Best of BizNews #1 – Andrew Donaldson: Asking RW Johnson why SA hasn’t much time left

BizNews is celebrating its ninth birthday this Friday and we're looking back at the nine best-performing articles that appeared on the site. This interview with RW Johnson was particularly well read and attracted many comments, both positive and negative. But he has reached a stage in his life – at 71 – when he couldn't care less what cages he rattles. A Rhodes Scholar, historian and journalist, he acts as a canary in the South African coal mine, stabbing his cultured pen at uncomfortable realities. There were no holds barred in Weekend Argus columnist Andrew Donaldson's superb piece that followed his interview about Johnson's latest book. Warning – this is not for the politically correct..South Africa's looming crisis.By Andrew Donaldson.THE short answer to the question that is the title of RW Johnson's new book, How Long will South Africa Survive?, is roughly two years..That is when, he suggests, given the increasingly dire state of the economy, the country, cap-in-hand, will approach the International Monetary Fund for a bail-out which, in turn, will result in a regime change of some kind..It's a scenario he unpacked at the Cape Town Press Club recently as part of the hurly burly of public engagements to promote the book. It will more or less be like this:.Unemployment will continue to soar. The budget and trade deficits will continue to rise. Foreign investment along with domestic capital will continue to leave the country. Downgrading by the ratings agencies will continue, resulting in the inevitable junk bond status. With that, the cost of our debt will sharply rise to a point where it may become impossible to service the debt at all..Should these trends continue –– "and currently they are continuing" –– it was only a matter of time before government realised the headlong pitch into a debt trap could not be avoided without IMF assistance..This, Johnson believes, would signal the final failure of ANC governance –– kissing off their economic sovereignty. As he explains in the book, "For the IMF would, of course, demand conditions for its support, the government would lose control of economic policy and inevitably part of the deal would be huge spending cuts, certainly in the public service pay bill and perhaps also in social grants. In addition there would, inevitably, have to be a liberalisation of the labour market which would give the coup de grâce to Cosatu and thus the SACP. And much more besides."."And I think that this is not more than about two years away," he told his press club audience. "We are clearly heading in that direction. I don't think that government has grasped this. . . Well, [Minister of Finance Nhlanhla] Nene has grasped this, but I don't think anyone else has. I'm not pessimistic or depressed about this because I think it will be actually quite good for us. But I think we are in a situation where things have got to get a bit worse before they get better.".Two years? That's it?."Well," Johnson said in our interview later that afternoon, "I'm guessing. Everything takes a bit longer than you think. But if you look at our current situation . . . It's obviously possible that the ANC can pull themselves together and just miss the fate that I've said they were heading for, but I doubt it. Equally, I don't think that's the very worst by a long way. I think if they were to refuse that deal then, sure, you would see chaos.".* * *.THE last time Johnson stuck his neck out like with prattle of regime change was in 1977 with a book he called, oddly enough, How Long Will South Africa Survive? (The title was retained for the new work, he explained, partly for nostalgic reasons.) That earlier book provided an analysis on the survival prospects of the apartheid regime. At the time, he said, white South Africa was in a state of crisis –– this was just after the Soweto riots –– and the possibility of a regime change was on the agenda, but Johnson argued that it would take longer than most commentators suggested, and probably only in the mid-1990s..Although the new work is completely different, he argues that the country was facing a crisis once more and, again, the possibility of regime change was in the air.."I reach this conclusion on a number of grounds," he told the press club. "But I start off with the fact that there is a sort of iron law about South African history that, ever since the discovery of deep level gold, this country has worked on the basis of a steady inflow of foreign capital. It's been fundamental for our development for over a century. And if that is ever threatened, it stops, and you do get a regime change." .The last time this happened, Johnson said, was in 1985 when the rand collapsed in the immediate aftermath of then-president PW Botha's Rubicon speech. "I would argue that the change that took place in 1990 when [FW] De Klerk took over was simply ringing up what was in the till already from 1985 and then you had a prolonged period of no investment and stagnation, I remember that period very well. It was a really awful time." .Much like the period we're in now, he added. .The "very clear sign of this" was how the market just kept moving "up and up" because, although they were making "good money" and generating profits, companies were piling up cash reserves rather than reinvesting into the economy. The effect, Johnson said, was "an investment strike". .His chief point here was that the ANC government –– "although not wishing to do this" –– had repressed economic activity in various key sectors, including manufacturing, mining and agriculture. Manufacturing, as a proportion of GDP, had fallen by half since 1994. Mining had been "hobbled by all sorts of crazy laws" with the result that production was under considerable downward pressure..Farming was under the same pressure. "What should be happening is huge investment in commercial agriculture and, of course, it's not happening and you know the reasons why not. Farms are under threat of being taken away." On top of this, were other difficulties farmers faced –– electricity and water shortages, "difficult labour laws" and so on.."The net result of which," Johnson said, "has repressed economic activity and the growth rate has fallen to 2%. The fact is that it is even that high is simply due to the fact that we have the highest concentration of mineral resources in the world. And that's still what's really driving things.".Enter then the IMF. A greatly alarmed IMF. . ..* * *.In terms of Article IV of the IMF's Terms of Agreement, member states are subjected to regular inspections and appraisals concerning their obligations and duties regarding fiscal policy. In 2012, the fund's delegation to South Africa, according to Johnson, had "expressed considerable shock at Pretoria's priorities". It is one of the more startling chapters in Johnson's book, the summary of which was delivered to his press club audience as follows:."They say, 'There's this extraordinary thing. We've never seen anything like this anywhere else in the world. We've seen this huge [global] financial crisis, the downward dip in the economy, and here [South Africa] correctly increased its expenditure, that was quite right, like you should have done, that was good, but what did you spend it on? You gave your civil servants a 40% [pay] rise. I mean, people who are already in employment, quite well paid, suddenly get this enormous bonanza? This was absolutely crazy. We've never seen any other government in the world ignore its unemployed to the extent that you have just done. That money should have gone on infrastructure, it would have created new jobs. It would have been good for the economy. Yet you gave it away to people who are already at work. What on earth did you think you were doing?'."And the result, is that unemployment in South Africa has gone up more than any other middle-income developing country. I think it's quite a point when you get the fact that the ANC government is being reprimanded so solidly by the IMF for not being sufficiently sensitive to the needs of the unemployed. I mean, this is really quite a situation.".This "downward drift" was unlikely to be stopped anytime soon. "Government," Johnson continued, "will be the last people in the country to understand the nature of the economic crisis as well. Their minds are on other things. Like getting rich, staying in power, whatever. Various ANC priorities.".And so the steady march to a situation where the only way the country could pay its debt was by further borrowing.."I think there are many pressures for this. The energy crisis is obviously one. That's cutting our rate of growth. Slow growth is another. The fact that social grants are predicated on the assumption of at least 3% growth, which we're not getting, so what happens? Politically it's impossible to cut the things. But at this rate they won't be able to put them up either.."Another thing is the public sector workers who are again demanding large increases and I notice [government] has upped its pay offer from 4.8% to 7%. Now there's no way they can afford that –– 4.8% where economic growth is 2% is quite nice, really. But they've upped it to 7%.."Now Nene quite rightly said, 'We can't give you more than 4.8% because the only we can pay that is to borrow money in the financial markets abroad to pay your salaries. And if we don't do that, then we've got to cut somewhere else to pay them. So that's why we can't go more than 4.8%.'."But, as I say, they've just abandoned [Nene's thinking]. Now all these things will exert pressure towards a further downgrading, along with such crazy projects as the National Health Insurance Fund, which means enormous portions of the GDP suddenly going on a new and almost certain-to-fail project.."The new scheme for creating black industrialists is another such thing. I mean, in a situation where your manufacturing sector has fallen by half, hanging on to the industrialists you've got is quite a struggle, let alone creating new ones.".* * *.THERE would, Johnson suggested, be great resistance from certain quarters to any deal with the IMF. Their bail-out conditions would likely signal an end to Cosatu and the SACP's hold over the economy.."That means, of course, that they must resist," he said. "It's a survival of the fittest. So you can be absolutely sure that those segments of the ruling alliance will fight back tooth and nail. And of course there will be other people in the ANC who will feel the same.."This was exactly the point that was reached in Zimbabwe in the late 1990s, which ended up with [President Robert] Mugabe saying to the IMF, 'You must go to hell.' Now, all Zimbabwe's crises that have unfolded since then have basically come as a result of that one big decision.".While there may be strong political resistance to accepting an IMF bailout –– and possibly adopting a similar position to Mugabe's –– our position, Johnson claimed, was not the same as that of Zimbabwe's.."And we are not the same for two reasons. Firstly, [Zimbabwe] was a largely rural country, with two large towns, Harare and Bulawayo. If push came to shove, people could move back into the rural areas and scratch out a living on the land. It's not great, semi-starvation. But they could do it.."Secondly, they could move in their millions down here. Or, to a lesser extent, to Britain and Australia and other countries. Botswana and so forth. Now if we face anything like the same situation there's nowhere south of us to go. We don't have that safety valve. And our fundamentally urban population is not going back to the countryside. So we are much more locked in and the things that allowed Mugabe to get away with that refusal do not exist here.".And so the overwhelming pressure, Johnson maintained, to accept the IMF bailout. When that happens, he added, a coalition government would be ushered in. There are three possible coalitions. One is an uneasy DA-ANC partnership which would have to meet its obligations regarding any arrangement with the IMF..Another is a coalition between Julius Malema's Economic Freedom Fighters and the ANC . "But this is based upon a refusal [of an IMF bailout]. But if you refuse, what do you do then? I mean, you still need the money, you still need to get out of the hole you're in. There isn't actually an alternative. Now, I think if you did pursue that route, you'd end up with the dissolution of [a unitary] South African state.."The state would be progressively less able to carry out its functions and in that sort of situation I don't think that you can bet upon South Africa remaining the one country. This country was put together artificially by a lot of blood and suffering a hundred years ago. It wasn't a natural union and if the central state runs into the sort of chaos you'd get then I think all bets are off, we don't know what would happen.".The third possible coalition would be between the DA and EFF. This, Johnson suggested, would be a pragmatic way for the former to get a majority control of the large metros. "[The DA] would have to accept that," he told me, "with one or two portfolios, the EFF would make a nuisance of themselves, and so forth. You'd have to allow them to do that, appoint their little buddies here and there and so on. But if it were like Cape Town, the election after that would result in an overall majority for the DA and they'd say, thank you very much, and goodbye. So it would be five-year experiment.".* * *.AS our interview wound up, Johnson spoke at some length on the present administration's ills. His book opens with an astute analysis of Jacob Zuma's rule and his world. It is an era of "family corporate behaviour", he writes, that "has brought about the sweeping criminalisation of the South African state"; under Zuma, the party has become "directionless" and, in the words of ANC Gauteng spokesman Dumisa Ntuli, "a complete mess"..Asked if Jacob Zuma could be seen as the real legacy of Nelson Mandela's presidency, Johnson replied, "Yes, I think it's all one thing. I don't agree with the DA view that Mandela was wonderful, [Thabo] Mbeki was alright, and Zuma's terrible. I think it's all a continuous slide from the beginning.."At the moment the big truth is that since 1994 the ANC has relied upon the inherited infrastructure from white rule. Roads, airports, electricity supply, water. The whole thing. They've gradually been running it down by failing to do maintenance and so forth. No wonder the Mandela period did better because the running down had only just begun. And Zuma is getting it in the neck because now we've had 21 years of running it down and it's becoming very threadbare and worn and obvious.."Look, the ultimate truth is that, if you look at our cabinet, there probably isn't enough proper talent there to run a medium-sized town in Europe or North America.".How Long Will South Africa Survive?: The Looming Crisis by RW Johnson is published by Jonathan Ball Publishers. The Kindle edition can be found here. .This article has been republished with permission from Politicsweb..Read also: .Meet RW Johnson – SA's outspoken political conscience, the Oxford Don few really knowRW Johnson offers a turn-around plan to save SA. MUST READ!WORLDVIEW: RW Johnson has been spot on – so what's coming next?

Best of BizNews #1 – Andrew Donaldson: Asking RW Johnson why SA hasn’t much time left

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