My growing worries about the ANC’s plans for economic intervention

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 beads or pebbles in the end and two mirrors running lengthways up the inside, duplicating images of the transparent junk that tumbled as it was twisted.

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 wonderous images.

Which brings me to my worries about ANC policy making.

I am slightly more worried today that I was when I wrote the piece below (from 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.

Notes on the relationship between Cosatu and the ANC

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 mare, which 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.

The ANC as a proxy for the nation?

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.

The centre holds – for now

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.

The great South African soapie

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.

If this is the New Growth Path what’s the Old Growth Path?

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.

New Growth Path Framework bloodline

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.

Stalking Horses at the NGC

I have been sickly and trying to pay the bills.

All my ‘paid for’ commentary on the NGC is done and I can finally get back to home ground where I feel more comfortable to make some wild accusations – and I will, finally, be more explicit in this post about who I think the bad guys are and who I think the less bad guys are.

At the outset, forgive me; this is long and requires a degree of effort to plough through. I believe your efforts will be rewarded in the end – but I would think that, wouldn’t I?

The NGC, just like the world itself,  becomes a cacophony, impossible to follow and impossible to interpret, without a guiding theory or a framing shape to look through.

The “theory” I am going to use here is that the NGC was the terrain on which two broad factions in the ruling alliance clashed. How you slice-and-dice a thing, conceptually, is always important for what you conclude, so much of what appears below is an attempt to unpick what and who those ‘factions’ consist of.

To think that what was happening at the NGC was “about” the nationalisation of mines call will lead to ‘error’ (you can see Lenin in my heritage when I use terms like that). Instead the NGC was “about” a more fundamental and complex power struggle.

The picture is additionally complicated when we consider that there were over 2000 delegates at the NGC (1500 from branches, 500 from the leagues/Cosatu/SACP/SANCO/PECs and 800 deployees/non-NEC ministers/DGs/premiers/CEO’s of SOE’s) and the interplay was vast and varied.

So instead of trying to cover everything I am going to look through the prism of an alleged power struggle between two broad factions or groups of interest.  This will ultimately be another attempt to “follow the money”.

Here then is the prism through which I believe it is most useful to look:

1. The ‘nationalisation of mines’ (NOM) call was always a “stalking horse”. The term “stalking horse”  refers originally to  “a horse behind which a hunter hides while stalking game” (WordNet) and is defined in Wikipedia as “a person who tests a concept with someone or mounts a challenge against them on behalf of an anonymous third-party … if the idea proves viable and/or popular, the anonymous figure can then declare their interest and advance the concept with little risk of failure … if the concept fails, the anonymous party will not be tainted by association and can either drop the idea completely or bide their time and wait until a better moment for launching an attack.”  Oh yes, I love the language.
2. The ‘nationalisation of mines’ call (hereafter called NOM because in fact, it has less do with policy and more to do with power) is best understood as the political platform of a particular alliance of groups and individuals and interests that has as its objective the winning  to power in the commanding heights of the ANC and the South African State. The NOM is therefore something more (and less) than a policy proposal. It is a contingent strategy for winning power – and getting the ANC to nationalise the mines would be a desirable side-affect for some of the participants.
3. The first part of the NOM is the Youth League’s own specific ambitions, which have most obviously been expressed as a campaign to elevate Fikile Mbalula to the position of Secretary General of the ANC – the position currently occupied by Gwede Mantashe. Mantashe is despised by the League for a number of reasons, but mainly because he is part of those who believe the ANC Youth League is part of an ambitious rent seeking agenda. The League considers itself to be a “king maker” in ANC electoral processes and the organisation has energy and mobility and time to move quickly around the country to influence decisions at a branch and provincial level – a feature it demonstrated successfully at and in the lead-up to Polokwane.
4. The second part of the NOM are those mining tycoons who want their BEE deals bailed out by the taxpayer. Who could have failed to notice the unified voices of those gleaming billionaire siblings Patrice Motsepe and Bridget Radebe as well as Minister of Housing Tokyo Sexwale backing the NOM in the lead-up to the NGC or at the conference itself?
5. The third part of the NOM is the election campaign of Tokyo Sexwale to succeed Jacob Zuma. Has he specifically funded and backed the ANC Youth League so that it can be deployed in its traditional role of “king-maker” on his behalf – or because he wants his BEE deals bailed out … or both? It is impossible to prove – either that he has passed money/business/tenders the way of the League or why he might have done so – but that he has done so – with the intention of becoming president – is clearly the view of most of “the left” in the tripartite alliance.
6. The clearest unifying principle behind the NOM and the most distinct characteristics of its participants is that they are first in the queue to gouge a rent out of the ANC’s economic transformation agenda. The nationalisation of mines call is tailor-made for the broader agenda of the NOM:  there are real material benefits for the backers, it allows the policy bereft Youth League to appear radical and pro-poor – and anti-white capitalist – to its potential supporters; it forces the current top leadership under Zuma (for the sake of investment and economic stability) to deploy itself to defend against something that would naturally appeal to the rank-and- file’s populist instincts.
7. So who is the NOM challenging? Essentially “the incumbents”, which at one level just means Jacob Zuma, but at another level means everyone who has assumed a leadership role in government, party and the Tripartite Alliance as a consequence of Jacob Zuma’s elevation as well as the ideas and policies that have come to be crafted by that incumbent group.
8. The “incumbents” should also be conceived of as including all those tenderprenuers, Nkandla hangers-on and Zuma family members whose fortunes are linked to the fortunes of the incumbent leadership.
9. Do the members of the NOM even know who they are or what they are part of? Mostly they do – because there is an increasingly bitter conflict, for example, between the ANC Youth League and the SACP. When powerful factions clash, they strengthen themselves, make themselves more defined; they force anyone and any issue into the framework of their clash. We saw this in the Cold War, but more recently and specific to the groups here, we saw this in the struggle to stop Mbeki and elevate Zuma. eventually everyone knew whether they were “for” or “against” the motion. Attempts to stay sane, principled and above the fray are inevitably MIA in this kind of overblown factional dispute.

Given that framework, what actually happened?

NOM preparation

Firstly, the NOM did extensive (but insufficient) spade work around the policy that fronts their agenda. Julius Malema and Floyd Shivambu have been on an extended road trip, selling the idea for over a year. They have written for newspapers and addressed conferences. Malema threatened to withdraw Youth League support from any leader who did not support the call. The Youth League attended all provincial preparation conferences for the NGC and was successful in getting its view represented in every delegation from every part of the country. There are extensive reports that members were instructed to infiltrate ANC branches and emerge later as NGC delegates. The style associated with “winning” this view at various conferences was a combination of exclusive focus on the issue and heckling, booing and threatening any opposition – in the now time-honoured traditions of the League and its members.

What the financial backers of the NOM and members of the broader NOM agenda were doing in the lead-up to the NGC should not be underestimated. Individual backers of the NOM have extremely extensive resources. Such wealth and power gives individuals the ability to reach people and process far from themselves – and snap them like a twig.

Incumbent preparation

It is difficult to say how much work the incumbents did. I have made the assumption that securing the Tripartite Alliance was key to the incumbents preparing for the onslaught they knew was coming at the NGC. In this context the brokering of the ending of the public sector strike and the carefully worded apology from Cosatu to the Zuma/government for the language workers and their leaders had used during the strike was, in part, an attempt to establish the ground for a united front against the NOM agenda at the NGC. Comprises and certain concession were probably made to “the left” – but I will discuss this in the conclusion.

The NGC opening – political and organisational reports

Jacob Zuma’s Political Report and Gwede Mantashe’s organisational report were interesting for a number of important reasons but what is relevant for this post is both reports were correctly interpreted as a significant shot across the bows of the NOM. We can all delight in the fact that Winnie Mandela had to physically comfort the distraught Julius Malema after the dressing down he received during Jacob Zuma’s opening Political Report and take to heart her now immortal words ” … every parent is allowed to talk to their children … Every organisation is like a parent.”

Commission 5 victory and then plenary defeat

The sighs of relief ‘the incumbents’ might have breathed after the NOM’s early humiliation were soon replaced by anxiety when the NOM decided to put all of its eggs in one basket (this is one time that cliché is justified) by sending 45 of the Youth League’s 66 delegates to the Wednesday economic transformation commission. It appears that all supporters of the NOM including Tokyo Sexwale and several other BEE mining tycoons flooded the commission to ensure a particular outcome. The best article in the public domain I have seen about the commission is by Moipone Malefane and Caiphus Kgosana in The Sunday Times of September 26 – catch it here.

Joel Netshitezhe , Lesetja Kganyago  (DG in the Treasury),Trevor Manuel, Enoch Godongwana (Deputy Minister Public Enterprises) and old stalwart on this issue, Jeremy Cronin, were amongst the key ANC intellectual and economic thinkers who tried to hold the line at the meeting. Their appeal for thoughtfulness and care around an issue likely to costs government hundreds of billions of Rand were reportedly overwhelmed with bullying, heckling and unthinking repetition of the demand: adopt the call, as we have defined it, as policy!

Without having seen the exact statement that emerged from this commission it is clear that the Youth League (and everyone else present) was under the impression that they had scored a clear victory and the inner cabal reportedly headed off to the Hilton Hotel to celebrate victory in the style to which they had become accustomed.

The ANC Youth League’s (and the NOM’s) celebration was premature. The next day at the plenary session of the NGC Minister Geoff Radebe (husband of Patrice Motsepe’s sister, Bridget, and someone who had expressed support for the basic premise of NOM earlier) delivered a watered down version of the results of Commission 5 – and the ANC Youth League leaders exploded, ultimately sealing their fate by appearing to storm the stage in an aggressive manner.

Conclusion

Ultimately, through the support of delegates from across the alliance at the plenary, a watered down version of Commission 5 carried – essentially calling for thorough cross-country comparison and analysis of nationalisation as part of government’s ability to influence economic growth patterns in favour of the poor and unemployed. This study was mandated to report back to the 2012 Bloemfontein/Mangaung 100th centenary elective National Conference.

In the end it was not ‘the incumbents’ that were overwhelmed by the “shock and awe” campaign of the NOM. In the end it was the NOM that lost the skirmish – they overestimated the efficacy of their own preparation and they underestimated the coherency of the opposition – as well as degree of anger that is now widespread towards the ANC YL and its leaders.

The paucity of facts in the public domain does not relieve us of the obligation to think about what may be going on and develop a view as to the potential risks involved in any situation. Wile E Coyote might have said ‘what we don’t know can’t hurt us’, as he wandered over another cliff, but in the real world what we don’t know can sometimes be deeply threatening. So the explanations I have given here are my best attempts to muster an explanation for as much of the story as possible. I am sure that at some point in the future some of the guesswork and necessary assumptions might prove misguided – but that is life in the threat analysis business.

Three final points;

Firstly, it is okay to delight in the set-back of a particularly voracious self-enrichment agenda at the ANC NGC. But it is important not forget that the conference left unscathed similar agendas in many other places in ANC and affiliated ranks, including in the Zuma family itself.

Secondly, the defeat of the NOM is a tactical, tangential issue. Like the Governator, they’ll be back.

Finally, the victory was bought at the expense of some kind of compromise with “the left”. I expect the upcoming Cabinet review of a New Growth Path to be more sympathetic to a host of issues traditionally seen as part of an SACP or Cosatu platform (including Rand policy, inflation targeting, downward pressure on interest rates, nationalisation of the SARB, tax on short-term capital flows, industrial policy, National Health Insurance and the establishment of a state-owned bank.) The consensus within “the incumbents” is inexorably moving towards a rejection of some of the basic tenants of the Growth, Employment and Redistribution Macro-Economic Policy as defined by Mbeki and Manuel.

Our future is full of as yet undefined state intervention. I wouldn’t feel so bad about this if I didn’t agree with Cosatu that this state, in this place and time, is rapidly becoming a predator.

Cosatu’s plans for full employment

Cosatu has released its long awaited document in which it provides the facts (as it sees them) and theoretical underpinnings for “A Growth Path Towards Full Employment” – and in doing so attempts to align its views with those emanating from Minister Ebrahim Patel’s Department of Economic Planning (the Two Year Strategic Plan) as well as Minister Rob Davies of DTI’s (IPAP2).

Stephen Grootes at the Daily Maverick has done an exemplary quick analysis (catch that here). I am not quite certain I am as gung-ho capitalist as the guys down at the the DM are … although I am as clear as Grootes is that Cosatu’s main planks of policy would turn us into a wasteland in two flicks of a lamb’s tail – as not even my old Granny was prissy enough to say.

I saved a copy of Cosatu’s full document here and hope to give it a more thorough treatment than the cursory skim I gave it in the middle of last night. Whatever I conclude will be faithfully reported on these pages.

Sink or swim

Here is the summary of South Africa’s performance in the Global Competitiveness Report 2010 – 2011. The highlights are mine and the seriousness of the problems is obvious..

While we quite rightly bemoan health, education and labour market failures it is interesting to note we were top ranked – in the whole world! – in two categories: in auditing and reporting standards as well as in the regulations that govern our securities (financial instruments) exchanges.

But on with the bad news: part of the process of the construction of the report involves asking the opinion of “business leaders” (see note below about methodology) about their concerns. The top four concerns they had about South Africa are not a huge surprise:

From a list of 15 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

Methodology note from the press release: “The rankings are calculated from both publicly available data and the Executive Opinion Survey, comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organizations) in the countries covered by the study. This year, over 13,500 business leaders were polled in 139 economies.”

Click here for a link to the full report.

Politicians tend to hate markets – for good reason

… politicians and chief executives of all political colours become angry when anonymous markets do not take their assertions at face value. The anonymous market cannot be dictated to or defeated in debate. Leaders cannot shout down, fire or arrest the nonexistent Mr Market.

This from a fine piece of commentary from John Kay in the Financial Times, republished in today’s Business Day.

The article is premised on US and UK politics where “the political left” and “the political right” take opposite views of the market – a state of affairs that does not have an exact corollary in South Africa:

The anonymity of markets delights the political right, which welcomes it as a check on state authority, just as it infuriates the political left, which deplores the freedom of the market from democratic control.

Monetary policy — a market-based policy favoured by the right — restricts spending by price through the discipline of higher interest rates.

Fiscal policy, favoured by the left, requires political choices about levels of taxation and public spending.

In South Africa “the political right” and “the political left” would not be defined in these terms except if you understood the Democratic Alliance to represent “the right” and the ANC “the left” – a set of definitions that is not entirely helpful.

The article neatly summarises why politicians in power tend to hate the judgement of the markets. Who can forget Trevor Manuel’s 1996 comment? “I insist on the right to govern …. I insist on the right not to be stampeded into a panic decision by some amorphous entity … called the market.”

“The market” punished him profoundly for the comment and he seemed to have learned something important from that lesson that came in his first few months of what was to be the longest term of any minister of finance in the world.

Kay’ is no libertarian extremist – he cautions that “all extremists seem to believe that their brand of authoritarianism represents true democracy”.

But he pulls no punches against the politicians who futilely attack “the gnomes of Zurich” and the “teenage scribblers” when markets declare, with magisterial equanimity, their lack of confidence in those politicians.

Catch the full article here.

London Calling

Herewith a note I wrote a week ago for a South African client concerning a recent whip around the London fund management industry

Foreign fund managers perceptions of South African political risk

I recently had an opportunity to interact with a few London-based global emerging market fund managers. These were generally from long-only equity funds, but included a smattering of everything else.

The main lessons I learned were

• not to be overwhelmed by the negative news flow;
• always think in relative terms – a negative and obsessive focus on South Africa is meaningless without realistic peer comparisons.

This was brought home to me again as the weekend news of the brutal killing of Eugene Terre’Blanche hit the local and international press. The media focus alone seemed to suggest that this was a potentially destabilising event. However the story has quickly descended into the squalid domestic tale it really is, and the over-the-top alarmism should be faintly embarrassing to those who trumpeted it over the holiday weekend.

Here are the main questions I raised in London and the main responses I received*:

The news explosion around Jacob Zuma’s latest romantic and similar engagements does not drive capital flows

This point did not need emphasising with the fund managers I saw. If anything they were faintly puzzled as to why I would bother to raise it. For them the emerging market universe has much colourful (and sometimes ugly) personal behaviour by the political leadership and other powerful members of society. Zuma’s polygamy and latest love child are way down the list of “transgressions” in that universe.

Conflict over economic policy making the investment and operating environment difficult

The point I was making was that Pravin Gordhan’s budget speech differed in important ways from both the DTI’s Rob Davies’ Industrial Policy Action Plan II and Ebrahim Patel’s Two Year Strategic Plan. My issue with this was that Jacob Zuma had not settled important policy conflicts within his cabinet.

The different emphases could be summarised as follows:

• Pravin Gordhan supported fiscal restraint, inflation targeting, a segmented labour market and a competitive and unprotected manufacturing sector – and for this he was heavily criticised by Cosatu.
• The policies espoused in IPAP 2 and the Two Year Strategic Plan from the Department of Economic Development implicitly called for monetary easing, a weaker currency and a vigorous programme of interventions into the domestic economy through the use of tariffs and taxes – policies strongly supported by Cosatu.

Several of the fund managers that I interacted with had recently (within the last few months) met with all the ministers concerned either as part of a marketing tour led by Jacob Zuma or while in South Africa themselves. The detailed interactions with all these departments had convinced them that the policies of government were the policies as espoused by Pravin Gordhan and further that the more activist policies from Patel and Davies were not uncommon in emerging markets and at least did not include new capital controls.

I am not convinced the policy confusion is ‘investment neutral’ – although I do not think is catastrophic. Cosatu and the SACP clearly believe they have a chance to set policy – including monetary and industrial policy – through the DTI and the new Department of Economic Development. Thus Jacob Zuma seems to be clearer and more decisive about these issues in front of foreign fund managers than he ever is in front of a domestic audience. He will reap high resistance and anger from Cosatu and “the left” when they realise they have been lied to again. I think it is clear we are seeing the first signs of this realisation – in, for example, the threatened strikes during the World Cup against Eskom increases.

Julius Malema and the Nationalisation of the Mines

Julius Malema provokes a lot of reaction wherever he is discussed. Not many fund managers take him seriously and again it is because they have met and dealt with senior government and party officials who have spoken of Malema with patronising indulgence and a touch of exasperation.

Susan Shabangu, Minister of Mining, has done good work in assuring fund managers throughout the world that there is no possibility that the South African government will consider the nationalisation of mines as a serious policy option; and I came across several people who had met her and been convinced by her assurances.

Cronyism and tenderpreneurial flair – the threat to service delivery, stability, the functioning of the parastatals

Continuing on the theme of Jacob Zuma’s inability to solve the big conflicts in his government I argued that cronyism, nepotism and tender abuse are:

• important contributing reasons for the poor functioning of the State Owned Enterprises – the Eskom example reveals that enrichment agendas in tendering and the appointment of senior personnel damages the utility’s ability to do the job;
• key to understanding the failures of local government and hence the ongoing violence of the service delivery protests.

There were few fund managers I met who disagreed with this assessment, although some, yet again, argued that in the universe that includes Russia, the Middle East and Brazil, South Africa stands out less than we would imagine.

The World Cup and the waiting Hangover

It is perverse to argue that the downside of the World Cup includes:

• it could become the focus terrorist attacks;
• it could be targeted by organised labour and taxi operators to strengthen their hand against government or employers;
• it will inevitably entail a let-down or ‘hangover” period.

This would be a little like arguing that the downside of life is death and that it should therefore be avoided.

I never met a fund manager in London, or elsewhere for that matter, who disagreed.

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*Please note that this is a subjective process, over determined by my own interpretation and by a selection processes out of my control. Any real collation of “the views” of fund managers must theoretically translate into their holdings and the prices at which they buy and sell.

Cosatu and the ANC: the fat’s in the fire

I have been sitting on this for a few days partly because Cosatu’s Central Executive Committee statement on Thursday last week and the ANC response are as harsh as we have seen – and that includes the tone of voice that accompanied Cosatu’s huge strike against ‘Mbeki’s privatisation’ in 2002.

Cosatu has a long and interesting statement; one of the more important paragraphs read:

Regrettably, to our frustration and anger, the government continues with the tendency inherited from the previous administration to ignore policy directives it does not like and only implement those areas that the markets/capital are happy with. In this regard we are angry that the Treasury remain infected by the highly organised but conservative bureaucrats who have been driving neo liberal and conservative policies for the past 16 years.

The ANC replied:

ANC has grown weary of the latest media outbursts by COSATU, seeking to rubbish and undermine anything from the content of the President’s State of the Nation Address to the Budget Speech by the Finance Minister, as well as ANC policies. Taking pot shots at the ANC and its Government show signs by COSATU of veering towards oppositional politics and not sticking to Alliance politics and traditions.

The point for now is that this does not presage an actual splitting of The Alliance. Cosatu is going to mobilise its members to join and influence the ANC in the lead-up to the ANC’s National General Council later this year – much as they did in the lead-up to Polokwane in 2007.

Cosatu’s short term objective is to defend against the attack on Gwede Mantashe (emanating from, but not exclusive to, the ANC Youth Leage). The longer term objectives of Cosatu (and the SACP) are finally starting to emerge and I will deal with this in the next post.

For now Cosatu has attacked on a broad front:

• ‘tenderprenuers’, corruption and cronyism;
• relaxation of the labour market;
• failure of the ANC to stick with agreements that are reached in alliance summits;
• monetary policy, inflation targeting and the role of the SARB and
• a general lack of fit between micro and macro-economic policy.

For its part the ANC hadn’t quite finished with its fury at Cosatu’s CEC statement, and in particular Vavi’s niggling and constant accusation of corruption within the ANC and government.

Here’s the full text:

The African National Congress (ANC) has noted repeated allegations of corruption raised by the Congress of South African Trade Unions Secretary General, Cde Zwelinzima Vavi.

Cde Vavi speaks with conviction that “there is a tiny minority in the ANC leadership and membership which is corrupt and who use the ANC to enrich themselves”.

To this end, Cde Vavi has not raised this matter with the ANC in any of the fora of engagements we have and he has not provided any evidence of such allegations.

As a leader of the Alliance, we would have expected of him to have brought such a matter to the ANC leadership or even presented the list of such corrupt individuals. Together, we would have walk and matched to the nearest police station to ensure that such individuals are arrested. Cde Vavi would have assisted the ANC and government to root out the scourge of corruption in the country.

Cde Vavi’s failure to bring this weighty matter to the attention of the ANC and even his failure to report this matter to the law enforcement authorities, amounts to an insult to the standing and image of the ANC, its leadership and membership. These omissions on his part cannot amount to a fight against corruption but is reminiscent of grand standing.

Issued by:
Jackson Mthembu
ANC National Spokesperson

I don’t suppose it means much, but Jackson Mthembu was released from a police cell a few hours ago after been caught for drunken driving in Cape Town early this morning

Zuma – time for his democratic technocrats to shine

This is not a budget review. There are just too many of them out there and I am in the middle of a roadshow to the South African fund management industry where the budget is being VERY well received.

This is more a comment on the whole budget season that yesterday’s excellent National Budget began.

The good thing about Zuma’s presidency has always been the fact that he has let every contending faction into the ruling tent.

But, I hear you cry, they are milling about in there in confusion, stepping on each other’s toes and bellowing and mooing in a kind of bovine riot as they fight to get as close as possible to the trough.

Well yes, but aside from that. You see, the Alliance of the disaffected (thank you Stephen Friedman) always consisted of an unhealthy number of BEE wannabes who wanted their turn to tear at the dwindling cherry. But they were never alone. The communists, the trade unionists, the ANC democrats who thought Mbeki had sold the revolution down the river and then a whole host of people whose contribution had been thwarted by the logic of the Mbeki imperial presidency (avoid real participation by the structures of the party, the alliance or even parliament in decisions, because they will go against you) they were all in there together. The fight between the “communists” and “nationalists” is very much a fight within the Zuma camp.

Thus, we come to the first season of the Zuma presidency in which their plans and budgets are revealed. It is important to remember that this is the first real political season of the Pirates of Polokwane (thanks Zapiro).

Well, so far we are seeing the first rays of light we have encountered in many dark months. The thugs and gangsters and vampiric crony capitalists and the racially chauvinist cabal at the centre of the security establishment (all of whom make up an important element of Zuma’s support base) have had all the running and all the press and have done all the bellowing, mooing and grunting at the trough.

Now it is the turn of the technocrats. This is the crew of lefties and trade unionists and dour financiers and tax collectors who were included in the Zuma cabinet, and gave many of us some hope to cling to in the darkening months of the whole second half of last year.

Yesterday Pravin Gordhan revealed a thoughtful budget that took all of the continuity that Manuel always showed, but added a real democratic inclusiveness that the previous minister was never able to demonstrate – given his crucial position in Mbeki’s non-inclusive regime.

Today we will hear Rob Davies and the DTI talking “industrial policy”. This is policy that sets up a combination of incentives and disincentives to shape the kind of growth we will achieve: how inclusive or job rich it will be.

During the next two weeks we will hear parliament debating the budgets of each and every department of government and finally all will be  revealed.

I think it is worth treating this process with an open mind.

I will, as far as possible, provide some insight into the process as we go along.

The Alliance Summit is the business

The Alliance Summit on the weekend has significantly reduced confusion about policy and risk – although monetary policy is still under review.

Background

1. “The Alliance”  met at Esselen Park, Ekurhuleni  this weekend.
2. This meeting consisted of the the African National Congress (ANC), the South African Communist Party (SACP), the Congress of South African Trade Unions (COSATU), and the South African National Civic Association (SANCO).
3. According to a joint communique press release the summit was to be “attended by the ANC National Executive Committee, led by its President, cde Jacob Zuma, the Central Committee of the SACP, led by its General Secretary, cde Blade Nzimande, the Central Executive Committee of COSATU, led by its General Secretary, cde Zwelinzima Vavi, and lastly, SANCO National Executive Committee, led by its President cde Ruth Bhengu.”

Rumours

The big rumour was that Gwede Mantashe  attempted to achieve acceptance that “The Alliance” and not “The ANC” should be the centre of policy making – I doubt this, but it is what the Sunday papers were saying.  The same rumour claims that Julius Malema led the charge of ANC traditionalists against this sacrilege ….. difficult to tell if it is true (Mantashe said the story was cooked up) but it gives an interesting twist to the ongoing rehabilitation of the ANC Youth League president.

Reports

1. Cosatu and the SACP lost the battle around Trevor Manuel and the NPC. The National Planning Commission, located in the presidency and headed by Trevor Manuel but also consisting of a panel of independent experts and charged with the responsibility for integrated strategic planning across government is now a fait accompli. This is how Trevor Manuel conceived of his mandate in the Green Paper and it seems Trevor Manuel and the ANC have won the day against Cosatu and SACP criticism.
2. There was a strong indication that the ANC had agreed to re-examine the South African Reserve Bank mandate. Mantashe  announced after the summit that they had discussed “how best the Reserve Bank should talk to the development priorities of the state …. The summit agreed that the alliance task team on macroeconomic policy must remain seized with reviewing and broadening the mandate of the Reserve Bank.” This is carefully phrased and is unlikely to panic the markets – but risks remain and financial markets and sovereign risk agencies will be watching this space.
3. The summit clearly opposed the electricity hikes proposed by Eskom: “We are totally uncomfortable with the 45 percent increase. The summit also noted with concern that the successive tariff increase requests through the multi-year price determination by Eskom will negatively impact on society, the economy and jobs. The summit therefore supported efforts to have the tariff increases minimised,” said Gwede Mantashe in the post Summit interview.  This is likely to be popular with almost every constituency – except for those who believe that Eskom is best left to manage its own affairs …. not a significant demographic at this stage of proceedings.

The bottom line

The ANC has usefully asserted its authority.

The idea that “The Alliance” could or should determine details of government policy was becoming deeply disturbing and untenable. This is not only because of the policies espoused by Cosatu and the SACP are generally seen by investors and businesses as hostile, but also because there appeared to be no centre to policy making, and therefore no predictability – and therefore a serious risk overhang.

In an environment where policy making has no centre we started to hear the worst and most self-interested voices raised bombastically and claiming authority. The Alliance Summit went some way towards increasing investors ability to dismiss the noise.