along and it suddenly collapses as it is being pressed. An actual split in Cosatu that drove the most left-wing elements together and out of the ruling alliance would be negative for the ANC in a number of ways. It would further weaken the credibility of the trade union ally, it could raise the spectre of a viable ‘left’ party, it could force the ANC into having to contest on too many fronts in the 2014 election, it could increasingly lead to policy paralysis in government and it could cause serious labour unrest as Cosatu member unions reconstitute and split in a number of different industries. None of this is certain (or even likely) but it is a threat or a series of threats we need to bear in mind.

Economic Freedom Fighters – taxing times … but behind the theatre there are credible risks

Along the same lines as the above, the latest round in the colourful pageant of Julius Malema’s attempts to re-establish himself at the centre of South African politics came yesterday when he mounted a fierce attack on the South African Revenue Service (the full text published at politcsweb.co.za) after SARS made public the details of his tax record. (Here for the SARS statement and here for Malema’s response.)
So what?
SARS is defending itself from Julius Malema’s accusation that it is being used as a tool by what Malema calls the ZANC (the Zuma ANC). The truth or otherwise of this particular matter cannot be established, but I wanted to use the opportunity to raise what I see as the main risk associated with the Economic Freedom Fighters. The risks are not dissimilar to those associated with a potential ‘left’ split in Cosatu. It is increasingly likely that the ANC will be contesting the 2014 elections with significant threats both to its ‘left’ and its ‘right’.

The Democratic Alliance, perhaps in a formal alliance with other opposition parties and independent candidates is starting to seriously consider the possibility that it could win the Western Northern and Northern Cape and come achingly close in the, Eastern Cape and Gauteng. While I am unable to assess whether these are realistic objectives, I think it is important to consider how the ANC might behave if it faces this threat at exactly the point as its own members, allies and the Economic Freedom Fighters, place it (the ANC) under pressure.

I have no grounds to argue that the EFF and any ‘workers’ party’ that could conceivably emerge from a split in Cosatu could win enough votes to become a viable parliamentary opposition, but I do think that the operation of these forces place the ANC in an awkward, even untenable, ‘policy’ and ‘message’ position.

In adopting the investor friendly National Development Plan at Mangaung and in the presidency’s concerted attempts to stabilise the platinum mining sector, the Zuma administration has made it clear that it is extremely worried that investor sentiment towards South African policy and policy risk has turned negative. An ANC fighting a populist wildfire from the EFF (perhaps more heat than light … but anyway), an incipient ‘ left’ split from Cosatu and an ascendant DA is hemmed-in, constrained, unable to formulate viable national policies and increasingly tempted to engage in dirty tricks against its enemies.

 

Amcu and the gold negotiations – some tentative speculation

Following Amcu’s apparent walkout from the Commission for Conciliation and Mediation of the gold sector wage negotiation that had become stuck at the Chamber of Mines last week, I made the following comments (note that Amcu has since said it intends participating in the process, although as you will see from the below, I would be cautious of accepting that at face value):

I think that it is directly in Amcu’s rational best interest to:

  •  ensure that collective bargaining through the Chamber of Mines breaks down (i.e. that the central bargaining chamber is destroyed) and that companies are forced to seek agreements on a mine by mine basis; and
  • to provoke crises similar to those that took place at Impala in January last year and Lonmin in August on gold mines where it is not yet recognised as the majority union.

Firstly, why is this “rational”?
Because any of the anger, hot-headedness and youthful passions rooted in the history of Amcu leadership’s conflict with Num would have been burnt out of them last year.

Now it is probably more accurate to conceive of Amcu as rational competitors in a game where the objectives can be stacked in a very similar way to how one would stack objectives of a company with three or four major competitors in a set market.

Amcu can certainly get things wrong – and engage in activities that are counterproductive to the likelihood of it achieving its objectives – but this is less likely to be because Amcu is led by anarchist lunatics, and more likely to be because its leaders have made tactical and strategic errors.

Thus, while it is possible to argue that Amcu’s members and potential members are “tired of strikes” or “unable to bear the burden of further strikes” this should be conceived of as a constraint to Amcu pursuing its objective rather than an absolute barrier.
So what are Amcu’s objectives in the gold sector?
Firstly, to destroy the National Union of Mineworkers.

The Num, the loyalty of its (declining) membership, and its abuse of its prior dominance, is the most important obstacle to Amcu achieving its main objective which, unsurprisingly, is to be the only significant union in the resources sector. That is, Amcu’s primary objective is to occupy the eco-niche that Num has occupied up until now.

Trade unionism is a business … it’s about money and power. So yes, Amcu grows by more effectively representing (or portraying itself as more effectively representing) the collective interests of its members or potential members … and thereby actually getting greater numbers of signed up, due-paying members.

However, it cannot be effective in this task, even where it has already got more members than Num … because Num occupies an institutional and regulatory “space” that it is using to maintain its dominance.

Thus, in a central bargaining chamber system where the representivity of the participating members is outdated (as it clearly is in this case) the union that is actually dominant (or in the process of becoming dominant) must destroy the process and force employers to deal directly with it … and not with the old dinosaur that is taking up all the space by trading purely on the institutional lag effect.

So forcing employers to deal with Amcu, on a mine-by-mine basis, seems to be a no-brainer for the upstart union and explains perfectly Amcu’s actions up until now in the gold negotiation process that started 2 weeks ago.

The next step is that Amcu has to establish dominance at each mine … it has to “force” the employer to deal with Amcu rather than Num … even if the outdated books still show Num as the dominant union at each mine.

Thus Amcu will attempt to destroy Num’s negotiating position … it will work to ensure that workers do not feel that whatever Num and management settle for is an adequate settlement. Amcu only wins if that settlement fails; therefore it has an absolute imperative to cause those settlements between Num and management to fail (by proposing levels that are more difficult for management to meet and by mobilising workers against whatever settlement Num reaches).This is a competition that Amcu can lose. Num and management might strike a workable deal that the majority of mineworkers back … but it (Amcu) has got to fight it.

If this is correctly reasoned, there is a strong pressure on the central bargaining system in the gold sector and for possible mine level negotiations to be traumatic – in a very similar way to the trauma associated with strikes in the platinum sector last year and with an almost identical ‘architecture’.

Once (and if) Amcu has crushed Num and established its dominance across the industry its motivational hierarchy changes; it will then want to lock itself into the monopolistic position that Num now occupies. But that is a long way ahead, so long that it is not yet worthy of serious consideration. For now, it (Amcu) is trying to free up space so that it can go head-to-head with Num, which in turn is hiding behind bureaucracy. Thus Amcu is trying to increase competition because it believes in a straight fight it will win.

Finally, Amcu does not have a free hand in pursuing these objectives. Management and Num are going to fight back in all the ways (positive and negative) open to them. Also, workers are tired, indebted, the industry is shrinking and management is looking for excuses to downsize workforces – but within these constraints, I would argue that Amcu is forced by its own nature, to pursue the objectives here set out, as effectively as it can within those constraints.

Herewith my latest news update as of 06h30 this morning.

  • NDP – defections to the left and right
  • Collusion scandal in the construction industry gathers momentum
  • Tax Review Committee – some welcome caution
  • Proposed legislative changes in the mining industry shows SA government’s deep ambivalence towards the sector
  • Ramaphosa – rumours that Zuma faction is planning his side-lining
  • Zimbabwe election chaos looms
  • Zanu-PF funding Julius Malema? Good story, but impossible to prove
  • ICT takes its ‘R150-billion’  iron-ore claim to the Constitutional Court

National Development Plan – under attack from left and right

Trade union Solidarity has added its voice to growing (but varied) criticism of the National Development Plan (NDP), calling it “self-contradictory, heavily race-based, deeply interventionist … largely unworkable … downright intrusive and harmful and … likely to require substantial funding”. [1]

Solidarity joins John Kane-Berman (Chief Executive of the South African Institute of Race Relations) who recently said “half-baked solutions suggested by the National Development Plan would do little to address the multiple challenges facing South Africa” and, further, that the plan “is a hotch-potch of contradictory ideas that have not been properly costed and are bound to fail” – Business Day 03/07/13.  Kane-Berman added that the lack of future scenarios for tax revenues, budget deficits or the public debt means that an endorsement of the NDP amounts to giving the government “a blank cheque for more taxation and more borrowing and probably for both” – ibid.

The NDP was adopted by the ANC at its Mangaung conference In December 2012 and has since been repeatedly endorsed as the cornerstone of the government’s medium and long-term planning by Jacob Zuma and members of his cabinet.

Since then the policy has been welcomed by organised business (for being generally market friendly) but strongly criticised by Cosatu for prioritising growth over inequality, employment over ‘quality work’ and for its reliance on markets and the private sector.

So what?

Jacob Zuma’s government has used the NDP to lend an appearance of coherence and co-ordination to policies as diverse as infrastructure development, labour market reform, tax policy, mining regulatory shifts and anti-corruption campaigns. Our own view is (unusually) closer to that articulated in a recent position paper by the South African Communist Party which said that the NDP is “a broad vision open to necessary criticism and engagement. It is NOT really a PLAN, still less a fit-for-implementation plan.”

Government should not be judged on its broad statements of intent – which is essentially what the NDP is. Government should be judged by what it actually does (or fails to do), what legislation it brings to parliament, what structural reforms it affects, the degree to which it improves the public service, how it manages the public purse … and by a host of other performance indicators.


The collusion scandal in the construction sector

Murray and Roberts CEO Henry Lass’s public apology for the company’s involvement in the widespread collusion scandal made the main headline on the front page of the Business Times yesterday. “I know that the Competition Commission’s findings of collusion in the construction sector has angered and disappointed you, just as it has our board, executives, employees, shareholders and other stakeholders,” Lass bemoans. He then goes on to explain that much of the wrongdoing took place in the dim and distant past. “None of the current executives at Murray & Roberts were found to be at fault for any form of collusive conduct through the Fast Track Settlement”.

So what?

It appears that public outrage at the scandal is growing. The lead editorial in the Sunday Times is particularly scathing. Headed: “Jail the price-fixers in the construction sector”, the editorial argues “when the private sector is caught out cheating and inflating costs for everyone who pays tax, we should judge them by the same standards we apply to the likes of Bheki Cele, Dina Pule or Menzi Simelane. Apologists argue that construction companies did this to make the deadline for the World Cup — but it’s a poor argument. It wasn’t just the soccer stadiums that South Africa’s iconic blue-chip companies with suitably self-righteous corporate governance manifests, such as Aveng, Group 5, WBHO and Murray & Roberts, colluded on. There were many others, including the Coega harbour nearly a decade ago, the Nelson Mandela bridge and any number of other construction projects.”

Expect civil claims from various angry customers (including metropolitan governments) … and it is not inconceivable that criminal prosecutions of some executives who didn’t “come clean” in the Competition authority process could still be on the cards.

 

Tax Commission – some welcome caution

Pravin Gordhan has named members of the long promised Tax Review Committee charged with inquiring ‘into the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability’. Judge Dennis Davis will chair the committee. Other members are Annet Wanyana Oguttu, prof Matthew Lester, prof Ingrid Woolard, Nara Monkam, Tania Ajam, prof Nirupa Padia, and Vuyo Jack – with Cecil Morden, an official from National Treasury and Kosie Louw, an official from the South African Revenue Service as ex-officio members who will provide technical support and advice.)

So what?

It’s an adequate committee staffed and led by people respected across society and (mostly) with the necessary technical expertise. After the ANC adopted policies at its Mangaung national conference in December last year that specifically called for increased taxes in mining (the State Involvement in the Mining Sector document) it is a minor relief that the Treasury has qualified the terms of reference by specifying (amongst other limitations) that the any changes to the mining tax regime must take account of “the challenges facing the mining sector, including low commodity prices, rising costs, falling outputs and declining margins, as well as to its current contribution to tax revenues.”

 

Mining industry legislative changes show ANC ambivalence about the resources sector

The Mail & Guardian published an interesting piece raising important concerns about proposed changes to legislation contained in the Mineral and Petroleum Resources Development Amendment Bill that was tabled in parliament on June 21. According to the author of the article (Peter Leon a partner and head of the ‘mining sector group’ at Johannesburg law firm Webber Wentzel) the bill “perpetuates and, in some respects, exacerbates” excessive administrative discretion in the issuing of mining licences.

In the article, Leon says that the proposed legislation “inexplicably deletes all the Act’s statutorily prescribed timelines and leaves this to ministerial regulation … second, it introduces an export licensing system for ‘designated minerals’, which are vaguely defined as: ‘Such minerals as the minister may designate for beneficiation purposes as and when the need arises in the [Government] Gazette.’ All ‘designated’ minerals will require the written consent of the minerals minister prior to their export.”

Leon points out that under the proposed legislative changes “the minister becomes the pricing tsar for ‘designated’ minerals” and “the department will effectively control all exports of such minerals”.

So what?

Many of the proposed legislative changes Peter Leon discusses in this article are precisely those that were originally contained in the State Involvement in the Mineral Sector document adopted as policy by the African National Congress at it December 2012 National Conference. So, despite various attempts to mollify investors after a torrid 2012 (through, for example, Kgalema Motlanthe’s framework agreement for a sustainable mining and the ‘sensitive’ tax commission terms of reference discussed above) the ANC and its government is still following its contradictory impulses with regards to the resources sector. Expect confusion and contradictory signals to continue to undermine sentiment in the sector.

 

“Fierce ANC Ramaphosa succession battle brews” – Sunday Independent

The Sunday Independent quotes several unnamed sources claiming that there is a campaign in the ANC to prevent the party’s deputy president, Cyril Ramaphosa, from becoming the country’s deputy president after the national election next year. The weekly newspaper claims the fight is “pitting President Jacob Zuma and Ramaphosa’s supporters against each other.” The story suggests that either ANC chairwoman Baleka Mbete or Public Services Minister Lindiwe Sisulu are likely to replace Kgalema Motlanthe in 2014.

So what?

This story is based on the idea that the long term imperative of Jacob Zuma and his lieutenants  is to control the succession in 2017 (in the ANC National Conference which will elect the next ANC president ) and in 2019 (in the national election which will elect the next country president). Why? Because an independently minded candidate (which, in this narrative, Cyril Ramaphosa is imagined to be) might fail to protect Zuma from the consequences of the corruption allegations that still hang over his head. A careful reading of this and similar stories indicates that the “unnamed sources” in favour of ensuring that Ramaphosa becomes deputy president next year are from Gauteng and the “unnamed sourced” plotting against him are from Kwazulu-Natal. Such stories in the popular press are inevitably based on factional leaks out of sections of the party pursuing some or other agenda of their own. This doesn’t mean there isn’t a plot against Cyril Ramaphosa, it just means we need a healthy sense of scepticism about these kind of leaks into the media.

 

Zimbabwe election chaos looms

Zimbabwe is due to host national elections on July 31 – having endured a chaotic ‘special vote’ on July 14 and 15 for approximately 80 000 uniformed personal.

SO what?

The Mail & Guardian put it well:  “every indication is of a poll that will be not only shambolic but also intrinsically unfair. The outcome of the past two elections in Zimbabwe were fiercely disputed and it would be tragic if the result once again left the country in limbo. Equally unacceptable would be a façade of legitimacy over another stolen election.”

(Tony Hawkins, “professor at the University of Zimbabwe’s Clinical Research Centre” gives a useful analysis of the “dismal economic past and the failed policies of President Robert Mugabe and his Zanu-PF party” on the leader page of the Sunday Times. After his analysis – which I recommend here  – Hawkins says “given these statistics and Zimbabwe’s ranking near the top of the list of failed states, it is difficult to understand why South Africa’s chattering classes are so convinced Mugabe will win again next week. His track record of economic failure is unparalleled in any developing country that has not experienced civil war or military adventurism.” While this ‘member of the South African chattering classes’ has no real idea whether Mugabe will win –by hook or by crook – next week’s election, I have to agree with both the Mail and Guardian and Professor Hawkins that it is a foregone conclusion that it will be ‘shambolic’ and ‘intrinsically unfair’.)

 

Bits and pieces

  • Facebook profile, Baba Jukwa, purporting to be a kind of ‘deep throat’ in Zanu-PF has claimed (according to  City Press) that Julius Malema’s Economic Freedom Fighters are funded by key members of Robert Mugabe’s cabinet. “This is ostensibly in revenge against President Jacob Zuma and his international relations adviser, Lindiwe Zulu, who have been heading the Southern African Development Community mediation process in Zimbabwe following the violent 2008 polls” – City Press 21/07/13.
  • Business Times said “rumours are swirling that Cell C has been trying to put together a landmark, cross-sector deal to partner with First National bank (FNB)”.  The story repeats speculation that “(e)ssentially, this would see FNB start its own cellphone business using Cell C’s network as its backbone” with the intention of rolling out integrated cellphone banking to the customer base of both companies  – Business Times.
  •   Imperial Crown Trading and Mineral Resources Minister Susan Shabangu have filed papers at the Constitutional Court, asking it to set aside Pretoria High Court and Supreme Court of Appeal judgments giving Kumba Iron Ore subsidiary Sishen Iron Ore Company (SIOC) full rights to one of the largest iron ore mines in the world. ICT is co-owned by Deputy President Kgalema Motlanthe’s long-time partner, Gugu Mtshali. “At stake for ICT is a 21.4 percent share of the mining right, which is conservatively expected to produce a net profit of R150bn over the next 30 years for its owner” – Sunday Independent.
  • Pali Lehohla, Statistician General and head of StatsSA used some unusual language to describe his feeling about his now retired deputy director general Jairo Arrow as well as now fired chief of Methodology, Evaluation and Standards, Marlize Pistorius – who together identified an 18.1% undercount in Census 2011. Aside from expressing his temptation to “physically manhandle” Arrow, Lehohla also said “we will rid this organisation of those kinds of plotters … you have to act with integrity and flesh, flesh, no blood, no drop of blood must come from the neck … It must be a sword that cuts clean. That’s how we deal with people like these … when you attack you must attack as aggressively to eliminate it completely” (Sunday Independent). Is this what happens when statisticians become generals

[1] Solidarity is a (largely white) South African trade union that mostly organises skilled and semi-professional workers. The criticism of the NDP appear in Solidarity’s latest Labour Market Journal (that can be accessed here.)

Remember kaleidoscopes?

Basically a tube that you held up towards a light and peered through as if it was a telescope?

But unlike kid’s telescopes –  which, like kid’s microscopes, were blurry and disappointing and stupid – the kaleidoscope was a device of astonishing power and beauty.

The point for my six-year-old self who received his first kaleidoscope for a birthday, probably, was the power that little tube put in my hands.

The simple expedient of  twisting one end caused visions of astonishing, luminous, grandeur to pour out the other.

I can still feel that tingling as if I was balanced on a precipice, reaching out to shape a whole universe; causing tectonic shifts in the intrinsic structure of reality … okay, maybe not that last bit … but you get the point.

Such power … and I had absolutely no idea how it worked.

My “device of power and beauty” was a semi-rigid cardboard tube with loose coloured translucent beads or pebbles in the end and two mirrors running lengthways up the inside, duplicating images of the transparent junk that tumbled as the tube was rotated.

My first kaleidoscope wilted in my sweaty, meglomeniacal hands a few hours after I had torn it from its pretty wrapping – and I cut myself on a broken piece of mirror as I desperately pounded it to make it continue producing those wondrous images.

Which brings me to my worries about ANC policy making.

I am slightly more worried today than I was when I wrote the piece below (July 2) just after the conference.

That is partly because I have thought further about some of the issues and partly because the consensus points within the ANC seems to be slippery – and therefore uncertainty is rising.

In short my worry is that the ANC is approaching more vigorous economic intervention with the enthusiasm and growing expectations of my six-year-old self after he first looked through his pretty new cardboard tube.

I think the likelihood of this all ending in tears in increasing exponentially – and the reasons are not very different from those that caused the ruin of my first kaleidoscope and my cut finger.

I will pursue this theme (the threats involved with increasingly desperate state interventions – especially those that worsen the problems they promise to fix) in future posts, but first my initial take on the conference; written just after having read the particularly awful English language Sunday newspapers of July 1:

Much ado – and confusion – about the ANC policy conference

The teams of journalists from the political desks at the Mail & Guardian, the City Press, the Sunday Times and the Sunday Independent could have been covering different conferences given the divergence of their understanding of what went down at Gallagher Estates in the Midrand from Tuesday to Friday last week.

This is my first attempt at a distillation of the main points – partly of the coverage, partly of what was supposedly being covered:

  • Debates about policy and the struggle over who will be elected to the top positions in the ANC at the National Conference in December became blurred, to the detriment of both.
  • The “Second Transition” concept became associated with Jacob Zuma (even though it was penned by his factional enemy, Tony Yengeni) and its rejection by most commissions at the conference was interpreted as a set-back to Zuma’s re-election campaign.
  • The power struggle obscured the fact that there was general consensus that transformation is “stuck” and radical and urgent action to hurry the process along needs to be taken if the ANC is to keep the trust and support of its majority poor and black constituency.
  • The report-back to plenary of the key breakaway commission on mining became the most blurred moment, when Enoch Godongwana presented a summary of the views on the state’s proposed involvement in the mining sector – with pro-Zuma provinces KwaZulu-Natal, Mpumalanga and Free State tending to go with the SIMS compromise and the other six provinces tending to support the ANC Youth League in a strengthened nationalisation position.
  • When consensus is finally reached, it is likely to include an even stronger role for the state-owned mining company – perhaps giving it the right to take significant stakes in all future mining licenses issued. Absolute taxation levels might be an area of compromise between the state and the mining sector in negotiations about this matter in the final lead-up to Mangaung where policy will be formally decided.
  • There was broad consensus that the state could and should force the sale of farmland for redistribution purposes and that an ombudsman be appointed to determine ‘a fair price’ – to prevent the process being frozen by white farmers holding out for better terms. It is not clear whether this would require a constitutional amendment.
  • There was general consensus that the Media Appeals Tribunal is no longer necessary, that the number of provinces needs to be reduced, that the proposed Traditional Courts Bill is reactionary and against the constitutionally guaranteed rights of women and children in rural areas, and that the youth wage subsidy (as a tax break to employers) had to be sweetened, or replaced, with a grant directly to young job seekers.
  • The push for “organisational renewal” will require a number of changes: a probation period of 6 months for new members, a 10 year membership requirement before such members can be elected to the NEC, a reduction of the size of the NEC from 80 to 60 members and a downgrading of the status of the Leagues (women, veterans and youth) so they more directly serve the interests of the mother body.

So if this was a soccer tournament, what is the score?

The City Press led with “Tide Turns Against Zuma”, but frankly I think this is more about that newspaper’s preferences than anything else. The ideological disputes in the ANC are complicated but broadly follow an Africanist/nationalist group versus a SACP/Cosatu/anti-nationalist group. Neither Jacob Zuma nor Kgalema Motlanthe are clearly in either camp (but Zuma tends towards the former and Motlanthe towards the latter). Only one potential challenger, Tokyo Sexwale, is firmly in one group (the nationalists, which is the ideological home of the ANC Youth League) and he has more chance of passing through the eye of a needle than winning this competition.

Only Motlanthe could seriously challenge Zuma in a succession race and despite all the rumours and leaks it is by no means clear whether he has any intention of running – or, if he did, whether he would have a significantly different policy agenda than that being pursued by Zuma and his backers.

After last week’s Cosatu strike against labour brokers and e-tolling the question of the future of the relationship between the Cosatu and the ANC has again consumed public debate.

I have quickly jotted down some of the issues as I see them and how I think the situation might play out in the longer term (and apologies for scruffiness – I am under the whip):

It is necessary to understand what these organisations are and how they differ – before we think about what they might do

Cosatu is a federation of trade unions (trades union, actually … but that always sounds a little pompous) and therefore represents employed workers while the ANC is currently the ruling political party in this country and as such represents a much broader set of interests, especially, in this case, the unemployed and business – and is additionally obliged to balance these interests against each other.

It is obvious why Cosatu must oppose labour brokers. Cosatu has spent considerable energy in influencing the ANC to structure the labour market in a way that strengthens it’s cartel-like hold on the supply of labour. Labour brokers are a way in which the unemployed and potential employers can circumvent some of the strictures of the regulatory environment. Labour brokers have helped create a shadow duality in the market – and have thus caused Cosatu to lose some control over supply.

Another way of saying this …. If you have one set of workers that are employed with the full  protections and benefits afforded them by legal and regulatory structuring of the labour market and another set who are essentially desperate enough to work for less money and with less job security, then those who cannot find a place in the first set have the option of joining the second set – and employers who cannot afford to shop in the first set will shop in the second … meaning Cosatu loses control over supply.

Cosatu argues that if you make the existence of the ‘second set’ illegal it will force employers to shop in the ‘first set’ – thereby creating permanent ‘quality jobs’.

The eternal wrangle is that most economists and several ANC thinkers believe that what actually would happen (and is happening) is employers, at some difficult to determine point, decide that the costs and hassles of only having the ‘first set’ to shop in incentivises them to “shop elsewhere” – shift parts of the labour process to other countries where labour protections are less onerous on the employer, or they mechanise the labour process – hence the structural nature of our unemployment.

The ANC, on the other hand, is under the whip to create more employment – and that pressure comes directly from the unemployed. The youth wage subsidy scheme was correctly understood by Cosatu to be seen as a threatening – to its interests – attempt to create duality through the back door. The ANC agrees with Cosatu that many labour brokers are guilty of the worst excesses of free market exploitation, but propose to remedy the situation by regulating the labour brokers more carefully … not removing them completely from the market.

But what about the e-tolling?

Essentially the e-tolling issue was serendipitous timing for Cosatu. Completely separate disputes occurred in Nedlac over e-tolling and labour brokers so Cosatu had the right to declare protest strikes and marches under section 77 (1) (d) of the Labour Relations Act against either, neither or both issues – they did both. Essentially the melding of the actions allowed Cosatu to win a few class allies to its cause of opposing labour brokers. Not that e-tolling is not genuinely hated by Cosatu and the federation believes that its members will be worst effected … which should give you an insight into just who Cosatu’s members are and the difference between them and the marginalised and unemployed majority who would invariably use un-tolled public transport (mostly taxis) or travel on shank’s marewhich takes another kind of toll entirely.

Cosatu and Zuma

Cosatu clearly backed Zuma against Mbeki because it believed either that Zuma would be beholden to it and therefore allow it more policy access (which I think has essentially been true) … or just that Mbeki was a more dangerous enemy of Cosatu’s narrow agenda (something I also believe was true). There can be no argument that Zuma was more likely to hold ideological or policy agendas that were essentially closer to Cosatu’s. To my mind Cosatu was opportunistic and unprincipled – whichever way you spin it – in backing someone so clearly hell-bent on extending his control over patronage networks and making his family and friends fabulously wealthy.

One way to understand what is happening in Cosatu now is that one faction is trying to withdraw from the strategy because the Nkandla chickens are coming home to roosts, while the other faction is sticking to its guns.

I think, however, that both factions have realised that they have put too much energy into influencing national politics in the ANC and not enough energy into building up the federation’s grass-roots and factory-floor structures, membership and leadership. Trade unionism is on retreat globally – because of the globalisation of the labour market – and Cosatu is worried about not having stuck to its knitting (sorry for all the awful clichés here, but I am in something of a hurry.)

Cosatu has always had an ambiguous relationship with the ‘political movements’ – be those the United Democratic Front, Azapo or the ANC … perhaps even Inkatha should be included here. When Cosatu was established in 1985 out of the unions that had made up Fosatu (the Federation of South African Trade Unions) it immediately inherited the main debates and factions that had characterised trade unionism for years in South Africa.

The divisions centred around:

  1. whether to register and thereby co-operate with the Apartheid state
  2. whether white workers could be organised into progressive unions
  3. the desirability of general unions versus industry based unions
  4. ‘workerists’ versus ‘populists’ – which boiled down to a debate about whether unions should be involved in national politics and be in a formal relationship with the national political movements; whether they would be sucked into the agenda of those political movements and should therefore focus instead on ‘shop floor’ issues and maximum worker unity.

From the start the National Union of Mineworkers was a pro-ANC/SACP bastion within Cosatu and the National Union of Metal Workers of South Africa, formed out of at least 6 other unions, came to represent a position more cautious and suspicious of the political movements.

Thus we have an emerging consensus in the press that Zwelinzima Vavi, Irvin Jim and the National Union of Metalworkers of South Africa (Numsa) have upped the ante against Zuma and ‘corrupt ANC leaders” while an SACP aligned faction including Cosatu president Sidumo Dlamini and the powerful National Union of Mineworkers is firmly behind Zuma.

Currently Cosatu seems – to my mind – to have finessed an internal agreement between its factions to back Zuma for re-election at Mangaung in exchange for a more vigorous opposition to corruption generally in the ANC and to campaign for a more worker friendly ANC NEC to emerge out of Mangaung.

Ahead  … (remember ‘tomorrow’ is the country from which no-one has ever returned … so take this all with the appropriate pinch of salt):
  1. The struggle will continue. Cosatu has fought with the ANC since 1994 and strong suspicions existed between much of the trade union movement and the ANC before that. This is normal, natural and appropriate given the diverging interests of the people represented by each organisation. The relationship has always contained the seeds of its future breakdown.
  2. Zwelinzima Vavi’s faction is most similar to a combination of European social democrats, labour parties and green parties. It is radical and anti-capitalist, but it is also modern, deeply opposed to corruption and authoritarianism, has consistently taken the right line on Zimbabwe and HIV/AIDS, is protective of the constitution and freedom of speech and is most likely to seek alliances with anti-ANC ‘civil society’ groups over single issue campaigns (right to know, freedom of speech, corruption, HIV/AIDS etc.)
  3. The tension is inbuilt … the ANC will never give into Cosatu’s full set of demands – if anything it will go the other way – and Cosatu will  never stop making the demands, louder and louder.
  4. At some future time – probably way down the road –  the Numsa faction will ally itself with those attempting to organise the constituency the ANC Youth League aspires to represent and break out of the ruling alliance to form a new left opposition. For the foreseeable future (and remember none of the future is actually foreseeable) the advantages of staying in the alliance with the ANC outwieghs the losses and gains that would be realised by setting off on their own.
  5. The SACP will increasingly concern itself with trying to mediate the relationship between Cosatu and the ANC – which effectively means it will support the Num faction or tendency in Cosatu. This is not a basis upon which a political party can sustain itself. The SACP would have to split from the ANC and fight elections on its own – essentially capture the space that a Numsa/ANCYL type breakaway might have occupied – if it was to grow and prosper. I don’t think this will happen and therefore I think the SACP will be gradually squeezed into irrelevance.

It’s tempting to focus on the ANC as if its history and prospects are a proxy for the history and prospects of the country as a whole.

The party’s centenary celebrations this week will strengthen the sense that this is indeed the case.

The last hundred years of South African history has been about the formal subjugation of the black inhabitants of the country by European colonial powers and settler groups; the fight for national liberation and self-determination; the victory and then seventeen years of the complex process of democratic rule.

Running like a spine through that body of history is the African National Congress –  which not without some legitimacy claims to be the organised expression of black people’s struggle to be free of colonial and then apartheid oppression and exclusion.

Then in the same way that the back bone’s connected to the … neck bone it follows naturally that post-1994, given the ANC’s overwhelming dominance at the polls, the party can legitimately be seen as the ongoing expression of black South African’s attempts to govern themselves and use the state to redress the inequalities and distortions caused by that apartheid and colonial past.

So this week the ANC celebrates its 100th anniversary, kicking off with a centenary golf day (for only the luckiest of revellers) and including gala dinners, interdenominational church services and culminating in a public rally in Bloemfontein (Mangaung) on Sunday January 8.

The sense that the ANC is a proxy for the country itself is strengthened by the fact that this year will culminate in and ANC national conference electing a leadership that will, almost automatically, become the leadership of government after the general elections in 2014 – again, given the ANC’s electoral dominance.

Additionally an ANC policy conference in July will pronounce upon a range of  matters concerning the role of the state in the economy and it promises to make policy on (amongst other matters) the nationalisation of mines and the expropriation of white owned farm land – with or without compensation.

But hang on a moment …

One of the key tasks of political parties in their struggle to become or remain the party of government is to present their agenda as identical to the national agenda, their leadership as automatically the national leadership and their interests identical to the national interest.

The ANC can legitimately point to how central it is to South Africa’s political and cultural life, but as we wilter this week under the the searing overstatement of that message it is useful to bring a few proviso’s to the front of mind.

We are a country with a small, open economy nestled in the most depressed region of a world overwhelmingly interconnected and subject to monumental forces that grind their way irresistibly through the Ozymandian vanities of governments significantly more powerful than ours.

The more we learn about the world and the history of human societies the more apparent it is that we have been hopelessly overoptimistic about our ability to understand let alone predict how the complex systems of our economies, national entities, ecological systems and cities function, evolve, collapse and change.

I am sure that this week newspapers will be full of huffy assertions that the ANC does not represent “the nation” and therefore treating its centenary as if it was a sacred ritual akin to Fourth of July in the United States (which celebrates independence from Great Britain in 1776) is a travesty.

Quite right too. The ANC has diverted significant national resources to traditional US style pork belly politics  but has also made itself guilty of more overt Angolan style looting. All that combines to makes its claim to represent the “national interest” an insulting insinuation about “the nation”.

Also new political forces are emerging and growing – most obviously Cosatu and the Democratic Alliance – that will further erode such ANC claims in future – as will the shifting ethnic bases of parties and groups that contest in the political arena of South Africa.

However, these were not the points I wanted to make – and I am sure they are going to be done to death in the next few days.

My point is that sovereignty itself – and certainly who the ANC elects as leaders and what the party decides vis-a-vis nationalisation of mines and expropriation of land without compensation – will have much less force and effect in determining South Africa’s political and economic future that we might imagine.

Economic policy, laws governing ownership and general “good behaviour” around fiscal and monetary policy are rigidly constrained both by the discipline of global capital markets and by a myriad bilateral and multilateral agreements between countries and blocks of countries.

As I said to clients earlier this week (concerning the ANC centenary):

“Obviously we must continue to watch the ANC as carefully as always in 2012 – but this small open country and economy will continue to be tossed on the currents of the global economy and the various geopolitical, technological, cultural and environmental forces that shape the world. We might miss a trick or two if we lull ourselves into believing the myth that the ANC is a kind of metaphor for the country as a whole.

A guest post from my friend and colleague Sandra Gordon. Sandra is a respected financial market economist and we increasingly present work as a team in what is often called “a dog and pony show” … although in our case there is some disagreement over who will be the dog and who will be the pony. Sandra is an excellent market commentator and I have known and respected her views since she was my client on the “buy side” at Nedcor Investment Bank Asset Management (Nibam) in the mid-90s.

My friend, colleague and author of this post on the National Budget, Sandra Gordon

Over to Sandra:

If there was one message from this year’s budget it is that, despite all the hype that economic transformation has finally arrived (the dreaded “shift to the left” which tends to give the financial market types sleepless nights), it’s actually probably more of a case of business as usual.

In the wake of the global financial crisis, there was serious debate worldwide about the merits of various economic growth models. In the 2010/11 Budget, Minister Gordhan noted: “The recent crisis and its aftermath have led to a serious introspection and rethinking of what were thought to be robust and superior economic models.” With the Washington Consensus in disgrace, South Africa was able to signal its intention of shifting towards a “developmental state” (essentially a more active role for government in the economy).

So it seemed South Africa was headed for a developmental state and real economic transformation. The new model was finally outlined by the New Growth Path (NGP), which was released by Minister Patel late last year. The primary aim of the NGP was the creation of five million new jobs by 2020.

This theme was echoed in the recent State of the Nation address, in which President Zuma announced a range of measures to encourage job creation.

Yet, despite all the talk of economic transformation – and the ongoing tsunami of change in the global environment – this year’s budget is essentially unchanged from the previous. The critical issues facing our economy were again identified as the twin evils of unemployment and poverty, while the best way to address them is to focus on job creation and encouraging growth in those sectors most likely to generate employment.

Admittedly this year’s budget had a greater focus on jobs than last year – with a grocery list of programmes and measures totalling R150 billion over the next three years. A key difference was also the absence of any mention of the “developmental state” – with government’s role limited to the provision of incentives and the creation of an environment conducive to growth – such as the easing of transport and logistic bottlenecks etc. Other than that, the key measures were familiar – more social spending to support the poor, huge sums for investment in infrastructure and a focus on skills development and training.

Essentially the budget delivered on the priorities laid out by the NGP – with one glaring exception: demands for a weaker rand. Minister Gordhan neatly sidestepped this particularly contentious issue by noting that government had already responded to excessive rand strength by easing exchange controls and accelerating the accumulation of foreign exchange reserves in October last year. Beyond those measures, Treasury will be “monitoring” the measures adopted by other countries – including Brazil and Thailand – which have had similar struggles with massive capital inflows and excessive currency strength. So effectively, “we’re looking into it.”

The other political hot potato that was neatly avoided in the budget was the issue of the National Health Insurance. This year’s budget included measures which “lay the foundations” for NHI. The implementation progress is going to take time – but things are undoubtedly going to get more interesting when the debate shifts to how the NHI is to be funded. Gordhan listed a range of possible funding sources including a VAT hike, a surcharge on personal income or a payroll tax. None of those options are likely to be particularly well received.

Essentially then, Gordhan was able to address all the priorities outlined in the NGP (barring rand weakness), while maintaining an element of fiscal discipline. With the deficit remaining at 5.3% of GDP in the new fiscal year – in line with the previous fiscal year but above expectations – debt servicing is now the fastest growing spending category.

While we are in a far better position than countries like America, the UK and various European economies which are slashing government spending and raising taxes, it could well be that this is our last chance to really get the economy moving. If the measures in this year’s budget deliver growth, tax revenues will ultimately rise and fiscal discipline will be maintained.

If, however, growth stagnates – perhaps due to a deterioration in the external environment – the state may find its finances stressed, providing less scope for social spending and job creation initiatives. As one analyst put it in the press this morning, this could be “the last throw of the dice”.

And it is on this front that the news is a little less reassuring.

It is positive that – amidst the global turmoil – the centre is holding and our basic economic policies remain on course. But our key weakness has always been not our policies but our inability to implement those measures. So for all the good news in this year’s budget regarding measures to encourage job creation and infrastructure investment, there have been no developments which would lead one to think that there is going to be any significant improvement in implementation and delivery.

In an increasingly unstable global environment, it is becoming ever more important that we finally start making significant progress on reducing our unemployment rate and pervasive poverty. We have the money, for now, but the ability to implement and deliver is becoming ever more critical.

With so much at stake, it looks set to be another interesting year.

Has anything changed?

The guy in the middle is the ANC and his lying entreaties are addressed to Cosatu and the SACP while his real passion – and the furtive fumbling in the dark – are with business, global and domestic.

I commissioned that cartoon in 1999 and Cathy Quickfall did a better job than I could have hoped for: the Cosatu/SACP figure’s naive and hurt innocence, still wanting to trust Mr ANC; business in a sharp suit, her disdainful look into the distance with just the busy hand behind her back revealing her urgent and furtive intent.

In the intervening 11 years I have used this same cartoon on several occasions (here’s one) to ask whether the game has changed.

I believe this is still the game: the ANC’s vacillation between a “left” agenda (consisting of a combination of growing state welfare, increasing effective taxation on the wealthy and expanded intervention into shaping the economy’s trajectory) versus the promise (made more strongly in private) to global and local capital that it’s rights to property and the retention of the large share of profits are inviolate.

All governments are faced with a similar dilemma, but it is a peculiarly South African phenomenon that the “left” agenda is married to the ruling party through the formal institution of the Ruling Alliance and that the political choices have, for clear historical and structural reasons, been cast in ‘racial’ as opposed to ‘class’ terms.

The cartoon as constructed worked perfectly well for the end of the Mandela era as well as the whole of the Mbeki era – even if, in typical soap opera fashion, the relationships became so complicated and entagled that the essential nature of the clandestine affair became difficult to percieve.

The analytical challenge  for myself for 2011 will be to establish whether it holds true today.

There are indicators, including vaguely in the January the 8th statement and government murmurings about the New Growth Path, that hint that the grand French style affair might be coming to an end.

The rise of Jacob Zuma was, in part, the result of a tactical manoeuvre by Cosatu and the SACP to stop the deepening and elaboration of the affair between the ANC and some of the uglier strands of global capitalism.

The strategy seemed to fail when the Zuma administration appeared initially to be all about continuity of Mbeki’s economic policies combined with replacing his BEE beneficiaries with the Nkandla Crew – the worst of both worlds.

I am starting to suspect that a combination of the strategic choices that have been forced on Zuma (by manoeuvrings to his right) and the absolute imperative that the ANC increase delivery to the poorest South Africans (who are the majority of voters) bring us closer to the breaking of the triangle that the cartoon represents than we have been since 1994.

I will continue to gnaw at the bones of this question in this blog and I welcome any contribution you might make to this or any other discussion that takes place here.

This is the second of three articles about the New Growth Path (NGP) Framework released last week by the Ministry of Economic Development.

One of the architects (I must assume) of the NGP, Neva Makgetla  (an economist long associated with Cosatu and now deputy director general in the Department of Economic Development) recently examined both the Growth, Employment and Redistribution macro-economic policy and the ‘industrial development plan’ alternative usually advanced (in my opinion) by members of the SACP.

Writing in the September 2010 special issue of the African Communist (journal of the South African Communist Party designed as a forum for Marxist-Leninist thought) Makgetla spells out what she thinks are the problems with both polices are.

Her views of what has gone before are interesting because the new policy tries to marry these frameworks by taking only the best of both.

Someone should have warned them that in policy marriages, as in human ones, you take the good with the bad … but more about that in the third post about the NGP which I will probably only get to by Monday.

The ‘anti-poverty framework’ associated with GEAR

“In effect, the transition to democracy built an implicit social compact: business would retain its property rights, and by extension its wealth and standard of living, while government would use its tax revenues increasingly to address backlogs in services for black communities left by apartheid.”

Makgetla sees the 1996 GEAR policy framework as having left in place the basic structure of the Apartheid economy.

Path dependency meant mining and finance continue to dominate and that property relations and inequality remained unchanged.

But the strategy, according to Makgetla, was attractive to successive ANC governments because it was quick to roll out and provided immediate benefits for the poor (particularly through social grants), while (hopefully) stimulating production and generating employment as the poor consume more goods and services.

“(The major benefit of the strategy) from the standpoint of the state was that it did not require explicit intervention in the economy. It relieved the government of responsibility for transforming the economy, with the associated risks of failure and potential conflict with business. Instead, government could focus on the more agreeable task of improving the lives of constituents through the more conventional public functions of providing basic services and housing.”

The risks were largely in lost opportunity – not achieving “new kinds of economic growth and by extension enhanced employment”. Because the strategy was dependent on state revenues, it was ultimately hostage to the booms and busts of the global economy.

Her key assessments of the policy are:

1. the transfers remained too small to provide the hoped improvement in the conditions of life of the poor and therefore the expected increase in demand and economic stimulation;

2. the relatively strong rand meant that new demand for manufactured goods, especially clothing, appliances and household furnishings was largely met by imports, and

3. the poor were ultimately dis-empowered and demobilised by top-down hand-outs that are central to the strategy.

Industrialisation strategy – SACP alternative

This is the policy proposal that ‘stands in’, in Makgetla’s assessment for the traditional left contribution to the policy debate. It is best revealed, in her opinion, by the Industrial Policy Action Plan (1 and 2) of the Department of Trade and Industry.

These strategies are designed to encourage production of manufactured goods, especially for export.

The industrial strategy has the potential, in her opinion, to access larger markets in order to drive mass based production, which in turn will secure more rapid growth and higher employment.

Crucially, the approach is modelled on the relatively rapid development experienced in Asia especially in the 1960s and 1970s.

The version of the strategy she deals with – which is the version in IPAP2 of the DTI – explicitly requires government to change which parts of “capital” it supports i.e. government would need to collaborate more closely with “industrial capital”, while reducing support for mining, farming and finance.

The state should focus its support on conventional manufacturing especially of capital goods, transport, electronics – and to a lesser  degree “light industries” like clothing, food processing and minerals beneficiation. The policy tends to assume that services and production to meet domestic demand are inherently less competitive “and hence less desirable.”

Makgetla thinks there is high political risk for government in this strategy. The chances of failure in such an unequal society are high and if government adopts a strategy largely dependent on its effective intervention in the economy, it will get the likely flak along with the less likely kudos.

Risk is increased because the strategy is hostage to global demand for manufactured goods and RSA will be competing with China and almost every other developing country that sees this kind of strategy as central to their development path.

Finally, the industrialisation strategy supports long term economic growth but not employment and equity, which are not automatic consequences of growth. It ignores labour intensive activities like agriculture, services and construction and often leads to proposals to hold down wages to support competitiveness – she was prescient about that, but then she did help write the NGP!

On Monday I will spell out more specifically what the NGP proposes to do and I will make an assessment as to whether the policy will ever be implemented by this government and if it is, what it’s likely consequences would be.

If any of you are still with me by then, I will be surprised and you will probably be slightly sick of grandiose government policy making.

This is the first of three articles that look at the political and policy bloodline of the New Growth Path and the main criticisms that have emerged about the policy in the public domain over the last few days.

This first post is a summary – using quotes and paraphrasing – of Ruling Alliance statements about macro-economic policy since 1990.

To understand the policy we have to understand:

  • firstly how the policy fits into the discussion/dog fight in the Alliance over the last 20 years;
  • and secondly the fact that the policy comes from Minister of Economic Development, Ebrahim Patel, whose department and position, in my opinion, was a last-minute structural compromise to reward Cosatu (and to a lesser degree the SACP) for having backed Jacob Zuma against Mbeki.

So the big bulls (ANC and the SACP) have been butting heads for 20 years (see below) and now the little bull is trying to horn in on the action.

20 years in the trenches of the ideological squabble

Since the release of Mandela from prison in 1990 (and, in fact, well before that – mostly behind closed doors) different factions of the ANC, the SACP and Cosatu have had a sometimes productive and sometimes vicious policy debate about economic policy. At issue has always been the stance the state should take towards private business and the appropriate amount of persuasion and coercion required to achieve redress and redistribution.

The first sign of things to come was the speech Nelson Mandela made on his release from prison in 1990.  After the excerpt from Mandela’s speech I will let the comments flow and tell their own story of the conflict within the Ruling Alliance.

A history of the conflict in quotes and paraphrases

“The nationalisation of mines, banks and monopoly industry is the policy of the ANC and the change or modification of our views in this regard is inconceivable”

Nelson Mandela paraphrasing the Freedom Charter on his release from prison in 1990

“We are convinced that neither a commandist central planning system nor an unfettered free market system can provide adequate solutions.”

The 48th ANC National Conference, July 1991 from a conference resolution

“It was a demand-led and internal infrastructural development proposal, which envisaged less immediate concern with budget deficit reduction and inflation.”

African Communist No 147, third quarter 1997 discussing the Macro Economic Research Group’s (MERG’s) proposals from 1993

“Of particular importance was the proposal to restructure the economy by way of a policy of ‘growth through redistribution in which redistribution acts as a spur to growth and in which the fruits of growth are redistributed to satisfy basic needs’. This proposal was predicated on the central policy idea that the state needed to boost demand, primarily by ensuring that greater amounts of income would be received by the poorer sections of the population, which in turn would stimulate output and hence economic growth.”

Dennis Davis in From the Freedom Charter to the Washington Consensus 2002 discussing the RDP proposal of 1993

“Despite its ideology while in opposition, once in power the ANC government implemented an orthodox macroeconomic policy which stressed deficit reduction and a tight monetary policy, combined with trade liberalisation. The stated purpose of this package (the Growth, Employment, and Redistribution programme, or GEAR) was to increase economic growth, with a 4.2% rate programmed for 1996-2000. At mid-term of the programme, growth remained far below this target. The GEAR’s lack of success cannot be explained by unfavourable external factors; rather, the disappointing performance seemed the result of fiscal contraction and excessively high interest rates”

A standard left criticism of GEAR from: Stuck in Low GEAR? Macroeconomic Policy in South Africa, 1996-98 John Weeks Cambridge Journal of Economics, 1999, vol. 23, issue 6, pages 795-811

“Faced with deepening unemployment, poverty, and inequality, and with disappointing growth and investment, the GEAR policy framework has met with persisting criticism from COSATU and the SACP in particular. From the side of its principal proponents within the government, there have been several adjustments in the face of disappointment. Increasingly, GEAR has been redefined as a conjunctural stabilization program and not what its acronym suggested it once aspired to be (a growth, employment and redistribution strategy). In this rereading, GEAR was necessitated by global turbulence and by a very precarious foreign currency reserve situation in 1996. Its “success” is now measured not in terms of growth, employment, and redistribution outcomes, but anecdotally and by way of comparison—“whatever our problems, South Africa’s economy is not in the same predicament as Argentina, or Turkey, or Zimbabwe,” or “GEAR has helped us to survive the worst of global turbulence” (which may not be completely incorrect).”

Jeremy Cronin rephrasing GEAR as a conjectural stabilisation strategy – 1998

In an address to the Socialist International October 2003 and then in various speeches in 2004, Thabo Mbeki argued that solving unemployment, poverty and low levels of black participation in ownership and control of the economy had become very urgent. Further, he argued that to solve these problems an effective, strong and interventionist developmental state was needed – just proving that there is nothing new in heaven and earth. He put the case for improving the public service and extending the state’s influence and ability to lead the economy. “Influence” meant keeping hold of strategic state assets (and therefore a partial withdrawal from the privatisation specified in GEAR) as well as a detailing of micro-reforms including BEE. He placed a strong emphasis on private public partnerships as well as on galvanising a collective consciousness about the “common good”. From this shift the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) was codified in 2005/2006. While it set targets for growth and employment, Asgisa was primarily an infrastructure investment programme combined with various (mostly supply-side) measures to remove impediments to growth – much of which the economy continues to benefit from today.

My own summary of Thabo Mbeki’s initial motivations for AsgiSA

In the lead up to Polokwane this was the definitive statement from ‘the left’ attacking the direction that the Mbeki government had taken: “The post-1996 class project” was led by a “technocratic vanguardist” state with the mission for “a restoration of the conditions for capitalist profit accumulation on a new and supposedly sustainable basis” (as opposed to “a revolutionary … transformation … to resolve the .. contradictions in favour of .. the working class ..”). The document argued that “The post-1996 class project” rests on three pillars: Firstly, the ANC leadership has mistakenly bought into a myth of a gentler, kinder world, but imperialism is stronger and more hostile to popular democracy than ever; secondly, to fit into this world “the second pillar of the project is a powerful presidential centre” that necessarily installs a top state/ leadership group of state managers and ‘technocratically’-inclined ministers and (often overlapping with them) a new generation of black private sector BEE; and finally, the project calls for the organisational modernisation of the ANC … “to transform the ANC from a mobilising mass movement into a ‘modern’, centre- left, electoral party”. There is a “manifest inability of capitalist stabilisation and growth to resolve the deep-seated social and economic crises of unemployment, poverty and radical inequality in our society. The ravages to the ANC’s organisational capacity and coherence (are caused by) “the attempts to assert a managerialist, technocratic control over a mass movement, and in the crises of corruption, factionalism and personal careerism inherent in trying to build a leading cadre based on (explicit or implicit) capitalist values and on a symbiosis between the leading echelons of the state and emerging black capital.”

My paraphrasing of the SACP Central Committee Discussion Document. Bua Komanisi – Volume 5, Issue No1 May 2006 – difficult to read but a perfect summary of the position that exists to this day in the SACP

Then came the answer to the ‘left critique’ from the central ANC leadership: “…the trapeze act here is to co-opt the ANC, formally, as an organisation pursuing socialism; and then condemn it as having betrayed the socialist project”. First, and most importantly the ANC denies that it ever was or should have been an organisation whose objectives was to achieve socialism. The ANC, the document claims, is the organic result of the struggle of black South Africans for national liberation and redress for what they suffered and lost under Apartheid. Additionally the ANC prioritises the poor and the working class. Once this point is made, the ANC argues, all the rest of the SACP critique falls away. The ANC accuses the authors of the SACP document of “ahistoricism, subjectivism and voluntarism”. This is more than just name calling. In the argument of the authors of this document:  ahistoricism refers to the SACP’s alleged  failure to understand what led to the present conditions as well as the character of the historical moment in which they find themselves, subjectivism means that the SACP has used its own preconceptions to guide its views and has seen the world as they wish it to be rather than how it really is; voluntarism  means the SACP believes that through pure force of will, hard work and determination it can achieve socialism in South Africa, whatever limitations the domestic or global environment and balance of forces, especially the strength of global capital markets, impose on possible outcomes.

Managing National Democratic Transformation – ANC response to SACP discussion document – probably the last time the ANC spoke plainly and confidently about economics and the class struggle – 19 June 2006 the official NWC response to the above quoted SACP Central Committee discussion document

The next post will summarise the actual policy contest (from an economists point of view) of the last 15 years. This will essentially be the actual macro-economic policy of the ANC (run from the Treasury) and the SACP’s consistent “industrialisation” alternative (proposed from the Department of Trade and Industry).

I phrase it like that deliberately to suggest that the Department of Economic Development and the New Growth Path Framework represents a new political assertion even if the policy formulation ultimately turns out to be a hodgepodge of previous proposals – as suggested by my summary of Thabo Mbeki’s AsgiSA policy above.

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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