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The Numsa exit from the alliance is a natural consequence of what appears to me to be a ‘Maggie Thatcher moment’ in South African politics.
(This is a loose characterisation and it purely means that I believe there is evidence that government is taking a much harder line with the union movement and is backing the private sector to do the same. As you will see in the final slide I do not think it is strictly accurate to define this moment as Thatcherite, but I do believe the metaphor has some value i.e. that Cosatu is collapsing because the ANC under Zuma is forcing it to come into line.)
Below is an extract from a piece of my weekly news commentary published just after SONA 2014 … and below that are three slides from a presentation I delivered in November last year – thanks to BNP Paribas Cadiz Securities, as always, for allowing me to republish here.
Amplats to sue Amcu for strike related damages – various news reports (17/02/2014)
Several news outlets reported on Sunday that Anglo American Platinum (Amplats) will sue the Association of Mining and Construction Union for R591m. “The company seeks payment of damages caused by Amcu’s failures to adhere to the law, damage to property, increased costs to pay protection services staff overtime, and loss of production because non-striking workers were prevented from working” – Amplats statement quoted in the Sunday Times 16/02/2014.
I think a combination of factors are making it probable that the major platinum companies will use this strike to attempt to reset the balance of power between the companies and labour in the sector. The legal action by Amplats is probably part of such a generally agreed strategy by companies in the sector.
My reasoning includes the following supporting conjectures:
- Management will not want to again make the mistakes in made in 2012. The damage suffered by the platinum companies during that year – when unions appeared to push their advantage with little resistance or any coherent counterstrategy from management – led, in part, to the state clumsily stepping in, with Marikana the centrepiece of the gruesome consequences.
- (According to various media, for example the Business Day) the platinum market is in oversupply, the companies are cash flush and the rand is weak – an ideal combination of conditions that would assist the companies ‘digging in’ and waiting for Amcu to break.
- It is increasingly clear that the union resources are stretched to the limit and strikers are carrying high levels of unsecured debt which makes both strikers and their union unable to last more than one payday
I am suggesting that the companies have tacit government support in taking a hard line with the strike. Amcu is, after all, the union that displaced key ANC ally Num and any strategy to break Amcu would probably be tacitly supported by the ruling party (although this is not something the ANC could admit to.)
Solidarity general secretary Gideon du Plessis put it best when he said Amplats’s action would restore the balance of power and send out a message that unreasonable pay demands and irresponsible union action would not be tolerated. He summarised Amplats’ intention as to “bankrupt Amcu and get rid of this militant and irresponsible union once and for all; or to send out a strong message to Amcu and all other trade unions that Amplats has had enough of union bullying; or to merely place Amcu under huge pressure to call off the strike and accept the final offer made by the companies.”
What is clear to me, is Amplats would only be behaving in the vigorous and hard-line manner if it has been given the tacit support of government. Zuma’s SONA2014 statement that “We cannot have industrial conflict that destroys the economy” is the visible spine of a deep seam of just such support.
… and then as part of the background that leads me to those conclusions, 3 slides from a presentation entitled “The Curate’s Egg” from November last year:
Herewith an extract from my recent political news update.
Strikes – turbulence as the cycle hits the secular trend
Num (the National Union of Mineworkers) has served notice on the Chamber of Mines (COM) of its intention to strike across the gold sector, beginning with the Tuesday night shift this week. Num represents 72,000 of the country’s 120,000 goldmine workers. The Chamber made a final offer of a 6-6.5% wage increase, while Num is holding out for 60%. Amcu, which is also represented in the gold sector (now 19% of workforce according to the COM, but possibly as high as 30%,) wants a 150% increase but has not announced that it intends to strike, and nor have Solidarity and Uasa.
There are ongoing strikes by workers in auto manufacturing, construction and aviation services and threatened strikes among textile workers and petrol station employees – but these strikes are, at this stage, part of the normal cycle.
I mentioned previously:
“South Africa has a predictable strike season, the timing of which coincides with the expiration of bargaining chamber agreements in different sectors of the economy. Every year it appears that a wave of strikes is enveloping the country, but at some time during the gloom, journalists twig to the fact that this happens every year – much of the flurry in normal and predictable” – April 29 2013.
Several such ‘predictable’ strikes are happening or about to happen as I write this.
However, the gold sector breakdown is outside of the normal cycle both in how far the negotiating parties are away from each (6-6.5% versus 60-150%) and in the complex game being played between Num and Amcu. Amcu has quietly welcomed the impending strike as a chance to prove that, in fact, Num does not represent the majority of workers at key mines. On Friday, Amcu president Joseph Mathunjwa said Num’s strike would “qualify” its official representivity of more than 60%. He urged that everyone should “watch this space”.
Business Report in the Sunday Independent argues that South Africa’s four biggest gold producers are hoarding cash and lining up access to more in preparing for an industry wide strike. “If we are, let’s say, bullied into a situation that we don’t like, we can ride out the storm for a very long period of time,” said Sibanye chief executive Neal Froneman in the Bloomberg sourced story.
The essence of the gamesmanship between Num and Amcu is Num must demand and win an increase via strike action that is satisfactory to its membership, and Amcu must try and undermine the strike action and argue that, anyway, the ‘demand’ in the Num led strike is inadequate. On mines where Amcu dominates (in the Carletonville region at AngloGold, Harmony Gold and Sibanye Gold) Amcu must attempt to force mines out of the central bargaining process by ensuring that no central agreement can achieve a sustainable settlement at the local mine or company level.
An interesting discussion in today’s Business Day by the always excellent Carol Paton suggests that employers with large Amcu membership, specifically at Amcu strongholds at AngloGold Ashanti’s Mponeng mine; Harmony’s Kusasalethu and Sibanye’s Driefonteing favour a lock-out because they believe Amcu will sit out the Num strike and then strike themselves once that is settled. Paton’s story suggests that by locking workers out employers force all workers into one camp. “By declaring a lockout, employers would get around this problem, through forcing Amcu into the dispute now and exhausting workers’ resources to endure a strike.”
The African National Congress, the South African Communist Party, the Congress of South African Trade Unions and the South African National Civics Organisation met in a long postponed summit over the weekend to discuss and agree upon economic policy. The premise of the discussion was “unless we make significant inroads in addressing the challenges of poverty, inequality and unemployment, the democratic constitutional gains of the first phase of our transition will themselves be eroded” – from the Summit Declaration.
The Declaration situated the discussion by arguing that:
“… stagnation continues to characterise the developed economies, there has now been a significant slowing of growth in key developing economies, including China, India and Brazil. The commodity super-cycle of the recent past is now over. This has had an impact on economies dependent upon the export of industrial minerals and coal. The attempts to refloat growth in the US with a loose money policy have created further turbulence in many developing economies like SA.”
The Summit went to some lengths to defend against the accusation that poor economic performance was in any way related failures of “the South African government, or the labour movement”. Instead, the summit declaration lists achievements in infrastructure build, land reform and youth and labour market reform.
On macroeconomic policy the summit called for:
… bold forms of state intervention, including through:
Financial regulation and control;
Progressive and redistributive taxation
Wage and income policies, and progressive competition policies that promote decent work, growth and address poverty and inequality.
A well-resourced state-led industrial and trade policy
Increased state ownership and control in strategic sectors, where deemed appropriate on the balance of evidence, and the more effective use of state-owned enterprises.
The Alliance Summit used all the right language to keep the different elements of the alliance together but said nothing that might reassure spooked investors.
The opposite is probably true. Just look at the words: “progressive and redistributive taxation”, “well-resourced state-led industrial and trade policy”, “increased state ownership” and “wage and income policies … that … promote decent work, growth and address poverty and inequality.”
This is not the language that Kgalema Motlanthe used as he attempted to pacify investors at the presidential mining lekgotla in Johannesburg last week, but it is precisely the atmosphere of mining minister Susan Shabangu’s words at the Africa Down Under mining conference Perth, Western Australia last week when she said investors had to “moderate” the rates of return they expected to earn on their investments so as to allow for the social expenditures that need to be made (Business Day August 28).
The ANC and government are increasingly schizophrenic in their attempts to keep everyone (constituents, allies and investors) happy. In trying to keep everyone happy the ANC and the government seem more likely to achieve generalised dissatisfaction.
Criminal justice system appropriately named
The lead stories in the Weeklies were indicative of a growing anxiety about the criminal justice system. The Sunday Times led with “Magistrates: drunks, thieves and killers” and the other papers all discussed National Police Commissioner General Riah Phiyega’s embarrassment after she announced the appointment of a Major-General Mondli Zuma and then quickly reversed that when she was told that Zuma (whose relationship to the President is unknown to me) was being tried for driving under the influence of alcohol, failing to comply with a traffic officer’s instructions to stop at a roadblock, escaping lawful custody, defeating the ends of justice and refusing to have a blood alcohol sample taken.
This might look like a circus but there is a darker element to the state of the criminal justice system than is not immediately obvious in these comical stories. In the Sunday Independent, journalist Nathi Oliphant writes about the security and justice sector: “President Jacob Zuma has unflinchingly stuck to his guns in promoting ‘his own’ into key positions”.
The security apparatuses and the criminal justice system more generally has been profoundly weakened by political interference and the dismaying newspaper headlines about criminality amongst magistrates and senior police generals is just the visible tip of the problem of that, in part, originates in political fiddling in the security and justice clusters and institutions.
Editor flees from Gupta TV
“Visibly terrified and hiding in a Johannesburg hotel room, the former consulting editor at ANN7 has made explosive claims about visits by channel bosses to President Jacob Zuma, where Zuma made editorial recommendations and was ‘given assurances by the Guptas this channel was going to be pro-ANC’” – reads the lead story in City Press.
Nothing, really. ANN7, or GuptaTV as it has been named in much of the South African media, continues to provide comic relief and excruciating embarrassment, in about equal measures (although I know a few professionals doing an honest day’s work there and I feel faintly protective of them). Jacob Zuma’s relationship with the Gupta brothers is probably no laughing matter, but I wouldn’t hold my breath waiting for the criminal justice system to test whether Zuma’s relationship with the Gupta brothers is in any way similar to his relationship with the Shaik brothers.
Sunday’s newspapers were more interesting from a political risk and investment point of views than normal.
This is what I thought mattered, as far as financial markets were concerned, in last week’s Mail & Guardian, the Sunday Times, Sunday Independent and City Press:
Construction industry – possible prosecution and fines for fraud and racketeering
Government and the national prosecuting authority are reported to be facing a dilemma: managers in at least 20 major constructions firms might be guilty of serious criminal practices relating to may years of in-industry collusion, but a successful prosecution of the guilty parties would rip the whole management level out of up to 20 top companies and thereby sink government’s infrastructure plans – Mail and Guardian.
The stories are covered in the Mail & Guardian and the City Press – both drawing their details from a series of leaked 2011 affidavits apparently produced by individual managers at Sefanutti Stocks when they (Stafanutti) realised that despite co-operating with a Competition Commission investigation, individual managers were likely to be liable for criminal prosecution (by the Hawks and the NPA) and that the punishment could include imprisonment.
Paul Ramaloko, Hawks spokesperson said “This case is bigger than people think. We are going to take our time and do a thorough investigation” (Mail & Guardian), but in City Press he says the investigation was in its “early stages” and that he would only comment once it had “matured”.
So What? Sounds like a political dilemma. The NPA and the Hawks are not (entirely) governed by the political priorities of government (despite apparently decisive co-ordination between the Hawks, SARS and the Public Protector in the Julius Malema fraud, money laundering and tax evasion investigation). However, government is likely to do what it can to make sure the companies survive intact – albeit compliantly chastened and grateful for leniency. Of course, the NPA and the Hawks might, alternatively, feel these managers would make good examples of how ‘old-order’ and ‘untransformed’ individuals and companies are as important sources of corruption as the ANC, its leaders, supports and structures.
Either way, the reputation and coherency of the companies concerned could be seriously impacted. However it is not clear from the news reports that there is any differentiation between, “winners and losers” … no-one appears more or less guilty than anyone else – which rather suggests the sector as a whole is risky, with no safe havens.
Key Jacob Zuma allies Atul and Rajesh Gupta (using family vehicle Oakbay Investments) are reported to be on the verge of adding a 24-hour continent-wide news channel to their media portfolio (which includes New Age newspaper) in partnership with Essel Media and an unnamed black empowerment firm. Multichoice will likely be providing the platform but purely on a commercial basis and is not expected to be partner in the venture (Mail & Guardian).
Well, one of the Guptas’ current empowerment partners is President Zuma’s son Duduzane and the Guptas themselves have become key ANC funders and power players in South African politics. The Mail & Guardian has a picture of Atul and Rajesh Gupta (who came to the country from India in the early 90’s) ensconced at the ANC’s elective conference in Mangaung in December. Obviously, the more the merrier on the news diversity front – and who says government and the ANC shouldn’t spend more money in the space? South Africa has a free and open media culture – to the point of government and ANC leadership spending a considerable amount of their time denying allegations and defending government policy against feisty attacks. It is unlikely to be harmful if government and the ANC strengthen their ability to put their point of view. Influence trading is always a feature of politics and is no worse or better in South Africa than it is in many countries across the world.
Telecommunications – new political upheavals on the cards
All the weeklies report that Communications Minister Dina Pule is about to be removed from her post in a cabinet reshuffle. At least part of the reason is because she is accused of “routing large sums of money to her alleged lover” – Sunday Independent. So many individuals are touted as possible replacements, but the one person who comes up time and against is Lindiwe Zulu. This is what the Mail and Guardian has to say about this close Zuma confidant: “Zulu has just been appointed head of the ANC’s communications and her star has been rising under Zuma. A government source said Zuma trusted her opinions. She is his adviser on international relations. ‘He likes her bravery. The way she’s handling the Zimbabwe issue in a fearless manner has impressed him.’ She is one of Zuma’s three envoys on that country.”
So what? Pule will be the third minister to exit this portfolio in four years and instability in the department has raised fears that SA will continue to wander in the policy wilderness as far as migration to digital TV, Telkom’s business plan chaos, spectrum allocation and unbundling of the local loop (to name but a few pressing policy mattings) are concerned.
Mining Indaba – policy confusion as rife as ever
The Business Times has a depressing few pages about the Mining Indaba that implied that if anything the industry is more concerned than ever about policy uncertainty. On the proposed Mineral and Petroleum Resources Development Amendment Bill: “The move has again flooded the country’s struggling mining sector with uncertainty” – Loni Prinsloo.
“On the exploration side” said Magnus Ericsson, Chairman of Raw Material Group, in the lead story, “I think it’s a general hesitation … if you find something in South Africa, what will be the BEE requirements? What are the other requirements? For some foreign investors they are seen as difficult”.
The same series of articles argues that the pressure to “quarantine” SA assets is becoming fierce. “A valuation by AngloGold Ashanti’s biggest shareholder, Paulson & Co, indicated that South Africa’s biggest gold miner could boost its share price by as much as 68% if it split out it local assets.” Elsewhere on the front page of the Business Times, the paper argues: “The true investor sentiment will be measured tomorrow (now yesterday– ed) when Sibanye (Gold Fields’ local assets – ed) lists separately.”
So what? To my mind regulatory uncertainty, especially in the minerals sector, remains the key politically driven investment risk in South Africa. The risk is being driven by pressures (felt by the ANC and government) to improve delivery and redistribution. These pressures will increase going forward and the increased regulatory burdens government is placing on private mining companies is unlikely to achieve any of government’s objectives … in fact, the reverse is more likely to be true. This is an unhappy environment for those searching for policy certainty.
Bits and pieces
- The brutal rape, torture and murder of Anene Booysen in Bredasdorp filled many column inches in all four weeklies – hoping to stimulate the kind of outrage against rape that swept India recently. Many of the stories point out that South Africa has the highest incidence of rape in the world.
- Ramphele – will she or wont she? The press is full of speculation about whether Mamphela Ramphele (former anti-apartheid activists and close friend of Steve Biko, a doctor, academic, successful businesswoman, a former director at the World Bank and former Vice-Chancellor at the University of Cape Town) will set up a political party and that that party will capture a significant percentage of urban black support. I think she might, but I doubt whether the party will make a dent on South Africa’s politics. The most likely scenario, to my mind, is Ramphele ends up in the Democratic Alliance.
- There was much speculation about what President Zuma might say in his State of the Nation address this Thursday – with a generally excited consensus emerging that Zuma is less beholden to special interest groups (post his decisive victory at Mangaung) than he was previously. I am not convinced this will lead to bold new steps. I am watching for tension between this speech and the National Budget on the 27th of February. I expect the political plans in Zuma’s State of the Nation to be at odds with Pravin Gordhan’s plans to balance the books … but I expect that tension to be hidden.
- The Mail & Guardian gave a list of who it thought is in Zuma’s inner circle: (Lakela Kaunda, Lindiwe Zulu, Mac Maharaj, Collins Shabane, Gwede Mantashe, Nathi Mthethwa and Batandwa Siswana), but then spoiled any special insight that might have given us by adding :
“Those privy to Zuma’s kitchen Cabinets say the president also has a high regard for Economic Development Minister Ebrahim Patel, National Planning Commission Minister Trevor Manuel and Justice and Constitutional Development Minister Jeff Radebe. Other key confidants include Rural Development Minister Gugile Nkwinti, Intelligence Minister Siyabonga Cwele, Cosatu president S’dumo Dlamini, Public Enterprises Minister Malusi Gigaba, KwaZulu-Natal Premier Zweli Mkhize, Finance Minister Pravin Gordhan and, to some extent, Higher Education Minister Blade Nzimande. People outside government who are in the president’s good books include businessperson Sandile Zungu, film producer Duma ka Ndlovu and businessperson Deebo Mzobe, widely considered the man behind the building of “Zumaville”, the town surrounding the president’s homestead.”
… hmmm, must have a pretty big kitchen.
I was interviewed on eCNA by the excellent Gareth Edwards yesterday about some matters relating to Mangaung, policy and succession. Catch that here.
… and here is a part of my weekly news summary from Monday morning:
- Nelson Mandela hospitalised on the eve of Mangaung conference;
- A leaked KPMG audit conducted for Zuma’s corruption trial indicates serious money from some surprising sources has flowed into the bank accounts and bonds of what Mail & Guardian is calling the “kept politician”;
- Mangaung is going to be all about economic policy – and ANC leaders are very directly signalling this, so that what is ultimately decided won’t come as too much of a shock… it is best to sit up and take notice now;
- With the presidential leadership contest all but resolved, the only interesting story is the choice between Motlanthe and Ramaphosa;
Nelson Mandela hospitalised
It only just made the Sunday papers, but: “President Jacob Zuma wishes to advise that former President Nelson Mandela has today, 8 December 2012, been admitted in hospital in Pretoria to undergo tests… As said before, former President Mandela will receive medical attention from time to time which is consistent with his age” – presidential spokesman, Mac Maharaj.
There is no direct financial market implication of Nelson Mandela’s health (he has long since stopped playing any role in relation to South African politics or policy). However, the financial markets do not list the price of every important thing. At the level of sentiment, it will be impossible to separate the growing unease about many aspects of South African politics (see below) from the failing health of the universally loved founding father of the country.
Secret audit reveals how millions flowed to President Zuma
The Mail & Guardian has placed on its website a secret September 2006 KPMG audit of fund flows into Jacob Zuma’s accounts – it is still there this morning. According to the Mail & Guardian: “The report exposes the president as a ‘kept politician’ – a financial freeloader who accepted money and favours on a routine and increasingly extravagant basis not only from his so-called financial adviser, Schabir Shaik, but also from other benefactors, including Nelson Mandela.” The report was prepared for Zuma’s now cancelled corruption trial, and has thus never been contested in court. Mac Maharaj, spokesman for Mr Zuma, said: “Much of the information that is being headlined seems to have been in the public arena already, from the Schabir Shaik trial. I’m finding it strange that it is coming up now, in this fashion.” Here for M&G report and here for the full 490 page report.
The report should not derail Zuma’s re-election at Mangaung because, as Maharaj so clearly points out, only a few details within the 400-page document are ‘new’. The ANC elected Zuma as its president at Polokwane in December 2007 at the height of public interest in the details of the recently withdrawn corruption charges against him. These details did not stop the ANC then and are unlikely to influence the Mangaung outcome now. The report does add to the gloom around the apparently out of control cronyism at the heart of the ruling party – leaving us with low levels of confidence that Zuma and his government might be able to address the serious challenges facing the country and the economy.
Economic policy is where Mangaung action is – and most of that will be about resources
You had to be watching carefully, but the top ANC leadership signalled over the weekend that economic policy will shift at Mangaung and, further, that too much attention on the leadership struggle will cause observers to miss what’s important. In the Sunday Times, Gwede Mantashe argued the toss in a story headed “Mangaung is all about the economy”; in the Sunday Independent, Jesse Duarte did the same under a headline “Mangaung will clear all confusion over ANC policy”; and in the Mail & Guardian, Jeff Radebe wrote “Mangaung turns on economics”.
In all of these stories (coordinated in line, length, content and ordering, but presenting themselves as independent pieces by these top ANC leaders), it is argued that the National Development Plan co-ordinated with the New Growth Path is central to what “needs to be done”, that state intervention is the key to job rich and equitable growth, that mineral policy is the central area of change that can be expected at Mangaung, that BEE needs review, that land reform needs radical intervention, and that the ANC must be rebuilt to guide these processes.
City Press looked more closely at the State Involvement in the Mining sector document and pointed out that private sector companies were lobbying hard against the ANC’s intention to add a resource rent tax and to control the price of mineral inputs into the domestic economy – but that they (private sector companies) are unlikely to stop or significantly curtail the ANC’s plans.
So what? As we have stated (perhaps repetitively), the ANC is likely to recommend a rise in taxes in mining (or rather a shift to a resource rent tax regime that will have the same impact) and it (the ANC) is likely to decide on taxes on “unbeneficiated” mineral exports to secure supplies for domestic manufacturing combined with price controls as a stimulus to domestic manufacturing. And this is just in relation to the mineral sector. There are plans for state intervention across several sectors and we believe these will have serious impacts on investment in South Africa – many negative, some positive, but generally different across sectors.
Cyril Ramaphosa versus Kgalema Motlanthe
All the newspapers reviewed here (and several online sources) discussed in detail the fact that the Zuma camp has essentially nominated Cyril Ramaphosa for deputy president – making him a dead certainty for president in 2017 (if it plays that way).
So what? The Mangaung presidency issue is settled and the only interesting bit (as far as the electoral process is concerned) is the election of the deputy president.
The Zuma camp is entirely in control of the president/deputy choice, so when we analyse what might happen we have to ask: what is the imperative of the Zuma camp?
Well, that’s an easy one: to ensure that the corruption charges do not return and that the candidate and his continued ownership of his (and his camp’s/family’s) acquired assets remains secure even after Zuma has left office.
So which deputy choice could better ensure this outcome?
Would a President Ramaphosa eventually, following the logic of the Constitution and the law, and impelled by some hope for his own legacy, end up allowing Zuma to be charged for the original corruption charges?
I think Ramaphosa might, although I would not feel entirely confident that the Zuma camp could not construct a deal that keeps him (Ramaphosa) beholden long enough to ensure the achievement of the imperative stated above.
I don’t think Motlanthe would pursue the corruption charges. He is a man who hates having to take decisions that “divide the house”. Taking down Nkandla is going to require something even more invasive and destructive than taking down Polokwane. I cannot see Motlanthe as the author of such a story.
As things stand, the nominations indicate that Ramaphosa will be elected as Zuma’s deputy. However, a last-minute ‘unity’ compromise might easily allow the Zuma camp to appoint the probably more pliable Motlanthe as deputy.
It is no easy matter to explain how a paragraph from Michael Ondaatje’s poem “The Cinnamon Peeler” speaks to me about the ANC’s economic policy process.
The poem is a sensual delight – quite unlike the ANC’s policy discussion.
Anyway … here is the relevant paragraph:
what good is it to be the lime burner's daughter left with no trace as if not spoken to in the act of love as if wounded without the pleasure of a scar.
(Catch the whole poem here – you will be glad you did)
Who could have believed anything other than that the ANC’s recent policy conference was a momentous event, a sharp delineation between one stage and another?
The promise was in the ‘economic freedom in our lifetime’ campaign, the calls for nationalisation of land and mines, the National Development Plan and the ANC’s policy discussion documents themselves.
The sense that some big change was imminent built towards the conference and then the news flow from the event spoke of deep geological shifts; shudders that shook the body politic.
And then … nothing.
Or rather the shifts were so subtle that it all felt like a new version of Kremlin watching (that popular art – masquerading as science – peddled by professional Western political analysts and historians circa 1955-1988 of predicting the future of global politics from who stood where on Soviet platforms).
Carol Paton, writer at large at Business Day, covered the recent ANC policy conference in a piece that should be required reading for anyone who wants to understand the subtleties – and intrinsic weaknesses – of the process.
She argues that little has actually changed in ANC economic policy since the first conference after the unbanning in 1992 – and what has changed is slight and nuanced.
Paton’s more general point is that the discussion is inherently flawed:
Economic debate in the ANC occurs in a strange, abstract and ahistoric vacuum without reference to what really happens in an economy. For most of those involved in the discussion — who are delegates from branches but also often public representatives — the sole reference point for how change might be effected in society is through the exercise of political power.
Paton argues that almost none of the ANC members and leaders involved in policy discussion “have had the experience of running or managing an operational business or even of operating in the economy in any way other than as a public representative or government official.”
The article is well worth a read – catch it here.
For me the important bit is the disjuncture between the promise/threat of radical change and the actual outcomes.
As we head towards Mangaung it is likely that noise arising from the ANC internal politics will once again begin to imply that we might be heading towards some radical discontinuity in economic policy.
Obviously our markets will be weaker than they otherwise would have been because of this sense of uncertainty.
I am fairly certain that come the morning after Mangaung we will comb our body for a trace of the change we thought must be a consequence of that event that presents itself as so profound … but we will find that we have been wounded without the pleasure of a scar.
But unlike kid’s telescopes – which, like kid’s microscopes, were blurry and disappointing and stupid – the kaleidoscope was a device of astonishing power and beauty.
The simple expedient of twisting one end caused visions of astonishing, luminous, grandeur to pour out the other.
I can still feel that tingling as if I was balanced on a precipice, reaching out to shape a whole universe; causing tectonic shifts in the intrinsic structure of reality … okay, maybe not that last bit … but you get the point.
Such power … and I had absolutely no idea how it worked.
My “device of power and beauty” was a semi-rigid cardboard tube with loose coloured translucent beads or pebbles in the end and two mirrors running lengthways up the inside, duplicating images of the transparent junk that tumbled as the tube was rotated.
My first kaleidoscope wilted in my sweaty, meglomeniacal hands a few hours after I had torn it from its pretty wrapping – and I cut myself on a broken piece of mirror as I desperately pounded it to make it continue producing those wondrous images.
Which brings me to my worries about ANC policy making.
I am slightly more worried today than I was when I wrote the piece below (July 2) just after the conference.
That is partly because I have thought further about some of the issues and partly because the consensus points within the ANC seems to be slippery – and therefore uncertainty is rising.
In short my worry is that the ANC is approaching more vigorous economic intervention with the enthusiasm and growing expectations of my six-year-old self after he first looked through his pretty new cardboard tube.
I think the likelihood of this all ending in tears in increasing exponentially – and the reasons are not very different from those that caused the ruin of my first kaleidoscope and my cut finger.
I will pursue this theme (the threats involved with increasingly desperate state interventions – especially those that worsen the problems they promise to fix) in future posts, but first my initial take on the conference; written just after having read the particularly awful English language Sunday newspapers of July 1:
Much ado – and confusion – about the ANC policy conference
The teams of journalists from the political desks at the Mail & Guardian, the City Press, the Sunday Times and the Sunday Independent could have been covering different conferences given the divergence of their understanding of what went down at Gallagher Estates in the Midrand from Tuesday to Friday last week.
This is my first attempt at a distillation of the main points – partly of the coverage, partly of what was supposedly being covered:
- Debates about policy and the struggle over who will be elected to the top positions in the ANC at the National Conference in December became blurred, to the detriment of both.
- The “Second Transition” concept became associated with Jacob Zuma (even though it was penned by his factional enemy, Tony Yengeni) and its rejection by most commissions at the conference was interpreted as a set-back to Zuma’s re-election campaign.
- The power struggle obscured the fact that there was general consensus that transformation is “stuck” and radical and urgent action to hurry the process along needs to be taken if the ANC is to keep the trust and support of its majority poor and black constituency.
- The report-back to plenary of the key breakaway commission on mining became the most blurred moment, when Enoch Godongwana presented a summary of the views on the state’s proposed involvement in the mining sector – with pro-Zuma provinces KwaZulu-Natal, Mpumalanga and Free State tending to go with the SIMS compromise and the other six provinces tending to support the ANC Youth League in a strengthened nationalisation position.
- When consensus is finally reached, it is likely to include an even stronger role for the state-owned mining company – perhaps giving it the right to take significant stakes in all future mining licenses issued. Absolute taxation levels might be an area of compromise between the state and the mining sector in negotiations about this matter in the final lead-up to Mangaung where policy will be formally decided.
- There was broad consensus that the state could and should force the sale of farmland for redistribution purposes and that an ombudsman be appointed to determine ‘a fair price’ – to prevent the process being frozen by white farmers holding out for better terms. It is not clear whether this would require a constitutional amendment.
- There was general consensus that the Media Appeals Tribunal is no longer necessary, that the number of provinces needs to be reduced, that the proposed Traditional Courts Bill is reactionary and against the constitutionally guaranteed rights of women and children in rural areas, and that the youth wage subsidy (as a tax break to employers) had to be sweetened, or replaced, with a grant directly to young job seekers.
- The push for “organisational renewal” will require a number of changes: a probation period of 6 months for new members, a 10 year membership requirement before such members can be elected to the NEC, a reduction of the size of the NEC from 80 to 60 members and a downgrading of the status of the Leagues (women, veterans and youth) so they more directly serve the interests of the mother body.
So if this was a soccer tournament, what is the score?
The City Press led with “Tide Turns Against Zuma”, but frankly I think this is more about that newspaper’s preferences than anything else. The ideological disputes in the ANC are complicated but broadly follow an Africanist/nationalist group versus a SACP/Cosatu/anti-nationalist group. Neither Jacob Zuma nor Kgalema Motlanthe are clearly in either camp (but Zuma tends towards the former and Motlanthe towards the latter). Only one potential challenger, Tokyo Sexwale, is firmly in one group (the nationalists, which is the ideological home of the ANC Youth League) and he has more chance of passing through the eye of a needle than winning this competition.
Only Motlanthe could seriously challenge Zuma in a succession race and despite all the rumours and leaks it is by no means clear whether he has any intention of running – or, if he did, whether he would have a significantly different policy agenda than that being pursued by Zuma and his backers.
The previous post was headlined “The ANC’s surprising return to form” and it stayed as the face of this website throughout a week in which we were reminded of the nest of corruption our president emerged from.
… oh yes, and a week when the ANC in parliament passed the Protection of Information Bill – with sneaky abstentions from three of their MPs. (Gloria Borman actually abstained, Ben Turok walked out and Salam Abram said he would have abstained if he could have made it to the sitting.)
… and a lot else has gone wrong such that it is difficult to even pierce the gloom.
Many of these issues have been done to death, but briefly on Mac Maharaj:
The Mail&Guardian weekly newspaper and the Sunday Times (and now City Press) revealed different pieces of evidence that appear to prove that French arms company Thales channeled money to Mac Maharaj, then Minister of Transport (also, crucially, architect of Zuma’s rise and key strategist behind Zuma government) a few months before Thales was awarded a credit card licence tender (worth about R265 million) by Maharaj’s department in 1996.
The more revealing points are that the alleged middleman, Zuma’s financial advisor Shabir Shaik, was sentenced to 15 years in prison for, amongst other things, securing a bribe from Thales for Jacob Zuma’s protection in the arms deal. Thales country manager Alain Thetard allegedly signed or originated both the agreement that channeled money to Maharaj through his wife Zarina as well as the encrypted fax spelling out the payment for Zuma and the protections and advocacy those payments were for.
The issue is Zuma only avoided prosecution for corruption and racketeering because it was shown that there was political meddling in the prosecution – not because there was not a prima facie case for him to answer (his financial advisor went to prison for securing the bribe for his boss … you don’t get more prima facie than that!)
The leaking of the evidence is undoubtedly linked to the conflict between Zuma and the faction of which Julius Malema is a part. In fact the Youth League has made it clear that it plans to raise issues associated with Zuma’s sexual conduct as well as the fact that his (Zuma’s) friends and family have benefited financially (and overwhelmingly) from his presidency. Some of Malema’s key backers were insiders to the arms deal scandal and it would have been an easy matter for evidence against Mac and Zuma to emerge from some of those quarters.
At the very least the accusation (and reminder) that the Zuma presidency is deeply tainted by this history will hurt his re-election bid at Mangaung.
… while the ANC itches to get more fingers on the economy
Late last week it emerged that there are proposals to tax ‘unbeneficiated’ mineral exports and to force the South African fund management industry to own a specific amount of government and SOE bonds in ‘draft of draft’ reports from the ANC Economic Transformation Committee – that were due to be discussed by the ANC NEC this weekend.
Both Bloomberg and Reuters have got hold of these, but the ‘final drafts’ take a less prescriptive approach, according to committee chair and key ANC economic policy strategist (and deputy minister Economic Development) Enoch Godongwana.
The ANC aches to get its hands on the
IDC’s Public Investment Corporation’s investment power – especially as assets under management (mostly public sector pensions) topped the 1 trillion Rand mark in March.
The prescribed assets idea and strategies to force beneficiation – all in the service of the jobs drive – have been on the fringes of government thinking for years and are flirted with in much of the motivation that led to the NGP.
I don’t think these proposals will ever be legislated in this form.
A pre-Mangaung policy conference (in May according to the Business Day and June according to Bloomberg/Reuters) will make recommendations but the decision will only be made in December 2012.
The ‘nationalisation of mines’ draft proposal was also expected to be delivered to the NEC this weekend. I haven’t seen it or read any reports about it, but I expect a shift in the tax regime, a tightening up of the Charter and a plan to strengthen the African Mining Exploration and Finance Company (AEMFC) – which is the much vaunted “state owned mining company”. Together these fall well short of the ANCYL nationalisation proposals, but still weaken the investment case for the industry as a whole.
(Note, that these ideas proposed by think-tanks within the ruling party are essentially grappling with ways to make the economy more supportive of the transformation project. The problem, though, is one of trust. Giving this ANC is led by the kind of people named in the first few paragraphs of this post, more control over central aspects of our lives feels stupid. I just don’t trust them any more.)
… Cabinet approved the publication of the Broad-Based Black Economic Empowerment Act Amendment Bill that plans to fine companies up to 10% of revenues for ‘fronting’- and allows for companies to lose points on one part of the balanced scorecard for failure to achieve targets on another.
This is the first major attempt to give B-BBEE serious teeth (outside of mining licensing where the legislative and regulatory teeth are already pretty sharp.)
My own feeling is that resources for ‘deracialising’ the SA economy are limited; cheating is a problem, but the fact that the process is too often indistinguishable from a bribe of the political class is the bigger failing the new amendments ignore.
There’s my happy little corrective for an early Monday morning.
Two brief thoughts – on a rainy Cape Town Sunday:
Firstly – a by-product of Malema’s (possible) retreat
I have a feeling that debates ranging from mine nationalisation, land distribution and continued white economic dominance in the South African economy have just been saved from the gangsters in the ANC Youth League who have been using these as a cover for looting.
It has been difficult not to lump every statement about ongoing race based inequality with the smokescreen slogans used by the ANC Youth League leadership – and many equally corrupt politicians.
The latest Commission of Employment Equity Annual Report says whites still occupy 73.1 percent of top management positions – and blacks 12.7, Indians 6.8 and coloureds 4.6? Yeah, well they would say that wouldn’t they – after all, that is (one of) Jimmy Manyi’s old outfits and he is the grandmaster of running racial interference for pillaging resources destined for development!
Willing-seller, willing buyer policy of land distribution responsible for only 5 percent of redistribution targets met? Yeah, well, guess who are trying to get themselves a portfolio of farms a la Zanu-PF?
Nationalise the mines? Yeah, so you can rescue your BEE backers and get a piece of the action yourself?
But that was last week.
Those issues are back on the agenda, but this time the discussion might be led by people genuinely looking to harness the country’s resources for development and transformation – not looters, corrupt tenderpreneurs and “demagogic populists” disguising their true intentions.
If anyone thought we could go on with the levels of unemployment, inequality, poverty and racially skewed distribution of ownership and control of this economy I suspect they will find they have been very much mistaken.
One of the consequences of the retreat of the Malema agenda is that we will all have to deal with the issues we have, up until now, been able to dismiss or deflect because they were ‘owned” and propagated by thugs.
Itumeleng Mahabane says it like it is
In a similar vein – and my favourite read of the week – was Itumeleng Mahabane’s column in Friday’s Business Day.
He deals with a variety of aspects of the country’s debates about development and transformation.
In tones that have been tightly stripped – of anger, I suspect – Mahabane appeals for the debate to lose the “prejudicial invectives” and that participants should “desist from creating cardboard villains”.
He makes 4 main points (actually he makes a whole lot more, and it is not impossible that I misinterpret him here – and he is certainly more subtle and nuanced than my summary below – so read the original column – the link again.)
Firstly he suggests (although in the form of a question, not the statement as I have it here) that we have to acknowledge the damage our Apartheid past has done our country, leaving “the inequity of our income distribution and the historic systematic destruction of black capability”.
Secondly he hints that the state cannot assume more economic responsibility before we have fixed accountability – and thereby arrested corruption.
Thirdly he appeals for a sophistication of our views on the labour market – I think by suggesting that a degree of duality is crucial.
But, he warns:
I do not subscribe to the simplistic and questionable idea that the inability to hire and fire people is the core cause of structural unemployment. The balanced high growth would create demand for labour, regardless of labour rigidity.
Fourthly he asked us analysts why:
we casually, without considering the social implications, vilify workers and the working class, making them useful villains for complex economic challenges? We almost never give view to the body of evidence that shows that market rigidity and anticompetitive behaviour is a significant factor in deterring investment and output and that, in fact, it contributes to SA’s excessive business and skilled-labour rents.
Those are important views – and an important corrective to aspects of our debate about development.
Following a previous post: The Limits of Politics I want to argue that what the ANC is becoming is less a function of the failings of its leadership and more a consequence of the titanic forces of social change.
The past and present history of the African National Congress could be characterised (in shorthand) like this:
National Liberation Movement
The ANC arose out of the fact of the prolatarianisation of an African peasantry and the deepening national oppression of all black South Africans – only codified in Grand Apartheid in 1948 but stretching back much further.
What the ANC was was a natural expression of the changing pattern of the oppression of Africans (and other black South Africans) between 1912 and 1994. One way of understanding the shape, raison d’être, policies and leadership of the ANC during this period is to trace the history of the strategy and tactics of the pre-Apartheid and Apartheid states.
Each phase of ANC resistance to colonisation and apartheid – from the initial polite depositions of the early years, to the militancy in the 50’s, the banning in 1960, the crushing of the organisation’s internal structures, the launch of the ‘armed struggle’, the imprisonment and exile of its leadership, the playing catch-up after the 1976 explosion, the United Democratic Front as an internal wing to prevent Coloured and Indians being won over to a National Party strategy leading up to mass protests, negotiation – was mirrored in the changing structure of the society.
This is not to say the ANC was a perfect expression of all aspects of African resistance or that, in turn, such resistance was a perfect response to national oppression. The shape that all things assume is always a complicated expression of subjective and objective factors and this is true too for the African National Congress.
The forces that ended Apartheid
Of course the struggle for freedom of South African people and their organisations (and their allies around the world) is one way of understanding what brought about the end of Apartheid.
But another is to ask: what was Apartheid trying to control, for what end – and why did it fail?
Apartheid was ultimately a system of law, repression and inducements designed to deflect African’s economic and political aspirations away from white owned and controlled South Africa – for the purpose of securing white economic power and security.
It ultimately failed because Africans “voted with their feet”. The National Party was trying to legislate (and police) against the collective desires and actions of millions of people. But Africans would not have their aspirations diverted to the geographical or the political Bantustans. In the face of fines and brute force Africans kept coming back to the cities, the bright lights, the markets, the chance of work and the chance to do business.
To avoid complicating this further, let me say my own shorthand understanding of what was happening (and the timing of what was happening) is the South African and global economy were growing in ways that required an educated and settled workforce and this in turn raised for African South Africans the realistic possibility of being ‘settled’, ‘educated’ and, ultimately, of achieving a better life.
Apartheid and National Party rule constituted a barrier to the swelling aspiration of African South Africans – particularly for property, assets, homes and the right to work and live where they pleased.
The ending of Apartheid and National Party rule was the bursting of the dam.
1994 and beyond – the time of the flood
The African National Congress had always been forced to root itself in a marginalised African population and this meant it faced most forms of power in the society as the challenger and the outsider.
The ANC was able to ride the wave of rising African aspirations in the 70’s and 80’s – but there was no expectation that it meet those aspirations.
Everything changed of 1994.
The government’s of Nelson Mandela and Thabo Mbeki had a mandate and responsibility to use the winning of the ‘political kingdom’ to seek the economic one. What followed was a two-pronged approached to empowering the ‘previously disadvantaged”:
- take the state bureaucracy out of white hands and put it into black ones;
- encourage transformation of ownership and control of the private sector through employment equity laws and regulations and through the development of a black economic empowerment regime.
The process very quickly assumed its own momentum and the first stratum of individuals who were sucked into the maelstrom was the political class … the senior members of the ANC and government.
Once you have begun to use the state as a lever to gain economic power it is difficult to stop.
But by the time Thabo Mbeki’s government attempted to formalise, control and broaden the process with the Broad-Based Black Economic Empowerment Act of 2003 it was out of control – and engulfing large sections of the ruling party and the senior levels of the state bureaucracy.
… and the point?
The point is not to exonerate the ANC or government or individual leaders who have become tenderpreneurs or crony capitalists. It is not even to excuse government (particularly Thabo Mbeki’s) for making specific errors in structuring the process … there were others paths that could have been taken that might have made a difference.
But the reason I suggest this vantage point or approach is because I think the hope that this process could ever have been calm or orderly is based on misunderstanding the deep, structural and historical nature of what is happening.
A flood of wealth and power is moving from the old order to the new and has blurred the boundaries between the public and private sector and is threatening to overwhelm government and the ruling party. Once the waters have achieved a new equilibrium it may be possible to re-establish a separation and rebuild the laws.
But it is going to be close.
A guest post from my friend and colleague Sandra Gordon. Sandra is a respected financial market economist and we increasingly present work as a team in what is often called “a dog and pony show” … although in our case there is some disagreement over who will be the dog and who will be the pony. Sandra is an excellent market commentator and I have known and respected her views since she was my client on the “buy side” at Nedcor Investment Bank Asset Management (Nibam) in the mid-90s.
Over to Sandra:
If there was one message from this year’s budget it is that, despite all the hype that economic transformation has finally arrived (the dreaded “shift to the left” which tends to give the financial market types sleepless nights), it’s actually probably more of a case of business as usual.
In the wake of the global financial crisis, there was serious debate worldwide about the merits of various economic growth models. In the 2010/11 Budget, Minister Gordhan noted: “The recent crisis and its aftermath have led to a serious introspection and rethinking of what were thought to be robust and superior economic models.” With the Washington Consensus in disgrace, South Africa was able to signal its intention of shifting towards a “developmental state” (essentially a more active role for government in the economy).
So it seemed South Africa was headed for a developmental state and real economic transformation. The new model was finally outlined by the New Growth Path (NGP), which was released by Minister Patel late last year. The primary aim of the NGP was the creation of five million new jobs by 2020.
This theme was echoed in the recent State of the Nation address, in which President Zuma announced a range of measures to encourage job creation.
Yet, despite all the talk of economic transformation – and the ongoing tsunami of change in the global environment – this year’s budget is essentially unchanged from the previous. The critical issues facing our economy were again identified as the twin evils of unemployment and poverty, while the best way to address them is to focus on job creation and encouraging growth in those sectors most likely to generate employment.
Admittedly this year’s budget had a greater focus on jobs than last year – with a grocery list of programmes and measures totalling R150 billion over the next three years. A key difference was also the absence of any mention of the “developmental state” – with government’s role limited to the provision of incentives and the creation of an environment conducive to growth – such as the easing of transport and logistic bottlenecks etc. Other than that, the key measures were familiar – more social spending to support the poor, huge sums for investment in infrastructure and a focus on skills development and training.
Essentially the budget delivered on the priorities laid out by the NGP – with one glaring exception: demands for a weaker rand. Minister Gordhan neatly sidestepped this particularly contentious issue by noting that government had already responded to excessive rand strength by easing exchange controls and accelerating the accumulation of foreign exchange reserves in October last year. Beyond those measures, Treasury will be “monitoring” the measures adopted by other countries – including Brazil and Thailand – which have had similar struggles with massive capital inflows and excessive currency strength. So effectively, “we’re looking into it.”
The other political hot potato that was neatly avoided in the budget was the issue of the National Health Insurance. This year’s budget included measures which “lay the foundations” for NHI. The implementation progress is going to take time – but things are undoubtedly going to get more interesting when the debate shifts to how the NHI is to be funded. Gordhan listed a range of possible funding sources including a VAT hike, a surcharge on personal income or a payroll tax. None of those options are likely to be particularly well received.
Essentially then, Gordhan was able to address all the priorities outlined in the NGP (barring rand weakness), while maintaining an element of fiscal discipline. With the deficit remaining at 5.3% of GDP in the new fiscal year – in line with the previous fiscal year but above expectations – debt servicing is now the fastest growing spending category.
While we are in a far better position than countries like America, the UK and various European economies which are slashing government spending and raising taxes, it could well be that this is our last chance to really get the economy moving. If the measures in this year’s budget deliver growth, tax revenues will ultimately rise and fiscal discipline will be maintained.
If, however, growth stagnates – perhaps due to a deterioration in the external environment – the state may find its finances stressed, providing less scope for social spending and job creation initiatives. As one analyst put it in the press this morning, this could be “the last throw of the dice”.
And it is on this front that the news is a little less reassuring.
It is positive that – amidst the global turmoil – the centre is holding and our basic economic policies remain on course. But our key weakness has always been not our policies but our inability to implement those measures. So for all the good news in this year’s budget regarding measures to encourage job creation and infrastructure investment, there have been no developments which would lead one to think that there is going to be any significant improvement in implementation and delivery.
In an increasingly unstable global environment, it is becoming ever more important that we finally start making significant progress on reducing our unemployment rate and pervasive poverty. We have the money, for now, but the ability to implement and deliver is becoming ever more critical.
With so much at stake, it looks set to be another interesting year.
The 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, 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.
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.
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.
This is the second of three articles about the New Growth Path (NGP) Framework released last week by the Ministry of Economic Development.
One of the architects (I must assume) of the NGP, Neva Makgetla (an economist long associated with Cosatu and now deputy director general in the Department of Economic Development) recently examined both the Growth, Employment and Redistribution macro-economic policy and the ‘industrial development plan’ alternative usually advanced (in my opinion) by members of the SACP.
Writing in the September 2010 special issue of the African Communist (journal of the South African Communist Party designed as a forum for Marxist-Leninist thought) Makgetla spells out what she thinks are the problems with both polices are.
Her views of what has gone before are interesting because the new policy tries to marry these frameworks by taking only the best of both.
Someone should have warned them that in policy marriages, as in human ones, you take the good with the bad … but more about that in the third post about the NGP which I will probably only get to by Monday.
The ‘anti-poverty framework’ associated with GEAR
“In effect, the transition to democracy built an implicit social compact: business would retain its property rights, and by extension its wealth and standard of living, while government would use its tax revenues increasingly to address backlogs in services for black communities left by apartheid.”
Makgetla sees the 1996 GEAR policy framework as having left in place the basic structure of the Apartheid economy.
Path dependency meant mining and finance continue to dominate and that property relations and inequality remained unchanged.
But the strategy, according to Makgetla, was attractive to successive ANC governments because it was quick to roll out and provided immediate benefits for the poor (particularly through social grants), while (hopefully) stimulating production and generating employment as the poor consume more goods and services.
“(The major benefit of the strategy) from the standpoint of the state was that it did not require explicit intervention in the economy. It relieved the government of responsibility for transforming the economy, with the associated risks of failure and potential conflict with business. Instead, government could focus on the more agreeable task of improving the lives of constituents through the more conventional public functions of providing basic services and housing.”
The risks were largely in lost opportunity – not achieving “new kinds of economic growth and by extension enhanced employment”. Because the strategy was dependent on state revenues, it was ultimately hostage to the booms and busts of the global economy.
Her key assessments of the policy are:
1. the transfers remained too small to provide the hoped improvement in the conditions of life of the poor and therefore the expected increase in demand and economic stimulation;
2. the relatively strong rand meant that new demand for manufactured goods, especially clothing, appliances and household furnishings was largely met by imports, and
3. the poor were ultimately dis-empowered and demobilised by top-down hand-outs that are central to the strategy.
Industrialisation strategy – SACP alternative
This is the policy proposal that ‘stands in’, in Makgetla’s assessment for the traditional left contribution to the policy debate. It is best revealed, in her opinion, by the Industrial Policy Action Plan (1 and 2) of the Department of Trade and Industry.
These strategies are designed to encourage production of manufactured goods, especially for export.
The industrial strategy has the potential, in her opinion, to access larger markets in order to drive mass based production, which in turn will secure more rapid growth and higher employment.
Crucially, the approach is modelled on the relatively rapid development experienced in Asia especially in the 1960s and 1970s.
The version of the strategy she deals with – which is the version in IPAP2 of the DTI – explicitly requires government to change which parts of “capital” it supports i.e. government would need to collaborate more closely with “industrial capital”, while reducing support for mining, farming and finance.
The state should focus its support on conventional manufacturing especially of capital goods, transport, electronics – and to a lesser degree “light industries” like clothing, food processing and minerals beneficiation. The policy tends to assume that services and production to meet domestic demand are inherently less competitive “and hence less desirable.”
Makgetla thinks there is high political risk for government in this strategy. The chances of failure in such an unequal society are high and if government adopts a strategy largely dependent on its effective intervention in the economy, it will get the likely flak along with the less likely kudos.
Risk is increased because the strategy is hostage to global demand for manufactured goods and RSA will be competing with China and almost every other developing country that sees this kind of strategy as central to their development path.
Finally, the industrialisation strategy supports long term economic growth but not employment and equity, which are not automatic consequences of growth. It ignores labour intensive activities like agriculture, services and construction and often leads to proposals to hold down wages to support competitiveness – she was prescient about that, but then she did help write the NGP!
On Monday I will spell out more specifically what the NGP proposes to do and I will make an assessment as to whether the policy will ever be implemented by this government and if it is, what it’s likely consequences would be.
If any of you are still with me by then, I will be surprised and you will probably be slightly sick of grandiose government policy making.