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Business Day this morning published an article suggesting that Nhlanhla Nene was on the verge of being shuffled out of his Minister of Finance position to some face-saving backwater.
I wrote early last week in a client note: “It is widely held that the National Treasury and Minister Nhlanhla Nene have come under hostile pressure for investigating close Zuma allies and an axe in the form a threatened Cabinet shuffle hangs over Nene’s head to keep him compliant with Zuma’s own spending priorities and plans for SOE’s and nuclear power roll-out (to which Nene is widely believed to be opposed in its current ZAR1-trillion form).”
However I have repeated to several of my clients that I believe that while Zuma might axe Nene is might be a step too far, the moment the great leader overestimates his greatness and fails to understand his Ozymandian limitations.
Nene is the first black African Minister of Finance and he is at least as steely and technically competent as any of his post 1994 predecessors. Last week be brought the meat-clever down on the plan of SAA board chair Dudu Myeni (widely suggested to be an intimate of Jacob Zuma) to place a mock-up company in an already done leasing deal between the national carrier and Airbus. The company would have been nothing other than a rent extraction tool – and added hugely to the costs of the deal. Myeni’s reprehensible argument was that it was all for the purpose of transformation – proving that the political elite uses the practice to loot the SOE budgets as much as it ever does to promote real BEE.
Nene has also been going after the SABC’s Motsoeneng (another person who brags widely about his relationship with the President and his untouchable status) and he (Nene) has been widely assessed to be dragging his heals on Jacob Zuma’s pet nuclear deal that in its current form would beggar the country and state finance for many years to come.
So Nene has apparently got in Zuma’s face and he is facing the axe – according to various stories including the one linked above.
When Nene was first appointed on May 24 2014 I expressed concern about his seniority in the party and questioned whether he would be able to stand up to the fiscal pressures that would be placed on him – especially in relation to his predecessors in the position and especially in our declining growth environment.
I was wrong – if anything Nene has been both stronger and more tactical in his attempts to meet the increasingly difficult targets of fiscal consolidation – given the endlessly lower levels of growth. The rating agencies, those who grade South African government debt and have recently moved us closer to non-investment grade (i.e., junk) have come to rely on the dependability of the head of the National Treasury. We have a tradition of putting some of our best ministers in the position and Nene has risen to the challenge.
The Business Day story quoted above (which might be rubbish, but chimes with several of our initial views) suggests that some “malleable” nobody by the name of Des van Rooyen from the Parliament’s finance committee could replace Nene (the closest information I could find on a web search for this character was this smarmy speech on the ANC website).
I have no idea if this is true, but have concluded elsewhere for a range of reasons and from a range of sources that Nene is vulnerable and that ‘an axe hovers over his neck’ because he has stood up to Zuma.
If Zuma gets rid of Nene, because the head of the NT has offended Zuma’s friends and he is showing opposition to Zuma’s nuclear retirement plan or legacy project he (Zuma) would be making a grave mistake – a mistake leaders who have come to overestimate their power often make.
Axing Nene will be read by the capital markets and rating agencies in exactly the terms I have described above – Nene has been exemplary in his job except when forced to concede to political pressure from the top – and even then he has skilfully manoeuvred to lessen the damage.
If Nene is axed I will be unsurprised to see us downgraded to junk by the end of 2016.
I will also be unsurprised to see political shifts against the leader (Zuma) who has finally overstepped the mark, who has heaped damage upon damage on the South African political economy, especially as regards to its reputation for probity, but who has especially damaged the reputation of the ANC.
I see from the Business Day story that the rumour is the Guptas “let the cat out of the bag” (read “announced”) the impending Cabinet reshuffle. Excuse me! This more than anything suggests (if it is true), not for the first time, that Zuma has sold our sovereignty to these shady interlopers for something a lot more than a mess of pottage.
My underlying point is that Zuma’s power is becoming more brittle and his lines of support stretched thinner and thinner. He is engaging in actions that parts of his party find repulsive and there is a point beyond which a system under stress can quickly unravel as the connections snap and the nodes pop.
I intend, in the near future, to dust off my Marxist theory.*
I am going to need a framework through which to express my growing conviction that much of our politics can be understood as a function of the collapse of the alliance of classes that underlay the national democratic revolution – and the African National Congress.
The big driver is the strongly emergent black middle class – or perhaps competing versions of that class. In the background is a sort of bad kung fu movie fight scene involving the industrial working class, various parasitic elites within the state and party, a comprador bourgeoisie and a whole mess of tribalists, proto-fascists, landless peasants and lumpen proletarians of various stripe.
(The camera occasionally flicks across the deeper shadow behind, where we almost catch a glimpse of Moeletsi Mbeki’s lurking oligarchs, watching us.)
It’s my job to have some kind of understanding of what is going on … and I will need all the help I can get theory-wise.
In the last week the ANC has given strong hints that the Labour Relations Act amendments are being held up because government wants balloting prior to strikes and a ‘forced mediation’ strike-breaking mechanism. (See here.)
Also we have the astonishing re-emergence of the (excellent) idea that we should break up Eskom and sell off some of the bits and get the private sector to build other bits. (See here … and btw I can’t help but notice how much interesting news is written by Carol Paton of Business Day.)
What’s going on?
Well, one things is government is facing further downgrades because it can’t pay its bills.
The biggest bill of all is public sector wages, which will be renegotiated before the current wage agreement expires in March 2015.
That bill will represent above 35% of non-interest government spending and the wage level the employer and the employee eventually agree upon and the degree of disruption that accompanies the bargaining is extraordinarily important for South Africa and therefore for the stability of the governing party.
Also government is burning due to its apparent inability to get the endlessly promised infrastructure built. At least part of the reason is the constant labour stoppages, for example at Kusile and Medupi.
Having lost much revenue (and political support) during the recent strikes led by Amcu and Numsa, the ANC government is forced to find a way to rewrite the terms of engagement between employer and employee.
Also Eskom is bleeding … or potentially bleeding … government dry.
The case for privatisation is threefold: you get money from the asset sale to pay your debts, you don’t have to keep bailing out the loss-making enterprise and you get the ‘efficiencies’ (the removal of structural impediments to growth) that supposedly come from the private sector running the enterprise.
(As an aside: privatisation seldom works quite like that. This government, and the people of South Africa, have barely recovered from the the drubbing we received from the ‘private sector’ following the partial privatisation of Telkom in the 90’s. But desperate times, desperate measures … and all of that.)
The groups that traditionally oppose these policies are in disarray. Cosatu has essentially collapsed in a heap – and the most energetic sections of organised labour are actively hostile to government/ANC anyway and no longer require wooing … or rather, following Marikana and various statements of outright hostility by the ANC and government leaders, are no longer susceptible to those old sweet lies.
The forces that shaped our labour market are profoundly changed.
A growing mystery to me is where the SACP is in all of this?
So its all: hello 1996-class project, we who threw you out with the bathwater at Polokwane in December 2007 would like to apologise and welcome you back. Don’t worry, the communist are in China learning how to deal with corruption and with the labour force … you can chat to them if they ever come home.
So meanwhile here is a sort of ancestor to my questioning the ‘class character’ of the moment; a column I wrote for the Compliance Institute of South Africa in November last year:
Is this Jacob Zuma’s Maggie Thatcher moment?
I admit that on the face of it the comparison seems something of a stretch.
For example I can’t think of an ‘Nkandla’ equivalent in Baroness Thatcher’s world – although her son seemed to benefit from parental political power in much the same way as Jacob Zuma’s myriad offspring seem to be enjoying.
The point, though, is Thatcher came to power with the reforming mission to roll-back back the influence of organised labour and to make labour markets more flexible– all as part of her attempt to stop an on-going recession, bring summer to the ‘Winter of discontent’ (paralysing wage strikes by public sector unions in Britain in 1978-1979) and increase employment and economic growth.
(‘Thatcherism’ as a political-economic ideology is also considered to include attempts to keep inflation low, shrink the state – by privatising state owned enterprises – and keep a tight rein on money supply … (and is not famously concerned about employment – Ed) … but let’s leave those details aside and stick with the matter of organised labour.)
Much to my surprise there is growing evidence Jacob Zuma is forcing a showdown within the Congress of South African Trade Unions (Cosatu) – and between the members of the ruling alliance (the ANC, the SACP and Cosatu).
Since 1994 it has been a good bet that tensions in the ruling alliance would flare up and then subside – but that the constituent ideological factions and organisations would always back off from a real split.
The ruling alliance has always seemed to me like a vaguely unhappy marriage that none of the parties have the resources or discipline to leave.
I have been covering South African politics and financial markets since 1997 and in 1999 I commissioned this cartoon :
The original caption read: ‘She means nothing to me’, he pleaded unconvincingly. ‘You’re the one I will always love’.
The report that accompanied the cartoon – which I originally published for the then stockbroker Simpson Mckie James Capel – made it clear that the man in the middle represented the ANC and his entreaties were addressed to Cosatu and the SACP … while his real passion (and the furtive fumbling behind his back) was for business, global and domestic. (Cathy Quickfall drew the cartoon and 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.)
It has looked for many years as if the dysfunctional relationship would continue for ever – that the parties involved (both the institutions of the ANC, the SACP and Cosatu but also the myriad ideological factions that exist across those organisations) have more to gain from being inside and more to lose from being outside.
But, surprisingly, it appears that the ruling faction within the ANC (the incumbent leadership, represented by Jacob Zuma) appears to have finally drawn some kind of line in the sand with the ‘left’ unions within Cosatu, most obviously the National Union of Metalworkers of South Africa.
The first signs that this was happening appeared when evidence surfaced that Jacob Zuma’s allies within Cosatu were moving against Zwelinzima Vavi, the now suspended secretary general and strident ‘left’ critic of corruption in the ANC and critic of the slightly more business-friendly economic policy (particularly the National Development Plan) of the Zuma government … (remembering that this was written late last year and Vavi has now been reinistated … sort of – Ed).
At first it appeared that Vavi would be got rid of by being accused of corruption or some form of financial mismanagement related to the sale of Cosatu House for a price less than it was worth. While that investigation was still on-going, Vavi handed his enemies a perfect excuse to suspend him by having sex with a junior employee in the Cosatu head-office earlier this year (last year – Ed).
Since the suspension of Vavi his allies in Cosatu, especially the biggest affiliate (the 350 000 member Numsa) has been on a collision course with both Cosatu itself and with the ANC.
The conflict is likely to come to a head at the Numsa special congress to be held on December 13 – 16.
Why do I see this as, partly, Zuma’s Maggie Thatcher moment?
Well, Vavi’s suspension is only the proximate cause of the impending collision. The ‘real’ or ‘underlying’ causes are what are important.
Vavi, Numsa secretary general Irwin Jim, his deputy Karl Cloete – and probably a majority of Numsa leaders and shop stewards … and several other groups and leaders within Cosatu) appear increasingly of the opinion:
- that Cosatu has been bullied by the Zuma leadership into accepting policy positions with which it (generally) disagrees
- that the ANC under Zuma has attempted to turn Cosatu into a ‘labour desk’ of the ANC and the alliance summits have become nothing but a ‘toy telephone’ rather than a real joint decision making forum for the ANC/Cosatu/SACP alliance
- the policy positions with which this group disagrees are, particularly, the National Development Plan, but also e-tolling, the Youth Wage Subsidy and the ANC government’s failure to ban labour brokers. (The reasons why this ‘left’ group opposes these policy measure are crucial: they oppose the NDP because it is seen as ‘neo-liberal’ and anti-socialist; e-tolling because it is seen as covert privatisation of public infrastructure; the youth wage subsidy because it segments the labour market, threatening Cosatu’s monopoly and potentially exposing ‘protected’ Cosatu members to competition from ‘unprotected’ youth workers; and the failure to ban labour brokers because those institutions are also anathema to Cosatu’s monopoly.)
- that the ANC under Zuma has been captured by a crony-capitalist regionally based (possibly ethnic) elite bent on looting the state
- that the gamble to back Zuma against Mbeki has badly misfired
There is widespread press and analyst speculation that the tensions within Cosatu could lead to the federation splitting – and in some way or another the more specifically ‘socialist’ pro-Vavi, Numsa-based group leading Cosatu – or a piece of Cosatu – out of the ruling alliance.
In what way is this ‘Zuma doing a Maggie’?
Well, because the disgruntlements of the Vavi/Numsa group (described above) are real and represent significant shifts against organised labour by the Zuma government.
If we add to the youth wage subsidy, the NDP, the failure to ban labour brokers, e-tolling in Gauteng to the very tight budgeting for public sector wage increases mentioned in my October column I think we have a strong circumstantial case that Zuma’s ANC has moved decisively to roll-back the power of organised labour.
Why Jacob Zuma and his allies might have done this is revealed clearly in the anaemic Q3 GDP growth figures of 0.7 per cent compared to the previous quarter, or 1.8 per cent on a year-on-year basis . Almost across the board analysts and economists have ascribed most of the weakness to labour unrest, particularly in the motor vehicle sector – where the recent strikes were organised by Numsa! (Again, remember that this was written in November last year … just imagine how many exclamation marks he would have used if he had written that sentence today? -Ed)
Numsa has also helped plague Eskom’s flagship Medupi project – and has undoubtedly contributed to government’s infrastructure plans looking shaky.
The ANC’s motivation is not purely an attempt to fix economic growth – and bring to an end our own ‘Winter of Discontent’. Vavi and his allies in Numsa have harried and harassed the ANC leadership over corruption – and particularly the upgrade to Nkandla – and this has clearly helped force the hand of the Zuma ANC to drawn a line in the sand with the left-wing of Cosatu – especially as the ANC enters an election and struggles to cope with this level of internal dissent and criticism.
The resignation earlier this week of Numsa president Cedric Gina (who, unlike the majority of his Numsa colleagues, is close to the current ANC leadership: his wife is an ANC MP and he probably has similar ambitions himself) is probably an indication that the Zuma/ANC allies intend contesting Numsa’s direction in the lead-up to the Numsa special congress in December. The ANC leadership has probably decided to fight it out in Numsa – and Cosatu more generally – making sure that if/when a split occurs the faction that sticks with the ANC/Zuma/SACP is as large as possible and the faction that defects is as small as possible.
The big risk for investors and financial markets associated with a possible split in Cosatu is that Vavi/Jim group is likely to contest with unions within Cosatu that currently support the ANC and Zuma’s leadership – most obviously and most unsettlingly – with the National Union of Mineworkers which has complained repeatedly that Numsa is poaching its membership. This potential for a widespread contestation of each workplace and each economic sector between a new ‘Cosatu’ and an old ‘Cosatu’ is probably the most important threat represented by the unfolding crisis.
Politically the Vavi/Jim group will likely be campaigning against the NDP, the youth wage subsidy, e-tolling and Nkandla-style corruption just as the ANC’s election campaign peaks early next year. I do not think a split in Cosatu will translate automatically into specific electoral declines for the ANC – it is possible and even likely that Numsa members who support a split could still vote for the ANC.
However, one of the big unanswered questions is whether the defecting faction has any possibility of linking up politically with the EFF. Up until now the defecting faction linked to Vavi and Jim have unequivocally rejected the EFF on the grounds that its (the EFF’s) leadership are ‘tenderpreneurs’ (much like the Nkandla faction of the ANC) who just happen to be out in the cold.
However, the EFF’s support for nationalisation of mines and expropriation of white owned farms with or without compensation does dovetail with aspects of the Vavi/Jim faction’s essentially socialist ideology.
My own view is that in the event of a split it is possible that the Vavi/Jim faction forms a ‘labour party’ which could only feasibly contest elections in 2019.
The motivation for Thatcher moving against the unions was as much about weakening the Labour Party as it was about repairing the economy – so we shouldn’t dismiss the Zuma/Thatcher comparison purely because his motivations are mixed.
If Zuma and the ANC succeed in reducing the militancy and power of organised labour it is possible that they will have contributed in a small way to laying the grounds for an improvement in public education, for a period of recovery and even extended economic growth.
It’s a risky – and complicated – business, but it was for Baroness Thatcher as well.
* It was, in our eyes, a fine hat and we cocked it jauntily. And thus attired, and to our very great satisfaction, we successfully answered all the important epistemological questions of the day. We let the cowards flinch and traitors sneer as they boastfully proclaimed the end of history. We were history … or at least, through the complex functioning of the intelligentsia in Marxist Leninist theory … we were history’s engine made flesh. And the race wasn’t over … we were merely getting our breath back.
Some of my recent news coverage and commentary:
E-tolling and the DA’s cruel billboards
Last week Jacob Zuma signed into law the Transport Laws and Related Matters Amendment Bill – meaning the unpopular e-tolling can begin on certain Gauteng highways.
I was impressed that the President did the necessary – despite the fact that this will cost the ANC votes in the 2014 poll especially in the closely contested Gauteng and especially amongst the class of people the ANC is, supposedly, at risk of losing to opposition parties.
Of course failure to sign the law might have led to downgrades by rating agencies and an even more hostile report from the IMF … but good for him anyway!
The interesting aside is that last week huge billboards sprung up along those highways saying things like: “E-tolling – Proudly brought to you by the ANC”.
Of course that campaign is funded by the Democratic Alliance snapping with its sharp little teeth at the ruling party’s heals .
Or perhaps it is more like being savaged by a duck?
Whatever, it’s all part of the razzmatazz that is going to be seriously tiring in about four months’ time but for the moment is mildly entertaining.
Election 2014 – the Zuma swings and the Zuma roundabouts
The major weeklies continued their faintly mindless coverage of Election2014.
City Press ran with two stories about how the ANC had decided to put Jacob Zuma delivering 50 specific and successful infrastructure projects at the centre of the ruling party’s election campaign. Not quite the shock the screaming headlines claim it to be.
All the Sunday Papers covered the fact that last weekend’s National Executive Committee of the ANC nullified the previous week’s Provincial General Council of the ANC in Gauteng. At issue was that the ANC in Gauteng is clearly not delighted to have to front itself with this particular president and believes its supposedly more urbane, sophisticated urban voters would be better wooed by Thabo Mbeki, Cyril Ramaphosa and/or Kgalema Motlanthe.
Deep behind the chatter is the growing view that the Zuma-face of the ANC is unlikely to charm the middle classes. The basic reasons, according to feisty City Press editor Ferial Haffajee, are made explicit in the Gupta wedding scandal cover-up:
“(it was not) the first time the party has been damaged by our president’s careless ways and friendships, which morph too easily into cronyism and patronage. There is a long line of infractions, stretching from the arms deal and his relationship with Schabir Shaik, to the rape trial he faced (the president was acquitted), the news of a child born out of wedlock with Sonono Khoza, the splurge at Nkandla and the game-playing with the courts around the spy tapes.” (Said the delightful, clever and middle-class Ferial Haffajee in her column in City Press on 06/10/2013)
The rumour mill is constantly hinting that in certain constituencies the ANC will lose votes because of perceptions about Jacob Zuma’s cronyism and his traditionalist lifestyle choices. The hints usually suggest that the ANC’s own polling information confirm the view.
Frankly it would hardly be a big surprise if certain middle class constituencies are not enamoured with Jacob Zuma. Previous elections strongly indicate that the president is wildly popular in poorer and rural communities, so things are likely to balance out for the ANC.
What would be a surprise is if government got its act together with regard to infrastructure delivery in any meaningful way before Election2014. While a burst of energy can only be a good thing, do not expect a miraculous improvement in infrastructure delivery to result from the ANC’s election campaign.
Microlending falls from favour
Microlending as a business took a number of hits this past week. Nobel Peace Prize winner and founder of the microcredit lender Grameen Bank, Muhammad Yunus, warned that microlending to finance consumption could lock the poor into a life of poverty.
More importantly from a local perspective, Futuregrowth Asset Management’s Andrew Canter was quoted in the Business Times (06/102013) saying the company would “wind down” its exposure to microlenders, including Capitec, African Bank and other unsecured lenders on “moral grounds” (unfortunately the story doesn’t specify if Canter was purely referring to Futuregrowth’s SRI funds – which would be my expectation.) Canter, according to the paper, said: “We have always backed the responsible firms, but the industry structure has provoked industry behaviours that are not good for consumers, or in our view, the nation” … but, he said, Futuregrowth would not make a “panic exit”. “If industry practices improve, or particular players create more sustainable lending products, we will look to back them.”
The microcredit industry has always been controversial and becomes more so when consumers are struggling to make repayments in declining economic conditions. With the link having been drawn between the Marikana tragedy and the extent to which the strikers where in dire straits with regard to loan repayments, it was only a matter of time before sentiment towards the lenders would sour. With sentiment this negative, government is likely to further tighten regulatory control of the sector, especially in an election build-up.
The judiciary – it’s that Jacob Zuma problem again
In a matter almost as impenetrable as it is serious, a judicial tribunal appointed to probe Western Cape Judge President John Hlophe’s alleged attempt to influence two Constitutional Court judges to rule in President Jacob Zuma’s favour when he was fending off serious allegations of corruption got under way last week.
Amongst the complicating factors is that the two judges Hlophe allegedly tried to influence, Chris Jafta and Bess Nkabinde, have indicated they do not wish to proceed with the complaint.
I am not going to pretend to be able to analyse adequately what is going on here. Follow Pierre De Vos at his excellent blog Constitutionally Speaking for all matters relating to politics and the constitution. There is going to be a lot of complex legal argument around this matter but most constitutional experts suggest that the judiciary will be harmed almost no matter the outcome.
The point we unfortunately have to keep uppermost in our minds is that politicians, and especially their machinations in internal struggles within the ruling party, have damaged our systems of law and the institutions that are important to our democracy – from the judiciary, to the prosecutorial authority and including all state sectors directly concerned with national security (including the SAPS, crime intelligence and National Intelligence Service.) And further, such damage continues unabated as powerful groups in the ruling alliance war against each other.
I think the e-tolling saga is important precisely because my headline bastardising the denouement of John Donne’s famous poem is, in truth, wrong.
Gauteng’s road upgrade does not come for free.
The R20bn was borrowed by Sanral and lent by people and institutions (which) who assessed the risk attached to repayment on the basis that e-tolling was part of the deal.
This is a précis of what I told my clients about some of the political implications:
The North Gauteng High Court granted an urgent interdict on Saturday that will postpone the implementation of e-tolling until as late next year – and perhaps contribute to stopping it completely.
At this stage the court has ordered a full review of the process that will probably take at least two months to complete. If the court rules that e-tolling can go ahead the appeals process, all the way to the Constitutional Court, can take up to two years.
There are a number of significant risks associated with this decision .
The National Treasury itself, during the course of legal arguments, predicted dire consequences for South Africa’s sovereign risk rating and for public finances more generally.
I think they exaggerated but one could hardly blame them. The Treasury is the custodian of the public purse and its officials and political head carry the responsibility if R20bn that will no longer be raised from tolling has to be dug out from somewhere.
But the ruling is important for a deeper reason. South Africa, according to President Zuma’s State of the Nation address (and confirmed by a number of government and ANC statements in the last few months) is engaged in an infrastructure programme that is expected to cost just short of R1 trillion over the next 8 years.
This is the biggest bet for anyone hoping to invest in the country for the next ten years. Will it happen or will it – again – fizzle?
At least part of the funding model for this infrastructure programme is the ‘user pays’ system established in the planning of the Gauteng highway upgrade project. In general, I think a user pays system is a more efficient – and fairer – system of allocating capital than unwieldy central plans that draw on the central tax pile.
Further, private sector lenders funded the project on the basis of the collection of user fees – this is how they did their calculations and assessed their risk. The ruling effects government’s credibility as a borrower.
Chris Hart (economist at Investment Solutions) is reported to have dismissed this saying the delay is no big deal – less than 0.2% of planned government expenditure this year. Goolam Ballim (chief economist at Standard Bank) said if there was a contractual infringement impacting on Sanral’s ability to pay, it did not imply sovereign default risk and “will not compromise South Africa’s international credit standing in any way”.
Now those two economists are no slouches – and know more about our public finances and the basis that the rating agencies changes the investment grades of our government bonds than I ever will – but surely it is obvious that there is a degree of damage to government (and Sanral’s) credibility as a borrower? Perhaps not as much as the Treasury argued during the urgent application. But we are coming up for strike season, the Treasury has promised to hold the line on public sector wage increases, the budget is under immense pressure and R20bn is not a meaninglessly small amount.
The whole of the South African government looks weak – with the Treasury and the Department of Transport being the most obviously and immediately affected. Both are “studying the ruling” before making public statements. These issues might not swing Standard & Poor, Fitch or Moody’s against SA bonds, but there is no question that this ruling will be part of their assessment.
The risks are clearer when we look at the political back-story. There is a changed political configuration in the Ruling Alliance. The rise of Jacob Zuma was characterised by an already growing influence of Cosatu on policy making. A Thabo Mbeki led ANC would have taken a much stronger line against Cosatu’s campaign against e-tolling and would have stood much more firmly behind the Treasury’s arguments in favour. I am not necessarily cheering for that side, but I do think the Zuma administration is beholden to Cosatu in a manner that limits its options in public finance – and that limitation is being set by a very narrow interest group.
Cosatu has – as is its wont at the moment – been tactically brilliant in this campaign. It has built a classic broad front, multi-class alliance against the e-tolls and has strengthened the group made up of Zwelinzima Vavi, Irvin Jim and Numsa on the one hand and weakened the group made up of Sdumo Dlamini (Cosatu President) Frans Baleni and Num on the other. See here for more discussion on the relevant factional splits within Cosatu.
The gravitational centre of the Alliance is only weakly occupied by Zuma and “the left” in Cosatu has been able to shift the whole edifice towards itself. This is a trend that we will have to keep a close eye on during the lead-up to Mangaung, when the Zuma administration is likely to be at its most docile and weak.
And it is in this environment that Cosatu has taken on e-tolling as ‘privatisation by stealth’ and an infrastructure funding method that taps its constituency too directly. Cosatu is a sectional interest group … and is completely entitled to pursue the sectional interests of its employed worker members (employed, by definition, in ‘union jobs – and all strength and luck to them for that advantage’.)
The most important signifier issue will be how government deals with public sector wage demands over the next few months. It’s strike season, and I mentioned elsewhere, Gordhan’s budget only balanced because of the hard line he took against public sector wage increases.
To give you a sense of why that is important, this is what I said about the budget and public sector wages on February the 23rd:
Public sector wages: This is the area, to our (I wrote this with economist Sandra Gordon) mind, of least credibility with the most consequence:
Total Compensation % of total budget % yoy 2009/10 248558.0 31.8 17.7 2010/11 281619.2 33.6 13.3 2011/12 314907.2 33.9 11.8 2012/13 336959.4 33.5 7.0 2013/14 357168.2 32.7 6.0 2014/15 378148.7 32.1 5.9
Adjusted for inflation those figures in bold are heading towards zero – and remember we are talking about over 30% of the total. The public sector wage bill was R8,1bn more than budgeted for in 2011/12 and it is not an exaggeration to suggest that the whole edifice of the budget could crumble on this point.
So what? … Public sector unions set the tone for industrial bargaining throughout the economy. Our main scenario, in which 2012/13 becomes an industrial relations blood-bath, is looking ever more likely – although we await, with interest, Cosatu’s formal response to Budget 2012. This proposed spending shift – if Zuma’s ANC can hold the line – is also supportive of our construction and investment relative to consumer equity theme – with the consumer sector keeping a “look-in” by social grants increases from R105bn in 2012/2013 to R122bn 2014/15 and the promise to reassess if inflation rises further.
So the e-tolling is an ongoing threat to public finances and it is an indicator issue of how beholden … and therefore weak … Zuma’s leadership is.
But there is an upside to this story. The ANC and Cosatu did agree to postpone e-tolling after their meeting last week – and announced that they had instructed government to do this (revealingly issuing a hastily retracted statement saying they would, in fact “request government to postpone”).
But the real upside is that it wasn’t, ultimately, political weakness or fiscal slippage that led to the cancelling of e-tolling. It was judicial sensitivity to popular opposition and an assertion of the principle of the rule of law.
You will be able to tell by reading between the lines that I think e-tolling was actually the right approach, but it is clear that an unaccountable system, that never bothered to consult the public properly and that, in addition, has badly damaged its own credibility in as far as corruption and maladministration is concerned, was defeated by a judge determined to uphold legal accountability and respect for popular discontent.
It might make the Treasury’s job more difficult and it might create uncertainties about funding infrastructure development, but it has got to be positive for the South African democracy as a whole.