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Occasionally I publish slides from a current presentation series and here are a few from something I am busy with called: “The Second Transition – SA politics and policy somewhere twixt hither and yon”.
The general idea is the ANC government is determined to move beyond the ‘transitional’ arrangements that it agreed to in 1994 and strike out boldly towards some undefined, but more profoundly transformed future.
Then, taking some liberties, I summarise what the ANC is “really” (in my humble opinion) saying in motivating the documents:
I then set out on the difficult task of attempting to assess whether the ANC documents actually propose anything as thoroughgoing as the initial motivation implies.
Frankly, the answer is “no”; although the proposals are both worrying in tone and in how contradictory and “bitty” they are.
The best formulated document is the “Maximizing the Developmental Impact of the People’s Mineral Asset: State Intervention in the Minerals Sector (SIMS) – document (get a link to that here). It contains a thoroughgoing set of proposals that change the tax system for mining and propose a complicated set of upstream, downstream and sideways linkages for the industry that will create a new set of burdens and obligations (not all bad) for the mine owners. (My own feeling about mineral resources is that these are “non-renewables” and government is obliged to get the maximum developmental benefit out of them before they are lost forever – but that is just by the way.)
Almost every other document – and there are 12 in all – meanders between
- being meaningless wish-lists,
- statist and authoritarian blueprints to bully and control and
- well researched and argued guides to fixing key aspects of what is wrong with our society
Almost all the good stuff is lifted body and soul from the meticulously researched National Development Plan with its focus on the 9 challenges of
- widespread unemployment
- ailing infrastructure
- low standards of education
- exclusion of the poor from mainstream development
- a resource dependent economy
- a failing public health system with a large disease burden
- inept public service provision
- widespread corruption and
- societal divisions.
My presentation itself does not make strong predictions on how far the ANC will get with its deliberations … although what is clear is that policy discussion this whole year will be drowned out by the Mangaung election noise. It is is going to be difficult to ascertain any real direction through the clamour of the struggle to re-elect Jacob Zuma.
Leaving aside all the slides that deal with the actual documents, I do, however conclude by asking some questions of our key players … and I include those slides here for your interest:
As the months go by, I will hopefully have time to flesh out some of those question.
But for now I am in the final days of the road show trying to make sense of the mess of proposals and hints in the documents, which span issues as diverse as fracking the Karoo, IDZ’s to SEZ’s, the Treasury versus EDD versus DTI, local procurement fantasies, some excellent fixes of BEE from Rob Davies, the lonely excellence of the Gordhan and Marcus and infrastructure looking more and more like the ANC’s one-trick-pony.
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:
- 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.
- 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.
- 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.
- 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?
- 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.
- 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.
- 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.
- 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.
- 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?
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.
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.
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 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.
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.
*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.
A quick run through documents and press statement emanating from the Congress of South Africa Trade Unions and the South African Communist Party reveals the existence of a new ‘song sheet’ our crimson brethren have devised to help them sing in tune with each other.
This is something more than a coordinated set of slogans and something less than a recipe for creating socialism, socialised production and a workers’ republic out of the ingredients of the conjuncture.
If I had to try to construct a Ten Point Programme out of the bits and pieces in the press statements and discussion documents of the last few months, but particularly the last few weeks, it would look something like this:
A ten point (interim) programme for The Left
- Argue that macro-economic policy is increasingly in conflict with micro-economic policy.
- Argue that IPAP II (industrial policy) from Minister Rob Davies of the DTI in combination with Minister Ebrahim Patel’s Medium Term Strategic Plan (2010/11 – 2012/13) form the first pro-poor, employment creation oriented plan to put South Africa on a “new growth path” in which state intervention will lead to job-rich and equitable growth.
- Argue that the Rand is overvalued and wherever possible criticise inflation targeting and call for the nationalisation of the SARB as well as devaluation of the currency to effect a growth of valuable jobs in the export manufacturing sector.
- Link the Treasury under Pravin Gordhan to the economic tradition fostered by Thabo Mbeki and Trevor Manuel and keep pointing out that many of the senior bureaucrats in that department were trained and placed by the former president and former Minister of Finance; as part of this thrust attack labour brokers and the subsidy for first time youth workers as part of ongoing attempts to segregate the labour market.
- Co-ordinate calls for a national health insurance and free and universal education.
- Defend Gwede Mantashe (your man at the heart of the ANC leadership) and isolate the most hostile elements among the conservative nationalists, populists, tenderprenuers and anti-communists – Julius Malema and Fikile Mbalula (the proposed challenger to Mantashe) are perhaps seen as core elements of this “most dangerous friend” group, although Billy Masetlha and Tony Yengeni are in there somewhere.
- Start preparing a strategy linking this group with those attempting to buy their way into leadership of the alliance i.e. those who have inherited the Brett Kebble mantel. The general direction of the red finger of accusation appears to point at Tokyo Sexwale.
- Fight to stay in the alliance and fight for your views within alliance forums; make sure the ANC and government takes the results of those forums seriously.
- Prepare your cadres to influence the outcome of the National General Council later this year and the ANC’s elective National Conference in 2010 – and start preparing a set of policies and candidates to support. In the process continually cement relationships between SACP and Cosatu
- Always maintain a mass profile (through work amongst the masses) that is distinct, pro-poor, anti-corruption and principled; this strengthens your hand in Alliance forums but, more importantly, is your insurance policy if or when you are eventually forced out of the alliance.
It seems logical that despite the vicious atmosphere in the ruling alliance Cosatu, the SACP and the ANC’s own left-wing are not about to abandon the field to the “proto-facists“, populists, tenderprenuers and powerful hangers-on from the “1996 class project“. Not so soon after their triumph at Polokwane. Not after “capturing” two key cabinet posts and finding themselves in a position to, perhaps, profoundly influence government policy for the first time since 1994.
Those hoping that the tension in the ruling alliance would lead to a blossoming of opposition politics in parliament will have to wait a little longer. For now the real prize is still within the ANC and the ruling alliance.
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.
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
The Alliance Summit on the weekend has significantly reduced confusion about policy and risk – although monetary policy is still under review.
- “The Alliance” met at Esselen Park, Ekurhuleni this weekend.
- 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).
- 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.”
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.
- 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.
- 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.
- 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.
President Zuma’s announcement yesterday (Sunday) that Gill Marcus will replace Tito Mboweni as Governor of the SARB in November is likely to feed anxieties about policy continuity – despite reassurance that policy at the SARB will not change under Marcus.
The issue is not that Marcus is less competent or more likely to side with organised labour’s attacks on inflation targeting or that she would join the ANC’s leftwing allies and support forcing down interest rates and the currency. If anything Marcus’s experience as outgoing Chairperson of ABSA and the markets’ experience of her in previous positions as a SARB deputy governor and deputy minister of Finance are positives.
The issue is rather one of timing. Zuma’s Sunday press conference came out of the blue and his explanation for why the sudden announcement was awkward:
I have re-appointed Mr Mboweni as Reserve Bank governor. However, he has indicated his wish to leave in November 2009 to pursue other interests.
Given the indication from Mr Mboweni, I have therefore decided to designate Gill Marcus as governor of the Reserve Bank with effect from the 9th of November 2009.
Markus was in exile with the ANC and played an important role at ANC headquarters in Lusaka in the 1980′s. She was a member of the ANC NEC from 1991 until 1999. This makes her a more senior ANC politician than the deployed Tito Mboweni. There is speculation that Marcus fell foul of Thabo Mbeki before she left government and the ANC NEC in 1999 - which, in and of itself, could put her closer to the “Zuma Camp”. However, these relatively deeper ties into the ANC and its current leading faction, will not necessarily make her a more compliant SARB governor.
The problem with the timing of the appointment is that Cosatu has been pushing for the non-renewal of Mboweni’s contract and doing so by marching on the SARB to hand over petitions and by threatening mass strikes. In an environment where macro-economic policy (including monetary policy, nationalisation and privatisation and aspects of trade policy) are less certain than they have been since 1996, appearing to give in to this trade union demand is not going to do much for financial market confidence.
This surprising appointment is a useful microcosm for perceptions about policy instability in South Africa under the Zuma government. The appointment is a good one (as far as it goes) but by making it now government has essentially deposed the person who has come to represent policy certainty (in this case inflation targeting). The action fails if it is seen as part of a strategy of communicating with financial markets.
You might not be aware of it, but there is “a lovely discourse” about inflation targeting going on.
These were the gentle, if slightly quaint, words of Pravin Gordhan as part of an expression of support for SARB governor Tito Mboweni yesterday (June 23).
This comes after months of Cosatu’s blustering against inflation targeting: threatening to call a strike against high interest rates, marching against the SARB and criticising Mboweni, including calling for his contract not to be renewed for a 3rd term in August.
The debate is important, and it is difficult not to wish that Cosatu was less threatening and bombastic and that the SARB and the Department of Finance spent a little more time explaining themselves in lay person’s terms. In the spirit of supporting the “lovely discourse” I hereby summarise (probably simplistically) what could have been, in a better world, opening statements from the two sides of the debate:
Cosatu’s view – if it bothered to explain itself
The SARB’s targeting of inflation means interest rates are too high. This means “borrowing” and debt is expensive. This hurts us and our members because they have household and personal debt. But more importantly, companies throughout the economy struggle to grow when interest rates are too high - they can’t borrow money for capital expenditure and their customers have less money to buy the goods produced; this means downward pressure on wages and employment. Lowering interest rates sets off a virtuous cycle: companies grow, employment increases, more money is available for consumption which in turn drives economic growth. Tax income improves which drives government expenditure which in turn continues to fund consumption and GDP growth and employment. And there’s an additional bonus: reduced rates reduces the attractiveness (to foreigners) of holding our currency, and this devaluing affects means the cost of production is reduced – when stated in foreign currency terms – making international trade more profitable. So for Cosatu this is a virtuous circle that constantly and ever more deeply stimulates the traded goods sector. If the SARB was given “employment” or “GDP growth” as its target instead “inflation” it wouldn’t feel compelled to hike interest rates and thereby kill growth.
The official view – if it were easier to understand
This view is almost exactly opposite to Cosatu’s. The first point of departure is that “the official view” is not, primarily, the view of the SARB. It is the view of the government that mandates the SARB i.e. that mandates the SARB to target inflation – as opposed to any other objective – with the only weapon in it’s arsenal: the ability to determine the rate at which money is lent and borrowed.
(Note: does this mean government doesn’t care about growth? Of course not. But just because an objective is desirable doesn’t mean it is sensible to decree that a certain instrument will henceforth achieve that objective: People are hungry? Henceforth the department of Science and Technology will provide one chicken for every family, once a week! Yaaay! … government has solved the hunger problem -not.)
The official view is about understanding the limits of what is possible i.e. monetary policy can only use one instrument (interest rates) to target one objective (inflation). Aside from being the only achievable objective, a low, stable inflation rate is a necessary - although not sufficient - condition for sustainable growth. To understand the benefits of this conservative approach examine the implicit critique of the alternative: artificially lowering interest rates creates an economy-wide equivalent of a sugar buzz in small children: stimulation, yes; but a short-term rush with unhappy long term consequences. With Cosatu’s proposed growth stimulated by “cheap money” (i.e. radically reduced interest rates) there are no efficiency gains – in management, productivity, pricing and the effective use of technology. Growth that comes about by “artificially lowered interest rates” – i.e. growth in a high inflationary environment - creates the kinds of businesses that have no inherent strengths and no inherent need to be competitive. So yes, wages and employment go up, but those gains are only held while the artificial conditions (conditions created purely by government or central bank – or Cosatu – decree) continue. The official view emphasises the desirability of inflation targeting for an additional reason: high inflation directly and immediately worsens the conditions of life of the poorest and most vulnerable South Africans. The rich can, at least partially, protect themselves from the effect of inflation by investing in financial instruments such as inflation linked bonds.
This is Pravin’s “beautiful dialogue”, and I’m hoping that wiser heads than mine can help draw out the issues more clearly. My instincts (honed by Cosatu’s refusal to explain itself and instead to constantly threaten to strike) is to suspect Cosatu of being sectarian and short-term; and to think of government as nobly attempting to meet its manifold obligations and responsibilities, including to the poorest South Africans. I am prepared to accept that I am giving government too much credit and Cosatu too little – and generally missing the point in the “lovely discourse” going on around inflation targeting.