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The frenzied symphony of incompetence, pomposity, imperiousness and hysteria that the press, the Mandela family, Graça Machel and the Nelson Mandela Trust managed to produce around the mobile sickbed of the former president gives a small hint of things to come. (I personally enjoyed Peter Bruce’s comments – catch those here.)

Clearly when the Old Man finally goes, as he must, this country will initially be bathed in a blinding light and then buried in mountains of obscuring verbiage taller and wider than those that cover the September 11 attacks on the World Trade Centre, the US invasions of Iraq and Global Warming combined.

It is only the usually skittish financial markets that seemed to take the old man’s health with equanimity.

Here is my Thursday last week’s comment. (This from a piece destined for a paying client but which never made it, but also based on a previous post of mine discussing the “meaning” of the old man’s 91st birthday).

The price of one man’s health

For those who comment on South African financial markets, the national concerns about Nelson Mandela’s health – and his actual health – should be considered “investment neutral”.

But all that shows is that financial markets do not list the price of everything.

Nelson Mandela is the last symbolic link to the full ambit of the struggle of all Africans, but black South Africans in particular, to free themselves from colonialism and Apartheid.

Crucially, he is also the symbolic representative of the compromises and tolerance that characterised the negotiations from 1990 and the election in 1994.

If that was not enough for the symbol to carry, Nelson Mandela’s 27 years in prison and his calm forbearance have come to represent for many throughout the world the manifestation of the human spirit in its best possible form.

With each passing moment Mandela’s death is closer and this gives focus to anxiety about South Africa’s future – but also to anxieties about the world, about the predation of humans on each other and on the planet.

Our feelings about the lives and deaths of “great” men and women allow us an emotional link to the grand scope of the history we live in and through.

The death of Pope John Paul II and of Diana Spencer gave a sense of how, in the age of celebrity, the so-called ‘general public’ becomes emotionally connected to the grand human drama that can usually only be understood a long time afterwards and at many degrees of abstraction.

Nelson Mandela’s death will be such a moment for humanity, because it will represent the drawing together of important threads of the last several hundred years of human history.

The point, however, for the investment specialist in South African financial markets is that little will change in South Africa with the passing of the man. The real running of the country and the dealing in the compromises between the old South Africa and the new, has long moved on from Nelson Mandela.

It has now become a truism that even in his last years as president Nelson Mandela was already more important as a symbol than as a politician and statesman.

When he dies there will be real and visceral grief from comrades, friends and citizens who have participated with him in the struggles for African liberation. I imagine too, that throughout the world there will be an unprecedented outpouring of emotion that will elevate the symbol even higher than the man.

South Africa, for one last time, will be bathed in light and the centre of puzzled global attention – as it often has been since the formal beginnings of Grand Apartheid in the late 40’s and early 50’s.

It is impossible to say whether the current bout of ill-health will lead immediately to the death of Nelson Rolihlahla  Mandela.

But when he does die, which is only a matter of time, the South African financial markets – the currency, the equities, the bonds and products that derive from these – are unlikely to falter.

But that only tells us one thing: that the ticker tape does not list the price of every important thing.

The Activist Developmental State is an idea I feel deeply ambivalent about.

The picture below of Shanghai in the 1990s and then again last year is from a blog by Roger Pielke, Jr, professor of environment studies at the Center for Science and Technology Policy Research at the University of Colorado. (Thanks to Anthony for the link and please click on the pic to go to Pielke’s website.)

This stark, and wonderful, portrayal of astonishingly rapid social, environmental and economic change rather raises the question of how it was achieved.

And, more importantly for our provincial purposes here: can we do something similar?

The New Growth Path is a plan to achieve job rich, environmentally friendly,  economic growth while narrowing the Apartheid wage gap.

Saying it is a plan with those intentions says nothing about whether it has any realistic potential of achieving any of its objectives – or of perhaps leading to some unforeseen outcome.

So what did Chinese politicians actually do to “cause” these changes to happen?

Wikepedia says rapid growth came about as a result of the economic reform programme (I have left Wikepedia’s links and notes in there):

Economic reforms began in 1978 and occurred in two stages. The first stage, in the late 1970s and early 1980s, involved the decollectivization of agriculture, the opening up of the country to foreign investment, and permission for entrepreneurs to start up businesses. However, most industry remained state-owned, inefficient and acted as a drag on economic growth. The second stage of reform, in the late 1980s and 1990s, involved the privatization and contracting out of much state-owned industry and the lifting of price controls, protectionist policies, and regulations, although state monopolies in sectors such as banking and petroleum remained. The private sector grew remarkably, accounting for as much as 70 percent of China’s GDP by 2005,[4] a figure larger in comparison to many Western nations. From 1978 to 2010, unprecedented growth occurred, with the economy increasing by 9.5% a year. China’s economy became the second largest after the United States.

Leaving aside the obviously important question of whether these changes have led to greater human good, the New Growth Path very clearly and explicitly is going in the opposite direction on some of these issues (privatisation, contracting out, shrinking public sector) but flirts with weakening the rand to stimulate manufacturing and the traded goods sector (a central plank of Chinese growth).

Now I have no idea whether the New Growth Path will cause anything to change.

But my instinct says that the most important thing the state can do is step out of the way and allow damned dammed (damn! – ed) up human potential to find its way to the sea – like is revealed in the pictures of this great city at the mouth of the Yangtze river.

I definitely don’t hold some extreme libertarian view that wants to shrink the state to nothing and leave everything to the magical markets. “The State” is the mechanism by which we achieve all the myriad things we would not be able to achieve individually.

But there is a fundamental choice in approach to the state’s role. Should the state do “the thing” we require to be done or should the state regulate how “the thing” is done by the markets? Many “things” are not immediately profitably so enterprising private individuals do not do them. These things must obviously be done by the state if our democratic processes determine that they are desirable or necessary things do be done. And certain undertakings are too big and complex for one private enterprise. Those things are best done by the state or forms of state that arise through international co-operations.

The New Growth Path, it seems to me, bends the stick the way of the state being required to do more as well as more  regulation of the enterprise of private individuals.

I strongly suspect that this is a step in the wrong directions but I am uncertain enough to be open to persuasion.

Busy, busy … and everything is slower; the brain and hands struggle with what they did with alacrity before the December holiday.

Anyway …

It is becoming clear that South African Investment Risk is going to be all about the New Growth Path (NGP) this year. So picking up from where I left off from the two pieces I wrote last year about the NGP, here and here – I did promise a third and, I suppose, this is it.

Zuma’s 2010

I get irritated by those those interminable news features reviewing or predicting the calender year as if it was a natural unit of history into which discreet trends neatly fit themselves and await their unpacking by news organisations short of December and January copy.

But then that means I failed to point out one of the most interesting features of 2010, namely the peculiar arc described by Jacob Zuma’s fortunes over the course of last year.

Remember how badly the year started for him?

He stumbled from crisis to crisis and the consequences of his sexual behaviour (consequences we are going to feel again this year) began to make even his most fervent backers nervous.

The second phase was the World Cup and the apparent surrendering of his position to Blatter and his merry band of soccer thieves. That phase ended with the gathering woes of the public sector strike and a serious challenge from “the right” at the NGC.

That is the moment he turned it all around, to everyone’s surprise – mine included.

His administration managed to negotiate an end to the public sector strike and secure Cosatu’s aid to stop the political challenge from the right (fronted by Julius Malema, but emanating from higher up the ANC/New Elite food chain – I cover that – exhaustingly if not exhaustively –  here.)

As I discuss in the previous link, it is my contention that he secured the victory by making policy concessions to the left and Cosatu (which are essentially contained within the NGP document – clearly not acceding to the left’s full agenda but going some of the way) and this sets much of the tone for a discussion about political risk in 2011.

The New Growth Path (NGP)

The New Growth Path (NGP) document was produced by the Department of Economic Development (23/11/2010), an institution that came into being as a direct reward to Cosatu for having backed Jacob Zuma’s rise to power at Polokwane and which is headed by a minister who hails from the heart of Cosatu’s leadership.

The origins of the NGP might be closely linked to Cosatu, but the fact that it is a real attempt to address unemployment that has been formulated in government (i.e. outside of the priority Cosatu objective of protecting the interests of the already employed) means it is full of suggestions that Cosatu has found itself unable to support.

But Cosatu’s doctrinaire and sectarian self-interest based criticism aside (see those here), this proposal is far closer to the policies of Cosatu than any macro and micro economic framework that has emanated from the ANC and government since 1996 – and this is because the document forms part of the payback to the trade union movement and herein is contained some of the risks associated with the policy.

The Activist Developmental State

The NGP is more than just a statement committing government to various broad economic interventions designed to achieve job rich economic growth. It calls for a fundamentally new approach to the administration of all aspects the economy and is highly interventionist and proposes that the the Department of Economic Development plays the lead role.

One of the most interesting critiques of the policy comes from the Chief Economist of the Sanlam group

It wants to regulate wages and salaries in the labour market, prices in the goods market, the rate of exchange in the currency market, interest rates in the money and capital markets, and dividend policies and therefore by extension equity prices. It even hints at rent control in its desire to reduce rentals for small businesses in shopping centres. (The New Growth Path – Does it really take us forward? – Jac Laubscher, Sanlam Group Economist – 01/12/2010 catch the full text of that interesting critique here).

The premise is that markets left to their own devises will not solve the problems, particularly of unemployment. Unemployment (as well as the full range of social ills in South Africa), in this paradigm (the paradigm of the NGP, not the paradigm of Sanlam or Jac Laubscher!), can only be addressed by vigorous state intervention.

The conventional or orthodox view in economics tends, in principle, to be wary of over regulation of the economy and markets by even the most efficient, vigorous and rigorous state or government agency. The potential for misallocation of resources, bureaucratic drag, distortions and inefficiencies (and therefore reduced growth) must be significantly increased when a new, untested and under-resourced agency nested in a national administration known for high levels of dysfunction is charged with leading interventions at every level into the economy.

Looser monetary, tighter fiscal policy

The stability and predictability of macro-economic policy has been one the great successes of post-1994 policy making in South Africa.

The NGP makes constant reference to achieving a “more competitive” currency – through the mechanism of “a looser monetary policy and a more restrictive fiscal policy backed by microeconomic measures to contain inflationary pressures and enhance competitiveness” (page 16 , The New Growth path – The framework – 23/11/2010).

Thus this policy holds out the hope/promise of stimulating the manufacturing sector (by making exports more competitive) but proposes to help control the danger of inflation inherent in this strategy by reducing state expenditure.

I do not expect government to either change the inflation target for the SARB or its general mandate “to protect the value of the currency in the interest of balanced and sustainable economic growth” (Constitution of the Republic of South Africa 1996/1996/2009-04-17/Chapter 13 – Finance), but the assumption must be – at least – that there will be downward pressure on the currency.

Labour markets and wages – the source of the conflict with Cosatu

What is fascinating about the NGP is that it calls for wage restraint and is, inevitably, starting a serious discussion in government and the ANC about the conflict between “quality jobs” and any jobs at all. Charged with creating employment, the NGP is inevitably going to come into conflict with the labour regime established after 1995 that so profoundly strengthened the interest of workers inside the system against the interests of the unemployed outside the system.


2011 is going to be the year that government finally shifts beyond the set of macro-economic policies enshrined in the Growth, Employment and Redistribution document that defined the Mbeki leadership – and so angered Cosatu, the SACP and the ANC’s own left wing.

Political analysis for this year is going to have a strong economic focus. We will have the national local government elections (the rumour I hear is May 18) and the never ending cycle of tenderpreneurial abuse by party and government figures.

All of that will continue to provide grist to our mill, but the big story for this year is all about government economic policy. Will they go too far for the financial markets and other investors? Can a government, any government, do anything to fundamentally alter the content and direction of economic growth? Can the Ruling Alliance hold itself together if the ANC grasps the nettle of the labour market? These are the big questions for the year.

Has anything changed?

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

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

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

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

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

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

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

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

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

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

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

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

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

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