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I often send out commentary before I am satisfied with it.

That usually means typos and misspellings that I have failed to find in a rushed edit, but sometimes it means the analysis is … less in-depth (trite? … shallow? … Ed) than I would have liked.

It’s the price of procrastination when chasing deadlines – and one of those deadlines was two weeks ago when I rushed to get a weekly update out just as the news from the  Brics summit was coming in. This is what I wrote (tagged on to a longer report about a number of different matters):

Brics bank (16/07/2014)

Leaders of China, India, Russia, Brazil and South Africa met at the 6th Brics summit in Fortaleza, Brazil yesterday.  On the agenda is the establishment of a development bank and monetary reserve – eventually together consisting of as much as $200bn in capital reserves and guarantees.

So what?

There are a number of important issues associated with this initiative, but one is that this is a deliberate attempt to institutionalise a shift away from the Western (specifically US) dominated financial system (particularly the IMF, the World Bank and the use the USD$ as the global reserve currency).  Such moves are probably historically inevitable and as China, India and Russia – and to a lesser extent Brazil – stutteringly grow in influence (economically, militarily and otherwise) they were always going to gently tug at the leash of US global dominance.

For South Africa – a small regional player, with anaemic economic growth and very moderate political/military influence – to have attached itself to the coattails of a kind of teenage rebellion by the powerful young global bucks is faintly ridiculous. South Africa winds up being drawn into a subservient relationship with China and Russia (over which it has almost no influence) and thereby flirts with the enmity of the real global adult whose judgements, when push-comes-to-shove, can be quite severe. That’s a lose-lose, as far as I can see.

Nothing wrong with the comment, although I wish I had made it clearer that I welcome Brics and I welcome the gradual receding of US power as much as I hope its retreat is orderly.

But I especially wish my good friend and old comrade-in-arms Andre Zaaiman had launched his Mindsight – Intelligent Enterprise Systems website before I wrote that report.

It would have been a great benefit to my analysis if I had read the first article Andre published on the website: “National Security: China-US-Africa“.

It’s not specifically about the Brics Bank (but it does mention it in context) but it is an excellent high level analysis of the growing contest between the US and China … and it argues that this is a matter of national security and national interest for South Africa.

Read the article … meanwhile, here are a few extracts:

ships

 

“The emerging geo-political great game between the USA and China is of great importance to Africa and South Africa. How this great power relationship unfolds will have a commanding influence on the 21st century.

“The future cannot be known; but probability and prediction can be improved as well as surprise avoided, if we are assisted by facts – by a proper understanding of what is going on – as well as by quality information, good theory and off course, secrets.”

“In statecraft, the purpose of intelligence is to provide a competent decision-maker with an informational advantage in the context of national security and the pursuit of national goals.”

“The launch of the New Development Bank (NDB) and of the Contingency Reserve Fund (CRF) by the BRICS-countries in July 2014 is a powerful signal that developing countries are no longer willing to play second fiddle on the global stage.”

“The desired post-Bretton Woods era does not only contain different global financial institutions – not controlled by the USA – but some analysts believe, also rests on different values … the need to prioritize physical infrastructure over other priorities (such as education, healthcare, women’s rights, etc.) towards which the World Bank has been drawn in recent decades. From a holistic point of view, all such investments are crucial for equitable national prosperity and well-being, but nothing creates jobs and literally drives ‘state-building’ like infrastructure.”

There is much in the article that is worthwhile and I recommend it to anyone who is interested in the unfolding contest between the USA and China especially from a South African perspective.

Andre’s vantage point is especially interesting. He “is a former senior official in the State Security Agency of the democratic South Africa” and has previously “worked in the underground and intelligence service of the African National Congress during the struggle against apartheid and subsequently, served in the Presidential Support Unit under former President Thabo Mbeki” – those quotes from here.

 

 

I am up to my neck in it, trying to tease out the main implications and trends of the election – in a way that might be useful to investors in our financial markets.

As part of the process I read everything I can find that has been written about the elections. I have just read the Sunday Independent to see what the journalists and columnists had to say and I came across something that I felt I needed to share; and social media granted me immediate gratification.

Jeremy Cronin, deputy general secretary of the SACP, wrote a column assessing the election under the title “No room for complacency for ANC and alliance partners”.

Cronin is always good value and worth reading and today he was especially feisty.

Opposition emerging to the left of the ANC/SACP/Cosatu alliance is an important matter for anyone who has an interest in how South African politics will progress. And Cronin deals with this question as part of his election assessment.

Cronin’s tone reminds me of the sectarian and slightly Stalinist tendencies that I was very much part of throughout the 80’s … and I felt almost nostalgic when he characterised the threats from the left thusly:

Will a serious left challenge now come from outside the ANC alliance? It’s possible, but only if we in the ANC alliance are clumsy or arrogant. We need to distinguish the proto-fascist demagogy of Malema from the hybrid neo-Stalinist business unionism of Irvin Jim, from the ethnically-tinged vigilantism of the Amcu leadership, from the preachy capitalist philanthropy of Jay Naidoo and Mamphela Ramphele.

I wanted to follow that with a few exclamation marks. It’s funny and it has a certain poetic rolling cadence that left me smiling … for a few seconds.

Until I realised that the trick Cronin has pulled here is he has created a sort of ideological bestiary and placed within it every conceivable left critic of the ANC and the SACP.

If you are a left critic of the ANC, SACP, Cosatu alliance then you are either a  proto-fascist demagogue or a hybrid neo-Stalinist business unionist, or you might be an ethnically-tinged vigilante or even a preachy capitalist philanthropist. You certainly couldn’t be a principled socialist of some kind, because then you would be in the ANC/SACP /Cosatu. Dah!

“Clumsy or arrogant”?

The article is worth reading because it gives a mostly subtle and thoughtful assessment of the election from an insiders view, but is, as you can see from the excerpt, occasionally entertainingly clumsy and arrogant.

After fiddling around a bit, I found it at IOL.com. Read it, it is here.

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

Zimbabwe – grin and bear it

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

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

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

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

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

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

To repeat comments I made on Friday:

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

Arms probe in tatters

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

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

Zwelinzima Vavi

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

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

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

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

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

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

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

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

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

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

 

Amcu and the gold negotiations – some tentative speculation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Imagine you are the producer of a major and successful television soap-opera.

Gradually, for reasons that are not immediately apparent, market research begins to indicate your share of the prime-time television audience is diminishing – and, further, that the declines are accelerating.

I suspect what you do is try to work out whether the viewers are being tempted away by a better soap, whether the quality of your show is slipping and/or whether your product is losing its appeal because the ‘demographic’ that follows your production is shrinking … or some combination of those.

Perhaps you try to adapt your trashy product to follow the shifting demographic; change the time-slot, perhaps kill off the older actors … have the Elizabethan extended family that has been the central theme be infiltrated by shape-shifting aliens who teleport the stately manor out of the English countryside and into a future post-apocalyptic New York … change the name to Downtown Abyss? Ok, maybe not.

Or you do a serious quality overhaul of your existing production, get better writers and introduce more popular and skilled actors, win back the defecting viewers … stick to your knitting, trust the product … and all those other management-speak exhortations.

I think the ANC is facing a crisis similar to that faced by the producers of this imaginary soap-opera. I suspect that the ANC, Agang and the DA do market research that is indicating and projecting significant voter swings away from the ANC . But I have nothing firmly in my hands other than rumours, leaks and hints.

So forgive me if I float an untested (and untestable at this time) hypothesis; one we are all going to hear bruted about soon: that it is ‘true’ that on current trends the ANC will get less than 59 percent of the vote next year but more than 52 percent, and further, that the ANC will receive less than 50 percent of the vote in 2019 (thumbsuck alerts all round).

The assumption is untestable (by me) because I don’t have the bespoke polling data and (by anybody else, in my opinion) because such data do not take adequately into account the myriad subjective and objective factors that might  impact on the trend.

But among the reasons I take seriously the possibility that this is, in fact, the trend is, for example, the rapid growth of Amcu and the concomitant shrinking of  Num. Another is this public domain ranking of Zuma’s approval rating amongst urban Africans by TNS Research published in the Sunday Times on 12/03/13:

%

Apr

‘09

Jun

‘09

Sep

‘09

Nov

‘09

Feb

‘10

May

‘10

Sep

‘10

Nov

‘10

Feb

‘11

Mar

‘11

Sep

‘11

O/N

‘11

Feb

‘12

Apr

‘12

Aug

‘12

Feb

‘13

Approve

52

57

53

58

43

51

42

49

49

48

45

55

55

46

48

41

Disapprove

29

13

19

23

41

33

44

34

35

38

41

38

35

46

44

51

Don’t know

19

31

28

12

17

16

15

17

16

14

14

14

10

8

8

9

Net positives

+23

+24

+34

+35

+2

+18

+2

+18

+2

+15

+14

+1

+20

0

+4

-10

 

… and updated by TNS this Monday (1/7/13) indicating a slight improvement in favour of Zuma (read from the top: 42, 50, 9 and -8). The point is there is a significant drop in Zuma’s approval ratings and concomitant rise in his disapproval ratings from February last year. It is reasonable to consider the possibility that this applies to the ANC (although, again, and at the risk of being pedantic, there is no established corollary between Zuma’s ratings and the ANC’s … but as a personal aside, I would imagine he must represent a specific liability.)

When I think of Mandela’s ill health and what I see as signs of how destabilising for the ANC his passing be may be (although the opposite could also be true), when I consider the anti-Zuma noises coming from Winnie Mandela and the frisson of mischievous excitement around Julius Malema’s proposed Economic Freedom Fighters … and when I put a whole mess of hints, trends, rumours and suppositions together with other metaphorical canaries that I use and which are dying around me like flies, I feel confident, for the first time since 1994, to at least consider how things might be when and if the ANC is clinging to an electoral majority, or perhaps even losing one.

As I begun to consider this (and helped along by a good and irritatingly insistent friend) I discovered that I still, subconsciously, conduct my professional duties under the burden of a normative (as in relating to an ‘ideal standard or model’)  assumption that has remained unchanged and largely unexamined since about 1994.

This normative assumption goes, roughly, something like this:

South African society is shaped by irresolvable contradictions. Most obviously between the poor, largely African, majority and the propertied white minority. Only an African National Congress, held comfortably in power by the trust and momentum established by its role and identity as leader of the liberation struggle, and by its clearly ‘African-led’ character, could possibly negotiate the perilous path between the imperative to deliver radical redress to the African majority and the absolute requirements to operate within the disciplines of global capital markets and to keep whites engaged and invested.

There are so many assumptions – and slippery phrases – in that statement, that I am not sure where to begin.

But briefly (in as far as that is possible):

Firstly I am implicitly using a (somewhat antiquated) theoretical model of society that is based on the idea that the competition between  groups with closely aligned economic interests acts as some kind of driver that interacts with and shapes other features of society, including the state and formal party political contests. This is a (hopefully sophisticated) version of the base/superstructure model of Marxist theory. As a rough, working model, I will continue to employ this system in political analysis – even if it is purely as a way of organising my thoughts. It is an elaboration of the injunction to follow the money which I consistently find the most useful hand-axe in the tool kit I use to help me work out, to my own satisfaction if no-one else’s, what the hell is going on.

Secondly, I am weighting the racial divide, its historical features, its ideological characteristics, the materiality of its ongoing consequences – including the radical disparity in wealth and income – more heavily than any other feature of South African society. ‘Politics’ occurs around such contradictions and our politics remains overdetermined by this structural feature. I think this remains true – but less true than it was 18 years ago. Primarily because class development, including the development of a black wealthy/property-owning class, a black middle-class and a sophisticated and slightly wealthier working class (driven by the changing character and function of labour processes and the relative growth of the services sector) dilutes the central contradiction and adds competing fissures.

Thirdly, I continue to assume it is imperative to keep whites “on board”… and that we have to keep within the discipline of global capital markets. I am also assuming (or perhaps estimating that on balance) the ANC still sees these as fundamental constraints. Those are brave (wild?) assumptions, I know, but I do not have all night. So moving swiftly along …

Finally, the aspect of my normative assumption about which I am most uncertain is the central one. Who says the ANC cannot fall below 50 percent, that an alliance of opposition parties will not get above 50 percent? And that if both those bridges are crossed we are into the game mode where  “(o)nly (the) African National Congress  … could possibly negotiate the perilous path”. Which means?

I  appear to be saying that in the event that those barriers are crossed we will fail to negotiate that path.

That we collapse in a heap? That the ANC morphs into Zanu-PF – but with even scarier tribalist and repressive features – to recapture the political initiative? That the ANC embarks on an ever more expansive looting of private and public assets to feed a patronage system that comes to replace all other mechanism that establish stability, but a system that is absolutely limited by the availability of such lootable assets? Or perhaps that our future will look something like what (might be) happening in Cairo tonight? … I will get to that as soon as I hit “publish”.

If a democratic election goes against the ANC why am I so uncertain that the party or party’s that the same election goes in favour of will be unable to govern?

I suspect I actually believe that without the ANC in a comfortable majority that things fall apart, that the centre cannot hold, that

Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed*

Thus, this is little more that my personal failure to imagine a future significantly different from the present, yes?

It appears that I am constrained by my own habits of thought and prejudices. Now there’s a big surprise.

So, back to the soap opera.

If the ANC is slipping in the ratings, it can chase the shifting demographic by attempting to spread its skirts ever more widely – although I think it is already beyond the limits of the possible with that indecorous exercise.

… or it can do the political equivalent of the narrative device of having space aliens infiltrate the family (hmm, that might have happened already – ed).  I am not sure what a radical discontinuity in the ANC’s brand might look like – I think it could go one of two general directions, but I would imagine that the ANC strategists defining ‘the message’ for the upcoming elections must envy the clean simplicity of the Economic Freedom Fighters emerging platform.

… or the ANC could improve its character and performance by sticking to its knitting: cleaning up its leadership and improving its governance performance and winning back the trust of its purportedly defecting support. My impression is the ANC is going in precisely the opposite direction, but who’s to say they wont turn it around in response to a mild shock in 2014?

I  do not hold to the popular notion that “anything is possible”, but I am prepared to accept that a lot more things will come to pass than I have been able to imagine.

* As always, the best poetic accompaniment to fretting about the future of our politics is William Butler YeatsThe Second Coming … catch the incomparable poem here.

I was looking for a shorthand way of summarising what I thought were the main political risks that are in the minds of investors in South African financial markets.

Note that the emphasis here (in what appears below) is what I think is an appropriate prism for investors in financial markets, and specifically those with an horizon of a maximum of 5-7 years.

If I was looking at broader security issues, particularly with regard to the stability of the state and ruling party, I would have had a significantly different emphasis – and have aspects that are both more negative and more positive than that which appears below. Hopefully, at some time in the future, I will post here a more general threat or risk analysis that would be of more specific relevance to South Africans who hope to live and work here.

Finally, before I get on with it, I do not explore the potential for an upside suprise here … but there does appear to me to be a slight accumulation of good news, albeit against a dark background.

SA Politics and financial markets – 3 risks

  • Unpredictable and/or negative government economic policy interventions: Medium seriousness. Medium likelihood. Short- and medium-term duration (next few months to five years);
  • Escalating social unrest – perhaps leading to “Arab Spring” type event: Very serious. Very unlikely. Medium- to-long duration (five to seven years);
  • Ratings downgrades and tension between ambitious government plans and narrowing fiscal space: Serious risk. Medium likelihood. Short- and medium-term duration (one to three years).

Unpredictable and/or negative government economic policy interventions

Medium seriousness. Medium likelihood. Short- and medium-term duration (next few months to five years)

What it’s about: Most obvious are new interventions in the mineral and exploration sectors (including new taxes, price setting, beneficiation requirements, export restrictions, uncertainty about licence conditions and significantly increased ministerial discretion via the Mineral and Petroleum Resources Amendment Bill), but there are comparable interventions across the economy, as indicated in the ANC’s Mangaung Resolution and in a range of proposed regulatory and legislative changes, including those relating to telecommunications, liquid fuels,  the labour market, employment equity and Black Economic Empowerment (to name just a few).

My view: Since 1994, it has generally been the case that markets consistently overestimate the risk that the ANC and its government will take significantly populist policy measures. The best example of this was in July 2002, when exaggerated targets for black equity participation in the mining sector where leaked and R52b left the JSE resources sector in 72 hours – a buying opportunity of note. However, the traction Julius Malema was able to achieve with disaffected youth post-2009 and the implicit defection from the ANC and its allies in the platinum strikes last year have catapulted the ANC into something of a policy scrabble. While nationalisation is off the agenda, it has been replaced by a policy push that hopes to deploy private companies, through regulation and other forms of pressure, to achieve government (and party) targets of employment, revenue generation, service delivery to local communities and infrastructure build. Increases in the tax take look likely – it’s purely a question of ‘how much the market can bear’.

Government intervention, per se, is less the issue here but rather the confused, generalised and uncertain nature and intent of the interventions. If the interventions do not have the desired results (growth, employment and equality), the risk is that government does not reassess the wisdom of the intervention, but instead uses a heavier hand.

Financial markets: Policy uncertainty puts downward pressure on investment, employment and output in all sectors. In South Africa, these negative impacts will be felt most keenly by companies most exposed to government licencing and regulatory power, or most exposed to government’s political prioritisation. Resources, telecommunications and agriculture all fall into one, or both, of these categories.

Escalating social unrest – perhaps leading to “Arab Spring” type event

Very serious. Very unlikely. Medium-to-long duration (five to seven years).

What it’s about: Significant and consistent (apparently linear) growth in service delivery protests, combined with growing levels of industrial unrest (in 2012, anyway) seem to imply that such unrest could continue to escalate until it reaches a point of ‘phase state change’ (as in thermodynamics, referring to changing states of matter – to/from solid, liquid and gas). Thus, the risk is of a sudden systemic shift from unstable to revolutionary/insurrectionary.

My view: Increasing protest and industrial unrest are normal – and fairly consistent – features of South African political life and have been since at least the mid-1970s. Even before 1994 there was no real expectation that unrest would lead naturally to insurrection. A rapid phase state change, like an Arab-spring type event, requires (perhaps indirectly) contesting political formations and ideologies as well as the widespread failure – or absence – of social institutions (parliaments, courts) that direct, mediate and give expression to grievances and/or conflicting group interests. South Africa is rich in such institutions and there is no evidence that large groups of dissenting voices have permanently failed to find expression in society’s normal processes and institutions – even when some of those processes include robust forms of public dispute. However, South Africa does have some comparable features to countries that have had ‘Tunisia-moments’ – including high and growing youth unemployment, high  levels of visible inequality and serious government corruption – so we would keep an eye on the escalating ‘service delivery protest’ trends, as evidenced in graphs from Municipal IQ below.

Municipal IQ

Municipal IQ

Industrial relations unrest is slightly different from – and more negative than – the question of social unrest as a whole. Trade unions are strong and growing in South Africa, and contestation between them is vigorous, even violent – as we saw in the platinum sector in 2012. Trade unions are businesses with an enticing annuity income flow – and this will drive their contestation. The collective bargaining system in South Africa is functioning sub-optimally for a number of reasons – including inappropriately high levels at which automatic recognition kicks in – and the disarray in the system also drives unrest. This conjunction of subjective and objective conditions means I am less sanguine about industrial relations stability (than about stability per se) and expect this to remain a negative investment feature for the next several years. I am specifically negative on public sector industrial relations stability for 2013.

Thus, I do not think unrest and social discord will lead to any radical policy or political discontinuities, but will remain a constant drain on confidence. I also think this phenomenon will tempt government into keeping spending (on the public sector wage bill and on social grants) at above-inflation levels – helping to feed uncertainty and unpredictability in state finances, inflation, the currency and the bond markets.

Additionally, I think labour unrest will remain a seriously destabilising factor of production – including via disruption of services in public sector strikes.

Financial markets:

Resources, agriculture and construction are most exposed through their reliance on large, aggregated and often low-skilled/low-pay labour forces. The financial services and retail are less exposed to (but not immune to) the negative effects of industrial action.

Ratings downgrades and tension between ambitious government plans and narrowing fiscal space

Serious risk. Medium-likelihood. Short- and medium-term duration (one to three years).

What it’s about: The ruling party is facing something of its own ‘fiscal cliff’. The ANC feels itself in danger of losing some support because of failure to deliver employment growth or adequate reductions in poverty and inequality. Foreign investors agree this is a risk, but will not necessarily agree to fund the gap. This tension is among the reasons that all three major rating agencies (Moody’s, Fitch and S&P) downgraded SA’s sovereign rating in 2012 (Fitch in January this year) and both Moody’s and S&P put SA on watch list for future downgrades. The ANC secures political support, at least in part, through spending on the public sector wage bill and on social grants – which together now make up more than half of annual non-interest government spending. Additionally, the ANC has occasionally shown itself hostage to the views of its alliance partners or popular opinion in its spending and revenue plans (Gauteng toll-roads, youth wage subsidy). The ratings agencies don’t like the tension and I expect the bond markets won’t either.

My view: South Africa maintains respectable debt-to-GDP ratios, although these grew to 39% of GDP by end-2012, substantially higher than the 34% for emerging and developing economies as a whole. When Fitch downgraded SA earlier this year, it specifically mentioned concerns about SA’s rising debt-to-GDP ratio, given that the ratio is higher (and rising at a faster pace) than the country’s peers.

South Africa is uniquely (eg in relation to its BRICS peers) exposed to foreign investor sentiment through the deficit on the current account combined with liquid and deep fixed interest markets. SA’s widening deficit on the current account is a specific factor that concerns the rating agencies and is one of the metrics the agencies will use to assess SA’s sovereign risk in the near future. Further downgrades are the risk – potentially driven by foreign investor sentiment about political risks. Non-investment grade (junk bond status) is not an inconceivable future rating.

Financial markets: A significant sell-off in the rand, coupled with persistent currency volatility and reduced foreign capital inflows. Traditionally this scenario would mean investors look for rand hedges and attempt to get exposure to export-orientated sectors, including manufacturing – and to stay out of the bond market. Offshore borrowing costs will be raised for domestic companies – as well as for the country as a whole.  This risk has an internal feedback loop (downgrades make debt more difficult to pay, leading to further downgrades) and naturally feeds other political risks, including in relation to taxation, clumsy government intervention, social stability and property rights.

By the way “deep blue” in the headline was not meant to be a riff on IBM’s chess playing supercomputer.

Rereading Part 1  I can see how someone might accuse me of being a little too certain about the shape of the future.  I am not running “deep blue” regressions and algorithms, modelling South Africa and the world, generating predictions x of y % accuracy with z % error margins … South … Africa … will … be … peachy … in …2021 … bidledeebidledee beep.

I have no real idea of what is going to happen in the future – and only the bare bones of an idea of the internal processes I go through to develop the views I advance here.

From time to time I investigate how we predict outcomes, and how we asses risks. I am interested in how our evolved systems (honed against sabre-toothed tigers and uncertain rainfall patterns, for example) apply in the kind of technology driven mega-societies we now inhabit – or, specifically, don’t apply i.e. that our ‘instinctive systems’ need to be suppressed or countermanded if we hope to get it right in certain situations. But that is not what I am doing in these quick pre-Mangaung notes.

The “deep blue” of the headline was actually a reference to being bleak, sad, cold and lonely.

Which leads me to:

Who are the demagogic populist, proto-fascists* now?

DancingANC

The ANC will (initially) combat the threat of losing support by becoming more ‘demagogic populist’, rural conservative and based in the lumpen classes – basically, by drifting to the right

In December 2010 I wrote an article in GQ Magazine under the headline: “Can you hear the drums?” with a concluding paragraph that read:

In the year 2010, anger and resentment … bubbled over  … The winners still have their stuff, but they are clutching it more tightly to their chests, and for the first time in 16 years they are straining for the hint, a sound or a smell, of what might be coming for them out of the night.

Read the whole story here.

Two ‘crises’ (or warnings) that occured this year are the equivalent of the scary sound of drums in the night for the incumbent ANC elite. The first warning is Marikana and the second, linked, warning is the traction Julius Malema’s manipulative populism was able to achieve amongst some sections of the disenfranchised youth.

I made some of these links in my coverage of Marikana here.

I think the ANC will ride out the gradually escalating social and industrial unrest by becoming the “proto-fascist” and “demogogic populist” movement that Zuma’s SACP ally accuses Malema of representing (here for the context of that). This ANC, under this president is being drawn inexorably, by the logic of its own politics, into the territory of rural patriarchy with its natural links to the fear and hatred of education and any form of gender equality. (I am not going to argue this out here … just take a glance at the saga around The Spear, the Traditional Leaders Courts Bill and various comments about women and about “clever blacks” and appeals to African ways of doing things over foreign ways of the same – see TrustLaw’s Katy Migiro’s excellent takes here  and here.)

Thus (forgive the leap) the ANC begins to lose the urban industrial working class (on the road to becoming much more like a classic middle class and deeply opposed to the looting of the state),  the professional classes (already at that destination), the productive and rule based businesses, local and global, and it eventually begins to lose the pirates looking to launder their money and ‘go straight’ (as I argued in Part 1).

This leaves the ANC with the rural poor, the marginalised unemployed, a bureaucratic elite within the state (those last three dependent on state spending through the public sector wage bill and social grants) and global resource privateers who powerfully thrive in countries like this with leaders like these.

Initially the ANC might get even higher turnout at its rallies (especially with free food and t-shirts and sexy young people dancing between the rabble-rousing and the singing of Umshini wami). But eventually the class and demographic changes of the society impact upon the party – reformat it, split it, renew it … change the political ecology in which it moves and feeds.

You will see from my next post that I do not only think the ANC is a useless bubble of foul smelling gas buffeted on the sea of history. The ANC, in my analysis, has become a most significant and material influence for and against my upbeat scenario … a sort of deranged midwife at the happy birth.

* The term “demagogic populists, proto-fascist” is from various SACP documents and was code for Julius Malema (and, I suspect, in slightly early versions, a code for Tokyo Sexwale). This is what the SACP had to say about it:

The “new tendency”

It was the SACP at the 2009 Special National Congress that first identified clearly the ideological and underlying class character of what we called the “new tendency”. We described it as a populist, bourgeois nationalist ideological tendency, with deeply worrying demagogic, proto-fascist features. It was the SACP that pointed out the connections between the public face and pseudo-militant rhetoric of this tendency and its behind-the-scenes class backing. It was a tendency funded and resourced by narrow BEE elements still involved in a rabid primitive accumulation process, based on a parasitic access to state power. It was a bourgeois nationalist tendency that sought to mobilize a populist mass base, particularly amongst a disaffected youth, to act as the shock troops to advance personal accumulation agendas.

The SACP must feel free to pat itself on the back, but the reality is that party took on the straw man of  Kebble/Malema/Sexwale and backed – to the hilt – the real demagogic, proto-fascist tendency – the one with real power … and the one with real patronage to dispense. (That last bit explaining why this SACP has backed the Nkandla Crew)

That SACP quote is from here. For my explanation of how that all fits together with the nationalisation of mines call and host of other issues here (again) .

There is something that seems to have been missed in the public discourse about Marikina.

Without wanting to be over dramatic, I think Marikana is a clear warning that we are under immediate and serious threat; in ways that I will discuss below.

What happened – both before and after the police shooting – has been exhaustively examined and there have been excellent discussions about the untransformed migrant labour system, the collective bargaining system, the gradual implosion of Num, the awfulness of the conditions in Nkaneng, the micro-lenders explosion, the sadness and despair of families of victims in the labour sending areas  … one might have thought that every conceivable angle has been exhaustively pursued.

But we can be swamped by the details and the anger and grief.

I think something has been missed, perhaps in emphasis, rather than facts – and  because, rather than despite, the sheer attention to detail in the media coverage.

So take one step back and look carefully.

Ask: what is most essential about what happened here?

  • The police shot and killed 35 striking mine workers.
  • At least 10 other people had been killed beforehand – including 2 police officers – mostly by the strikers.

Now take another step back and let a slightly, only very slightly, broader picture come into focus:

  • It happened now, not in the apartheid era – and there is nothing with which to compare it in our 18 years of democracy.
  • The closest proximate cause was the implosion of the National Union of Mineworkers.

One more step:

… and one last step:

  • Num is Cosatu’s biggest affiliate, is the mainstay of ANC support in Cosatu and is one of 3 key pillars of support within the ruling alliance backing the re-election of Zuma (with the SACP and Kzn);
  • Amcu, Julius Malema and the wildcat strikers and their committees found each other from the beginning of the cascade (of which Marikana was a part) after the Implats strike in January.

As I focussed backwards and forwards through those perspectives I suddenly, with a surge of adrenalin, realised the danger we are in.

This is the essence of that realisation:

We have had 18 years of a comfortable ANC majority. Whatever the problems with the ANC’s performance I have mostly believed the party would continue to enjoy the overwhelming support of the majority – of so-called African black South Africans – well into the future, beyond any point worth worrying about.

Despite growing evidence to the contrary I have come to rely on the inherent stability that comes from the ANC sitting like a collapsed star at the centre of our political solar system; with that dense cinder, in turn, held together by the ANC’s own leadership sitting at the core of the party, heavy and stultifying, but essentially stable.

Marikana (in the violence, in the institutional collapse, in the momentum given political  evangelists of the Malema stripe) is about Jacob Zuma’s ANC spinning off pieces of itself, of its members and supporters, of its voters and potential voters.

The most obvious metaphors are from physics.

The centripetal force decreases as the set of interest at the centre narrow (please check my science here). The Nkandla patronage networks are in an ever tighter and more mutually dependent relationship with the SACP and a faction of Cosatu (a faction most closely identified with the Num). The narrower the centre, the less able it is to hold in place the system orbiting around itself. Ultimately, the bits are flung out of the orbit.

Forgive the scattering of a few lines from YeatsThe Second Coming, but they are so apposite here as to be inevitable:

Things fall apart; the centre cannot hold;

And the narrowing centre’s response? Well, that would be the massacre of the 34 mineworkers.

The blood-dimmed tide

The other metaphor is the vacuum, and as we know nature abhors a vacuum so it sends the first things that come to hand to fill it.

There seems to be a universe of hopeful voices out there that the first thing that will ‘come to hand’ is either a more democratic version of the ANC or a DA somehow more rooted in the nation (especially that three-quarters of the nation that is poor and black).

But what were the first things to rush into the vacuum, the vacuum left by the rapidly narrowing set of interests at the centre and by its precipitous loss of moral and political authority?

The communists had it right in 2009 already.

If the communists are good for nothing else, they are excellent at spotting fascists (I always think it is because, like alcoholics and drug addicts in recovery, communists feel the call of the beast within … but that is an argument I will need to explore elsewhere).

Already in late 2009 the SACP warned about the emerging tendency within the ANC (the tendency that coalesced around Malema, but has its roots deeper in elements of the emerging elite and their allies in the private sector):

Because of its rhetorical militancy the media often portrays it as “radical” and “left-wing” – but it is fundamentally right-wing, even proto-fascist. While it is easy to dismiss the buffoonery of some of the leading lieutenants, we should not underestimate the resources made available to them, and the huge challenge we all have when it comes to millions of increasingly alienated, often unemployed youth who are potentially available for all kinds of demagogic mobilization.

See what I mean? The communists are almost prescient as far as fascism is concerned. I covered those issues in more detail here.

Amcu and Julius Malema are part of the same phenomenon in the sense that they are both drawn into existence by the collapse of the centre and in addition share a number of features in ideology and style.

The extreme levels of violence, especially the violence of the state (deployed to defend the weakening centre) is also an essential and predictable element of what must flood in to fill the emptiness at the centre.

This is not some threatening future. Marikana threw aside a veil and revealed that this is where we are already, this is what is filling the vacated centre.

When a vast image out of Spiritus Mundi
    Troubles my sight: a waste of desert sand;
    A shape with lion body and the head of a man,
    A gaze blank and pitiless as the sun

  And what rough beast, its hour come round at last,
    Slouches towards Bethlehem to be born?

(Note: I know it is such a cliché to use The Second Coming, but it is almost irresistible given the points I want to make here. Read the whole poem at the link I provide earlier … it is not really meant to be dipped into in the way that I have here. Consider its post-First World War context. )

*It was Vladimir Ilyich Lenin who famously said the Party “found power lying in the streets and simply picked it up” – and he would have known a thing or two about that. For the most sturdy readers you can find a discussion of that here.

Lenin knew how easy it was to pick up power when it was lying around

I am sometimes tempted to think of myself as a company analyst, with South Africa as my company,  government as management and the currency and bonds as the share price

Company analysts make sell, hold or buy recommendations. Obviously a buy means the analyst believes the shares are cheap – in some difficult to determine absolute terms, but more likely in relation to appropriate peer or category comparisons.

If I was a company analyst, then what I might have been doing over the last while would have been writing a report changing my recommendation on South Africa from a hold to a sell.

Here is a bare-bones summary and ordering of that argument:

  • There are two major cycles driving negative sentiment which are coinciding now (which they do every five years):  the “strike season” and the lead up to the  ANC’s National Conference ;
  • Both these cycles are deeper and more traumatic that usual;
  • The reasons the strikes are worse than usual is excellently addressed by Gavin Hartford of Esop Shop –  here for a link to his paper at polity.org;
  • Mangaung is “deeper” and more traumatic than Polokwane because there is more at stake (some ANC members realise that another seven years of Zuma could hurt the ANC and the country; and Zuma and his backers cannot afford to lose office, because their dealing is not yet wrapped up and because their man remains legally vulnerable to the original corruption allegations against him);

But the main reason these cycles are deeper than previously is they are meeting a structural or secular trend, which consists of (and this is very stripped down):

  • Uncertain political stewardship from the top;
  • Institutional weaknesses in political (and labour) organisation characterised by systemic cronyism, corruption and nepotism (which leads to violent competition for control), managerial incoherence, narrowing support base and falsely inflated membership figures;
  • A significantly negative economic policy environment which might lower investment levels – e.g. fiscal uncertainty (because there is no way the ANC cannot keep increasing social grants and the public sector wage bill, which together are already more than half annual non-interest government spending) and a highly interventionist industrial policy (best exemplified in the SIMS document) which is one step away from ‘nationalisation by stealth” i.e. the effective deployment of private assets for public – or more narrowly governmental or even party – ends.
  • Incompetent infrastructure build, disruptive labour relations and failed educations systems are constant, apparently irresolvable and narrowing bottlenecks in the economy;
  • Institutional and administrative failures of government (in specific geographies and at specific levels of government) – with similar features to the second bullet referring to parties and labour unions;
  • Failures of the collective bargaining system – and other institutions designed to manage and mediate conflicting interests in society;
  • Growing social stresses around levels of inequality, unemployment, indebtedness and poverty – and unresolved racial overlays of the same.

Just listing that is faintly distressing … and you can imagine writing about it for weeks is not very uplifting.

But, I have, mid-stream, decided that I am not at all certain it is appropriate to take this relentlessly negative view.

Let’s go back to the political analyst/company analyst metaphor. Company analysts often suggest investors sell a share in a top quality, well  managed and highly profitable company if it is too expensive.

They might also recommend a buy on a company in all kinds of trouble – but one that is cheap and has upside that the herd of sellers hasn’t spotted.

I cannot remember an SA political shock or flood of negative sentiment that did not represent a buying opportunity in our financial markets. Remember the sell-off of  R54bn of SA resources companies after the leaking of a draft mining charter in 2002? It proposed forcing mining companies to immediately sell half their equity to black South Africans and spooked the market. The next few months was the chance of a life-time to buy excellent value company shares on the cheap.

Whether financial analysis adds real value to the investment process (or is just another bleed-off) is a matter of endless dispute. But here is why I would hesitate to call a sell on SA:

  • I cannot honestly say we have more political risk than Russia and Turkey, for example;
  • Where are the safe havens for investors, given the complex risks and problems in the global economy?
  • I cannot be sure that the negative news flow is not already in the price – it would be a very financial-market-analyst-type error to rush around shouting sell, sell, sell just after the last savvy investor had finished selling and begun buying;
  • My ‘negative secular trend’ is described as if it is inevitable – whereas there is much that can be decided and turned around by citizens, government and the ANC (despite my bleak outlook as to the likelihood of that happening, it must be in the mix as a possibility);
  • The country has a number of inherent advantages: its natural resources, its growing domestic market, its proximity to the last great frontier market (Africa), its sophisticated financial system and complex infrastructure, its constitutional framework, judicial independence and stable democracy – to name just a few.

Now obviously that does not counter the negative “secular” or structural trend I describe above. But there is something of a “baking a cake” strategy about how I have motivated for the big underlying negative trend. What I mean by that is I have marshaled all (or as many as I can come up with) of  the negative arguments in one place to bolster a particular conclusion: sell!

To make a cake one follows certain steps – mix ingredients, add energy and voilà: a nasty, stodgy, too sweet lump.

And that is a relatively simple object, with only a few requisite variables for its construction.

When we think about the future – especially when we write about it and propose to people how they should position themselves – the very first thing we should be is extremely tentative.

So I can’t, in good conscience, say sell South Africa.

I am unmistakably bleak about our politics and governance, but don’t take that as a signal to sell. I am quite likely being tossed on the waves of sentiment  – following financial market indicators, rather than leading them.

My very negativity could as easily be the indicator to start buying; that all the bad news is already in the price.

Nedbank chairman Reuel Khoza provides the lead headline in today’s Business Day as “warning of a rogue state future for SA”.

So imagine if you could, for a moment, that you are playing a sports game.

As in a dream, you suddenly realise you don’t know the rules; you don’t know how to score, who’s on your side or what the parameters of the field are.

This could be a comical situation – and I am sure I remember boys from my school days whose mystification on the rugby, cricket or hockey fields would bring a gentle smile to our (his team mates’) faces.

But this is also the stuff of nightmares: an inscrutable world where what happens happens for reasons entirely mysterious, where people are motivated by incomprehensible impulses and the dread of the unknown builds and builds.

I am sure I am not alone in having worked in a dysfunctional institution?

I mean something worse than a j0b in which you are poorly paid and have a psychopath for a boss (entry level experience requirements for human adulthood as far as I can make out).

A dysfunctional institution is one in which the sum total of what the organisation achieves appears to be at-odds with its explicit mission.

I am suggesting something worse than an organisation that doesn’t achieve what it is designed to achieve. I am suggesting that in some instances a deeply dysfunctional organisation can, when everything is aggregated, achieve the very opposite to its stated purpose is.

Which brings me to the institutions of the South African state.

I am occasionally lucky enough to get hold of some excellent economic commentary written by Sanlam Group Economist Jac Laubscher and published on that company’s website. In his most recent contribution (which appears here) he takes some concepts from Why Nations Fail: the Origins of Power, Prosperity and Poverty by Daron Acemoglu and James A Robinson (book I haven’t yet read, but will do so on the back of Jac’s comments) and hints at how they might be applicable to South Africa.

According to Laubscher, Acemoglu and Robinson suggest that the dominance of “inclusive institutions”  over “extractive institutions” is the difference between success or failure of nations.

Inclusive institutions harness and unleash human creativity and incentivise citizens and workers to give of their best.

As Jac Laubscher summarises:

Inclusive institutions are characterised by guaranteed property rights (vital for investment and productivity growth), an impartial legal system that upholds contracts, the effective provision of public services to create a level playing field, space to create new businesses, and the freedom to choose one’s career.

“Extractive institutions” in the words of Jac Laubscher:

… are aimed at extracting income and wealth from one section of society to the benefit of another section of society, usually the elite. In fact, extractive political institutions are the means by which the elite enrich themselves and consolidate their political dominance.

It is a fairly simple matter to demonstrate that to some degree key state and semi-state institutions and processes in South Africa have become mechanisms for extracting wealth by the politically connected elite.

But a key qualifier here is “to some degree”. I don’t think the state has yet, unambiguously, become an extractive tool of the political elite. But it is obvious that at least part of the political elite is struggling mightily to shape our institutions to and for that purpose.

Yesterday I listened to Trevor Manuel deliver the National Development Plan to a joint sitting of parliament. At the same time the the Constitutional Court was hearing an application by the Treasury and Sanral to set aside the April interim interdict granted by North Gauteng High Court halting e-tolling and mandating a full review of the system.

My views on both Trevor Manuel and e-tolling are ambiguous – they both have their good and bad points – but I appreciate the subtlety and complexity of what the National Planning Commission has tried to achieve … and I celebrate the fact that we have a Constitutional Court we can trust with decisions like the one it was busy with yesterday*.

But the institutions of our society are not yet the corridors of the predators’ labyrinth – but we’d be foolish to ignore the signs.

* The Concourt matter is important for a number of reasons, but the aspect that interests me professionally, is part of what is happening is driven by the fact that the Treasury feels the need to defend its credibility as a borrower. I suspect that the rating agencies are happy that the Treasury is fighting this matter but are anxious that they might lose. The lender wants to be certain that the entity to whom it lends is properly able to make the agreement to pay the money back. The Treasury is ultimately arguing that the North Gauteng High Court ruling means no lender to the South African government can be sure that the courts might not declare, in effect, that government was legally incompetent to make the decision in the first place – significantly increasing default risk.

Think of the various interests of classes and groups in our society as constituting an ecology in which political parties and organisations find niches to graze, hunt and be sustained.

The system can change and niches shift, narrow or broaden –  and in response the denizens that live in each niche must adapt or become extinct.

Alternatively, major fauna can begin to change for other systemic (or extra-systemic?) reasons and new spaces and niches close or open in response.

And a shockwave goes through the ecosystem and a number of species appear and/or rabidly (oops) rapidly evolve, while others disappear.

Like all metaphors this one is going to break down the closer it gets to the real world, but I think something like this is happening to our political ecosystem – as the ANC’s DNA drifts towards the lumbering, complacent and patronage-networked side of the spectrum.

The gaps that are opening are in the middle classes, in the cities and amongst urban professionals – niches which (that?) are being vacated by the ANC as it settles its rump into the comfort of a sort of conservative, patriarchal, kleptocratic, bureaucratic and ethnic politico-ecological pouf-cushion.

I make  this observation as I watch (on eNews channel) the DA marching on Cosatu’s head-office in Johannesburg in a historical reversal of roles that I am struggling to get my head around.

I saw a Twitter post from Ranjeni Munusamy last night in which she said: “After the #DAmarch tomorrow, maybe nuclear powers will march to Greenpeace offices. Will make just as much sense”.

I get her dismay completely, but I suspect that is just my old assumptions about the shape of our political ecology dominating my brain.

Why shouldn’t the DA be going up directly against Cosatu?

They are, increasingly, competing for exactly the same constituency – the constituency recently, in effect, vacated by the ANC.

That is what all this business about Zille attempting to recruit Vavi into the DA has been about.

They have been flirting – because they feel how close they are to each other – and now they are fighting, for exactly the same reasons.

On Sunday Ferial Haffajee wrote an extremely interesting piece in her City Press, pointing out that Cosatu is increasingly dominated by public sector unions  – and therefore increasingly represents “a middle”, rather than “a working” class.

The story uses this graphic:

… which I think comes from a Uasa Federation study by economist Mike Schussler that points out that the employed in south Africa enjoy relatively good living conditions with an average salary of R13 200 and further that public sector workers are significantly better off than their private sector counterparts.

Haffajee writes:

Cosatu has created a middle class where one did not exist in the 18 years of democracy. That it is funded by the public purse (funded in turn by you and I, the taxpayers) is neither here nor there. What is remarkable is how a federation that started as decidedly blue collar has altered the identity and social position of its members so quickly and so effectively that it could turn the public policy of tolling on its head.

So what is happening right now?

There is an inevitable frisson in the relationship between Cosatu and the DA.

Cosatu and the Democratic Alliance border the niches vacated by the ANC, namely the unemployed and the middle classes. (The unemployed and the middle classes, perhaps more than any other groups, have  the most to lose from the ANC’s, at best squandering, at worst looting, of societal resources available for growth and relief.)

As the opposing crowds gather in the streets of Johannesburg, the blue DA marchers versus the red Cosatu defenders – those for the youth wage subsidy and those against it – we might be expected to conclude that these are bitter class enemies.

I still think not – to my eyes I cannot distinguish them ethnically or class-wise … (but I accept that I might just not have cracked those codes).

The ANC – as well as agents of the state, I think – will strive mightily to prevent Cosatu from finding the DA – and vice versa.

As romantic literature suggests, love and hate lie alongside each other like geological strata – always in the process of metamorphosing, one into the other.

(Note – I think my various metaphors here don’t adequately take account of the differences in Cosatu – and ultimately break down on that point. I do think the public sector side of the federation is more middle-class and the private sector side more radical and competitive. However it is easier for the ANC to keep the public sector unions – the DA’s natural allies in class terms – on side because, ultimately, those unions are dependent on the state budget over which the ANC has control. Obviously there is a cost involved in the ANC buying off those middle class unions, and it is a cost ultimately borne by the unemployed … but that is an argument for another post. I am not sure if the DA will be able to capitalise on this contradiction, but it is not impossible that is precisely what the party is trying to do in Johannesburg as I write this.)

In a Woolworths queue in the Gardens Centre yesterday evening I idly picked up the Cape Argus.

It’s the only time I actually read anything in that newspaper.

I like to casually glance at its headlines during my journey from the beginning of the endless tunnel of sweats sweets (damn morning rush) and magazines. I then stash it amongst the heap of chocolate boats stuffed with Smarties right before the tills.

I commit two very mild acts of corporate activism when I do this.

I admonish The Argus for plastering Cape Town with interesting and clever billboards that inevitably refer to puerile and ridiculously provincial – and badly written – stories.

And I wrist-slap Woolworths for having made me carry my then small children through that tunnel after a long day of shopping – an experience that  still makes me shudder.

Okay, these are not very militant acts; more mild criticism of two old and venerable institutions that I feel great affection for but believe would benefit from the occasional slap.

Anyway, the cover story on The Argus shocked me rigid – such that I barely noticed the passing array of Magnum Ice-creams and left-over chocolate father Christmases calling out to me and the small squalling children being pushed by their exhausted mothers through Infanticide Row.

Government is proposing to fine South Africans who give unsanctioned weather and pollution warnings –  ten years in jail or a R10 million fine (catch the full text of the South African Weather Service Amendment Bill here.)

I got it immediately.

You can’t have amateur forecasters spreading panic and despair because they had seen fluctuations in their crystals and spirit catchers … or because choppy surf with a curling left-break at Glen Beach means Durbs is gonna be hit by cyclones, dude … or whatever.

But as I was passing the tubs of sour worms it dawned on me that all forecasting should be controlled. You can’t have every blogger and his parrot predicting the unfolding sovereign debt crises in Europe, the US presidential elections, the possibility of a US/Israeli strike on Iranian nuclear facilities, whether Germany and France will eventually let Greece sink without a trace, whether the Euro will be history this time next year …. the list is endless.

The pronouncements of economists and political analysts and talking heads of all kinds should come with health warnings. Who’s to say they know anything more than anyone else about anything?

But they get asked by television and radio stations and newspapers and they set up blogs …

Oops …

I dawned on me, but only after a surprisingly long time; somewhere between the sacks of chewy white milky cars and deep piles of You Magazines.

I am a forecaster. I have been quite specific about what I think will happen in the ANC’s debate about mine nationalisation. I have been fairly specific about succession issues in the ANC – both at Polokwane (where I was mostly wrong) and Mangaung (where I will be mostly right) ….

Excuse me? Did you really just say what I think you said?

No. No but seriously – the South African Weather Bureau has scientists with balloons and mysterious beeping machines in places like the Antarctic and Gough Island and a billion information feeds and huge computer models that attempt to get closer and closer to emulating the storm systems driving across from south of South America … and they still fail because they forgot about the butterfly flapping its mysterious wings in Peru.

By the time I punitively stashed The Argus amongst the chocolate tugs stuffed with brightly coloured beads just before the serene Woolworths teller lady I was having a minor existential crisis.

Admittedly not a completely new one – once you have been fairly sure that the ANC would not slip into the hands of the Nkandla Crew at Polokwane you are forever chastened and humbled by the knowledge that the future really is an ever unfolding mystery.

In case anyone was wondering if I had disappeared into the ether: I have been seriously busy and have had no time to post on the blog.

If you were paying extra attention, you may have noticed that a post reviewing the nationalisation of mines debate appeared and disappeared a few weeks ago.

My mistake – it was bespoke for a month, and I jumped the gun. I am now able to publish it and you will find it below.

Meanwhile I am into my second reading of An Inconvenient Youth – Julius Malema and the ‘New” ANC by Fiona Forde. It is exceptionally good and I strongly recommend you go out and buy yourself a copy. I have begun a review which I will publish here during the course of the week.

But meanwhile, here is the month-old nationalisation update/review. My views haven’t changed much since I wrote it … and it is good to get it on the record … even if it is a little turgid and written in an overly formal tone.

Nationalisation update/review

The nationalisation of mines debate in South Africa is, as predicted, reaching new heights of sound and fury. Yesterday it appeared that Cosatu was officially supporting the Youth League call. This is a situation fraught with danger although I do not change my assessment that the ANC is unlikely to decide on mine nationalisation along anything like the lines proposed by its youth wing.

Summary bullets

  • Yesterday Cosatu economist Christopher Malikane argued that the ANC has accepted as fact that the mines would be nationalised and that it was only a question of “how” not “if”.
  • This does not imply significant new risk although the markets are likely to interpret it as such.
  • In reality Cosatu is significantly divided on the call and current shifts in Cosatu policy have more to do with (important) internal conflicts.
  • Cosatu does not have the final or even main say over ANC economic policy and its current flirtation with the Youth League is actually about frustration with not achieving its policy aims with the ANC.
  • The ANC and its left wing allies have been consistent and steadfast in their criticism of the call and I outline the history both of the Youth League call and of the critique of the call in this report.
  • The nationalisation call has consistently been deployed in political battles for power within the ANC and in government which both gives the call unrealistic political energy and makes the threat difficult to interpret or assess.
  • The ANC has set its Economic Transformation Committee the task of assessing the call and making proposals. I expect clarity to emerge in November this year but a final decision will only be made at the centenary national conference in December next year.
  • Cost, international agreement, the Bill of Rights and the constitution make it inconceivable that the ANC attempt to nationalise the mines.
  • However I think the party and government will use the threat as a stick to get a better deal out of the mining houses.
  • Between now and the final decision the “sound and fury” will keep the issue alive and the threat present.

Cosatu shifts towards the ANC Youth League

Yesterday  Congress of South African trade Unions economist Professor Christopher Malikane was reported to have said at a South African Chamber of Commerce and Industry forum that the group charged with discussing the nationalisation of mines in the ANC had moved beyond the issue of whether the mines should be nationalised and is now purely considering modalities to achieve this aim. “Investors are looking for certainty around the issue of nationalisation, well this is the certainty they need,” he said.

The ANC Youth League managed to place formally on the agenda of the ruling African National Congress (at the party’s National General Council in September 2010) the proposal that government consider nationalising a majority share of the mining industry – for report back and a decision at the party’s Mangaung elective centenary conference in December 2012.

The general noise gets louder

With the ANC and government leadership mired in controversy relating to poor service delivery, poor government performance and accusation of corruption – and the Zuma presidency as weak as it has ever been – the ANC Youth League and its supporters in government appear to have seized the initiative and are making all the running at a public level. Investors and other observers would be forgiven for thinking that the slogan “Economic Freedom in our lifetime!” and the calls to nationalise the mines, banks and the land (that last explicitly without compensation) were not government policy. I am of the view that owners of mining equity and other property in South Africa are starting to feel the heat.

My view

My view has been that the ANC is highly unlikely to decide to nationalise the mines – although uncertainty in this regard will persist right up until December 2012 (although some clarity is expected to emerge after the ANC committee examining this issue reports back some time in November this year).

I think that the party and government will attempt to use the populist surge to discipline the mining companies to fulfil their social and Black Economic Empowerment obligations under the Mining Charter (which arises out of the 2002 Mineral and Petroleum Resources Development Act).

Additionally government and the party are likely to use the opportunity to change the tax and royalty regime to extract more revenue from the sector – particularly with the imposition of a tax on windfall profits.

Finally I think it likely that new obligations will be placed on the mining companies – especially with regard to some form of obligatory contribution to the building and maintenance of transport and power infrastructure near where the mining operations are located.

Brief History of the nationalisation call

The ANC Youth League on nationalisation of mines

Soon after the current leadership of the ANC came to power at the landmark Polokwane conference in December 2007 the ANC Youth League elected Julius Malema as its president (in April 2008).

By the end of that year Julius Malema and the Youth League began proposing that the mining industry be nationalised. This was the essential elements of that proposal:

* an immediate suspension of the issuing of mineral rights and permits;

* the establishment of a state owned mining company;

* the nationalisation – with or without compensation – of fifty percent of all mining operations;

* that licenses only be issued in future on the basis of a 60 percent equity stake being held by the state owned company.

The Youth League drew authority from the historic Freedom Charter document. The document, drawn up in a national consultative process led by the African National Congress in 1955 and adopted at the Congress of the People in Kliptown says of the economy:

“The national wealth of our country, the heritage of South Africans, shall be restored to the people; the mineral wealth beneath the soil, the Banks and monopoly industry shall be transferred to the ownership of the people as a whole”.

Criticism from the Left of the ANC Youth League call

The major critique of the ANC Youth League call was formulated by Jeremy Cronin, Deputy Minister of Transport and Deputy Secretary General of the South African Communist Party (and major ANC intellectual and ideologue).

It is my guess that Jeremy Cronin was deployed by the incumbent leadership of the ANC in the belief that a criticism of the nationalisation call articulated by leading communists would defuse the Youth Leagues claim of militancy and radicalism – and I therefore cover these arguments in detail here.

Cronin argued that the Freedom Charter passage supports the idea that “the people” get the full benefit of the economic resources “not that there be a narrow bureaucratic take-over by the state apparatus and the ruling party’s deployees” (all Cronin quotes in italics in this section from SACP’s Umsebenzi Online Volume 8, No. 20, 18 November 2009).

The state owning important aspects of the economy says nothing, for Cronin, about whose interests are being served:

“Hitler’s Nazi Germany, Mussolini’s fascist Italy, and Verwoerd’s apartheid South Africa all had extensive state ownership of key sectors of the economy.”

So for Cronin the 2002 Mineral and Petroleum Resources Development Act had already gone some way to fulfilling the Freedom Charter’s objectives by explicitly stating:

“… that South Africa’s mineral and petroleum resources belong to the nation and that the State is the custodian thereof ….  In other words, it is the “nation” (with the state as custodian) and not the mining companies that have legal ownership of the mineral resources beneath our soil”.

Cronin argues that the Youth Leagues proposal of nationalising

“mining houses in the current global and national recession might have the unintended consequence of simply bailing out indebted private capital, especially BEE mining interests”.

And further that:

“Many of our gold mines in particular are increasingly depleted and unviable. Some reach costly depths of four kilometres below the surface. Recently the global gold price has bounced back, but it is telling that, unlike in the past, our gold output actually dropped by some 9% in the same period. Our gold mines are simply no longer able to respond dynamically to gold price rises.”

Cronin (while making it clear he thinks “the people owe the mining houses absolutely nothing”) points out that South Africa’s Bill of Rights sanctions expropriation but requires compensation at a price agreed by both parties or determined by the courts.

The bottom-line for Cronin is that nationalisation would do nothing to further the “national democratic struggle”. Rather it;

“would land the state with the burden of managing down many mining sectors in decline … burden the state with the responsibility for dealing with the massive (and historically ignored) cost of “externalities” – the grievous destruction that a century of robber-baron mining has inflicted on our environment. In the current conjuncture, nationalising the mining sector at this point would also probably unintentionally bail-out private capital, in a sector that is facing many challenges of sustainability. The problems of liquidity and indebtedness for BEE mining share-holders are particularly acute.”

Opposition to and support of Youth League call

President Jacob Zuma, ANC Secretary General Gwede Mantashe (who is also SACP Chairman), and Minister of Mineral Resources Susan Shabangu have all explicitly rejected the ANC Youth League’s call – with Shabangu having famously said that the mines would only be nationalised “over my dead body”.

However despite this being the overwhelming position of the ANC and government, the Youth League scored a significant victory by having its proposal placed formally on the ANC’s policy agenda – achieved at the National General Council meeting in September last year.

At that conference Tokyo Sexwale (Mvelapanda Resources and Human Settlements minister) and Bridget Radebe (Mmakau Mining, wife of minister of Justice and Constitutional Development Jeff Radebe and sister of Patrice Motsepe) both came out in support of the ANC Youth League’s call – giving some weight to the now widespread allegation that the Youth League is operating with a hidden and funded agenda to have failing Black Economic Empowerment deals bailed out by government.

Arguing against the call were leading ANC intellectuals Joel Netshitenzhe, Jeremy Cronin and Trevor Manuel. However the ANC incumbent leadership failed to block the Youth League proposal and it is now formal policy of the ANC to investigate the matter and report back for a decision to be made at the centenary National Conference of the ANC which will be held at Mangaung (Bloem) in December 2012.

The ANC’s Economic Transformation Committee

The committee tasked with formulating the ANC’s position on the nationalisation of mines is the Economic Transformation Committee – which has the general brief of investigating the role of the state in economic development and is the natural forum in the ANC to develop a position on nationalisation.

There is not much in the public domain about the proceedings of the committee, but it is my information that Gwede Mantashe is overseeing the work of the committee which is formally headed by Enoch Godongwana (deputy minister of Economic Development and ANC NEC member).

The contributors thus far include those from the ANC Youth League, Joel Netshitenzhe, MZ Ngungunyane, Cosatu, Floyd Shivambu, Paul Jordaan and the National Union of Mineworkers. The full text of the initial contributions can be found in the last five issues of ANC’s internal discussion publication “Umrabulo” (find those on the ANC website at http://www.anc.org.za/list.php?t=Umrabulo).

It is my understanding that those opposed to the nationalisation call – for the reasons that have already been summarised in this report – are attempting to craft a compromise that will allow everyone to save face while allowing government to wrestle a better deal out of the mining companies – as stated in the “My view” section at the start of this report.

It is my understanding that the committee will report back in November this year and I expect the markets to get an indication of how the debate will pan out then. However, it should be borne in mind that the formal conclusion of this debate will only be reached at Mangaung in December 2012 and the noise is likely to continue right up until the last minute.

Cosatu’s shifting sands

The major change of external inputs into my assessment has been a struggle within the Congress of South African Trade Unions that has resulted in a shift away from the federation’s original position which was closely aligned with the view of the SACP and the incumbent leadership of the ANC – as articulated by Jeremy Cronin above.

The last unambiguous statement from Cosatu on this general issue came in the form of a joint communiqué with the SACP on the 24th of June 2011- I quote it here in full:

“… periods of capitalist crisis are also typically characterized by various forms of right-wing demagogic populist mobilization acting on behalf of various capitalist strata in crisis, but often masked behind a pseudo-left rhetoric. We believe that the same phenomenon is apparent in SA, finding a potential mass base amongst tens of thousands of unemployed and alienated youth in particular. However, behind this populism are often well-resourced business-people and politicians seeking to plunder public resources. We resolved as the SACP and COSATU to close ranks and to expose the true agenda of these tendencies and their connections to corruption and predatory behaviour in the state.”

However, at the Cosatu National Executive Committee meeting a week later a split appeared in Cosatu that has impacted on this debate.

The conflict is complicated but in a nutshell, it is between a faction led by powerful Cosatu Secretary General Zwelenzima Vavi and Irvin Jim of the National Union of Metal Workers (Numsa) of South Africa and a faction headed by leaders grouped around the National Union of Mineworkers (NUM) under Frans Baleni. Broadly the NUM/Baleni faction is supportive of the SACP and the Zuma leadership of the ANC while the Vavi/Jim/Numsa axis has become frustrated with broken promises (concerning both corruption and economic policy) of the Zuma/ANC leadership and would generally seek a more radical socialist or workerist political solution than is being offered by the ANC.

The Vavi/Jim/Numsa faction has over the last month begun courting the ANC Youth League, and attempting to harness the energy coming from this sector for its own ends. This is highly opportunistic as Vavi and Numsa have consistently characterized the Youth League leadership as “right-wing demagogic populist” and the League’s nationalisation call as fronting a corrupt BEE agenda looking to take a double bite out of resources available for transformation.

Rank opportunism or not, the crack in the Cosatu position is adding a new element to nationalisation debate. It is my understanding that the National Union of Mineworkers remains opposed to the ANC Youth League call, but the new element will undoubtedly add some confusion.

The point to remember about Cosatu – a point reiterated by the ANC and government leadership time and again – is that the federation represents a sectional interest. There are obvious reasons why some elements in Cosatu would want the mines nationalised – who wouldn’t want a guaranteed job for life as a Greek style (up until recently) government employee?

It is to NUM’s credit that its president Senzani Zokwana said in November last year that the Youth League was being reckless with the industry and that the League’s call was inspired by rich Black Economic Empowerment recipients looking to get failing deals bailed out by the state and Frans Baleni a month ago reiterated: “It is not only the private sector that has invested (in mines), but the workers with their pension and provident funds have also invested. We should have maturity and the debate should not have political undertones.”

It’s the law!

A key motivator of my view has been that South Africa is bound both formally and informally to agreements – including in the Constitution – that make it impossible to nationalise the mines without full compensation. Nationalising 50 percent of the mines would cost in the region of $130bn. There is no conceivable advantage – and an almost endless downside – for the government to nationalise the mines. Therefore it is not going to happen – although the end result might look like a compromise and might entail the establishment of a state owned mining company, although one with a much smaller asset base and agenda than conceived in the Youth League’s call.

Nothing material has changed that would allow me to change the view – although my confident smile has assumed a slightly brittle quality. Cosatu was never going to be the determining factor in this debate but the weakness of the ANC leadership – in particular the weakness of Jacob Zuma’s presidency – means that I am no longer certain that the centre of the Ruling Alliance can hold.

From the start the nationalisation of mines call has, in part, been a stalking horse for leadership challenges within the ANC and government. I have argued elsewhere that the call has been central to Tokyo Sexwale’s political ambitions and that he has covertly supported the Youth League in this regard for some time.

Now we have an element of Cosatu attempting to forge some form of alliance with the Youth League around the call clearly as part of a strategy to shift the leadership balance within the ANC.

The Youth League itself is using the call for its popular mobilization potential to help push its own candidates (particularly Fikile Mbalula – currently minister of sport) for higher office.

In this environment it would be foolhardy to be overconfident about the call. However it is my opinion that predicting the success of the Youth League call would be the same as predicting the imminent failure of the South African democratic project and state – a view I believe is too extreme and alarmist.

In many ways what is happening now is very much as predicted: the situation will be full of sound and fury right up until a decision is made at the end of 2012.

The déjà vu is washing over me like the phantom symptoms of a late winter bout of hypochondria.

I remember the lead-up to Polokwane.

The thuggish crowds outside Jacob Zuma’s court appearances.

The man we had known was in Shaik’s pockets since 1993, he who famously couldn’t keep it in his pants, the rape accused shower-after-baby-oil-sex to fend off HIV/AIDs who had only been doing his Zulu man duty by her, Umshini wami mshini wam …  it was entirely impossible that my ANC would ever allow this man to rise to the venerable chambers previously occupied by heroes of the stature of Oliver Tambo and Nelson Mandela … and kept lukewarm by Mbeki’s occasional visits.

And my paying clients insisting I make a call: will he become president?

Well, say I, Mbeki only appointed him deputy because he needed to fend off the challenge from Winnie a-fate-too-awful-to-be-contemplated-by-the-financial-markets Madikizela-Mandela. He had a certain ethnic appeal, so to speak, in the Inkatha heartlands of Kwazulu-Natal but Mbeki knew no-one would ever seriously propose him as president!

And as I knew, you don’t bet against Thabo Mbeki, the master of palace politics …

… and now here we are again.

The weekend the charges against Malema were announced, SARS, the Public Protector and the Hawks were reportedly deep into investigations of their own.

How could Malema hope to sell himself as a victim just as his lifestyle and his predation on the public purse became the subject of such intense scrutiny?

Can the man whose clothes and accoutrement cost the annual income of any twenty of the youths he hopes to represent … represent them or gain their sympathy?

Yes! I need to shout in my own ear. Yes they can … they have … they will again.

Maybe not this time.

This situation has its own dynamics and there is no point in second guessing what the ANC Disciplinary Committee might decide after it finishes meetings this week – but we mustn’t pretend to ourselves or anyone else that we can tell the future.

Will Malema’s minions brute about the streets wearing 100% Juju t-shirts and threatening to fight to the death for their … leader?

Will this sway the process?

Where is the unswayed process going anyway?

There are only two things I know for sure.

The first is that I do not know what the future holds for Julius Malema. He could be banished from the ANC. His disciplining might  provoke a backlash that conceivably could lead to Zuma’s downfall and to Mangaung being an even more corroding rerun of Polokwane. He might disappear into obscurity in the wasteland that (until very recently) has been politics outside of the ANC. He might spend a few years in the wilderness and return chastened and wiser and work his way back to becoming the coming man.

The second thing I know for sure is that my desire for particular outcomes is a serious barrier to me thinking sensibly about which outcomes are most likely.

I know this is not a great and profound insight – nor am I here on the road to Damascus or any particular destination; intellectual, metaphorical or spiritual.

I do hear the breathless clamour of the prediction and analysis industry prophesying the best and the worst of all possible worlds – depending on the emotional predisposition of their target market.

Predicting the worst is often a mistaken attempt to warn against a particular course of action … it’s a political act and an act of propaganda.

Predicting the best is often a semi-religious act, a sort of shamanistic incantation, willing a particular future into the present.

For me, I admonish myself daily:

It is okay to hope the ANC will rediscover its soul and its leaders their long-lost spines. But hoping for a thing does not make it more probable. No-one knows what is going to happen with Malema. So sit on your hands and wait like the rest of us.

Arrived late last night in New York from London (and Edinburgh and Frankfurt)  and the lag means I am only going to want to fall asleep at exactly the time it will be most unsuitable to do so.

I have been travelling (for Indian owned Religare Capital Markets, where I have a new berth) with the excellent Michael Kavanagh who is a mining and metals specialists. We have a story which interestingly balances the South African political risk (especially associated with nationalisation) and the long-term bullish outlook for  platinum. We are half way through a global tour talking to fund managers who specialise in investing either in mining stocks or emerging markets … or both.

South Africans at the point of weeping and pulling their hair out because of the latest ANC Youth League posture, or the newest tender scandal or Jacob Zuma’s increasingly hopeless grasp on the complexities need to spend a little time with people whose job it is to compare South Africa as an investment destination with its peers.

Oh yes, they worry faintly about Julius Malema’s antics but their universe of comparison is huge and diverse … and if the worst comes to the worst the money they manage can shift very easily and early.

(Our parochialism causes us to believe) we have no-one with whom to compare our populists, gangsters, thugs and incompetents.

Trust me (or rather trust the fund managers with whom I have been speaking), ours are no worse than the equivalents in Russia, Brazil, India, China … and a host of similar investment destinations between which the money flicks and flitters.

One of my slides that might not charm a domestic audience causes nothing more than a wry smile here. This is par for the course for investors who concentrate on global emerging markets; some light relief before going back to worrying about whether Israel is going to bomb the Iranian nuclear fuels development programme or not.

We might as well smile – both because we are not as bad as we could be, but also because when you look further than the grotesque, our earnestness is almost sweet and crazy … to my mind, anyway.

Some of the things we think we know about revolts and revolutions – but that do not always apply:

  • Where there are adequate elective processes dissatisfied people believe they can influence outcomes through voting and therefore are unlikely to make the sacrifices required of a revolution.
  • Revolts are generally lead and organised by the middle classes – a degree of education is required – thus where the middle class is linked to the ruling elite through patronage or ethnicity, its members are less likely to lead a revolution.
  • Societies where a middle class is non-existent (where the division in the society is a simple one between the rulers and the people) can be surprisingly stable and enduring.
  • Poverty and unemployment tend, on their own, not to be strong predictors of unrest and revolt – it is often a necessary condition that these two social ills exists alongside visible inequality.
  • Ethnic exclusion from government or the economy is a powerful driver of unrest and revolt – colonialists loved to place favoured ethnic minorities to rule over less favoured ethnic majorities – a recipe for revolt and, depending on the relative size of the groups, civil war.
  • Revolts tend not to happen in situations or countries where the condition is continuously and steadfastly awful. Revolts happen when expectations begin to rise amongst “the people” – in response to improving social, economic, political or cultural conditions.  US sociologist James C Davies turned the simple observation that expectations rise faster than improvements in the underlying conditions and further that the system can cope with the disconnect only until conditions continue to improve (the Davies J-curve). I discuss the usefulness of this formulation in relation to South Africa’s ongoing service delivery protests here, a blog post that could have been written … almost word for word … today, but was, in fact, written in March last year.

With those meagre points acting as a theoretical background here then are my thoughts on the forces working for and against revolt in the South African context. It is not as simple a matter as putting some things in one column and others in another. Many of the protective factors are also depth charges seeding our future with hazards, but I will do my best to make it as simple as possible.

Why we are less revolting than we might be

  1. The first and most obvious reason is unlike many of the Middle East North Africa countries (from now on written as MENA, following a financial market convention) South Africa is a fully functional democracy where citizens have several opportunities to vote for and against parties that run their lives at a local, provincial and national level.
  2. The Ruling ANC is still seen by much of the electorate as the party led and staffed and supported by those who fought apartheid and those whose lives have improved because of that system’s demise. Whatever it might be in the future, right now the ANC still has enormous reserves of goodwill based on the fact that it is the premier liberation movement (still) led by the heroes of the struggle.
  3. The ANC government pays just under 40 percent of consolidated non-interest expenditure (that’s  R314 billion up from R156 billion five years ago) on the public sector wage bill and a further 20 percent to the poorest South Africans in the form of social grants. These are crucial constituencies to get to buy into stability – and a large part of the nation’s wealth is doing just that:  providing jobs for the emerging middle classes and  poverty alleviation for those who would otherwise be without hope.
  4. Add into the stability mix the fact that the ANC has managed to dispense a huge degree of patronage to the most aspirant and powerful of its leaders, members and constituents through the legal and regulatory regime of Black Economic Empowerment and the application of employment equity laws especially in the parastatals.
  5. Finally, whatever the criticisms, this government has built more houses for the poor, paved township roads, established sewerage and water connections, and provided the poorest South Africans with private and public goods on a scale unimagined under the previous dispensation of the Apartheid rulers.

Why we might be more revolting than we think

  1. Firstly, the obvious threat to stability is fiscal. Can we afford to meet the ever growing needs of the poorest as well as the growing middle class? At some impossible to predict moment in the future a force (a Maggie Thatcher type force) will arise within government and attempt to get our financial house in order. The first cuts will be in the fattest areas: social grants and public sector wage bill. I have no doubt an even slightly popular government could weather the resulting storm, but it will be a weather phenomenon that will be spoken of for many years.
  2. Secondly, failure to meet the fiscal challenge has its own terrifying dangers. In fact, this is precisely what happened in Zimbabwe. The leaders of Zanu-PF ransacked the war veterans pension fund which caused ex-combatants to begin militantly to threaten Mugabe and Zanu-PF.  The pension fund was recapitalised to the tune of $2bn in the late 90’s and the rest, as some are wont to say, is history. Spending $2bn they didn’t have led directly to hyperinflation, food riots and the formation of the MDC. With no largesse left to dispense the white owned farms were next on Zanu-PF’s attempts to stave off revolt and the last titbits of that economy are currently being pissed up against the wall with the same objective but in the name of “indiginisation”. Of course, Zimbabwe hasn’t revolted, but the price the politicians have made that country pay for stability has left Zimbabweans worse off than even the most cataclysmic revolution might have done.
  3. If  a greedy, rent seeking, corrupt, politically powerful and unaccountable elite is what fuelled revolt in MENA, then we are in all kinds of trouble. “Elite Theory” is a branch of sociology that argues that the economic and political elite make up an informal network that is the actual source and exercise of power – not “the people” through elections and parliament.  At an obvious level the theory applies to us: a publicly unaccountable elite within the ANC deploys loyalists to key institutions throughout the state and economy so as better to control the shape and direction of society. But with such a dominant and popular ruling party, such practices are unlikely to lead directly to revolt. However, beyond the formal exercise of the policy of “cadre deployment” we have an elite almost identical to those in Tunisia, Egypt, Libya and a host other MENA countries. These are the grand political families that thrive on tenders won from the state and bribes won from global corporates attempting to secure lucrative deals here. These are the groups and individuals that have turned some of our provinces, town and cities into gangster fiefdoms ruled by fear, patronage and manipulation.

On Balance?

We are still well within the safety zone and the system seems to have the flexibility and resources to withstand firm assaults in the future.

The obvious danger is the parasitic elite that honeycombs the upper echelons of our politics and economy. Many who participated in the Polokwane Putsch understood themselves to be cleansing the ANC and government of such an elite.

Unfortunately they failed to notice that their principal allies were the second -rankers and blatant criminals that Mbeki had managed to keep away from the trough.

If this elite manages (as it constantly strives to do) to divert the resources our society has available for economic growth, employment, poverty alleviation, infrastructure development, public health and education (you name the social good, it is threatened by the elite’s rent seeking activities) then we will have to reassess.

While people like  Willie Hofmeyr are still loyal ANC members and in place as senior state officials there is hope. Yes it is horrifying that he estimates that his Special Investigative Unit will scrutinise R20bn of tender fraud in this financial year (read about that here) but the real trouble arrives when people like him throw up their hands in disgust and head for the private sector.

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

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

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