Dr Frans Cronjé: DA has no choice – it MUST reject VAT increase or SA will fail

With his typically no-nonsense approach to important national issues, political scientist Dr Frans Cronje explains why the Democratic Alliance is right to risk sacrificing the Government of National Unity by steadfastly rejecting the ANC's proposed VAT increase. He says there are many other ways of addressing the matter – but for the DA to go along with a move Cronje regards as inexplicable, it will support policies that guarantee a continued slide in SA's economic prospects. Cronje also addresses the other significant issues of the moment in conversation with BizNews editor Alec Hogg..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..Watch here.Listen here.Edited transcript of the interview ___STEADY_PAYWALL___.Alec Hogg (00:04.878):Well, we missed Dr. Frans Cronje at BizNews number seven last week, but my goodness, we'll make sure we don't miss him next year. We'll coordinate our diaries a little better. So much has happened in the last two weeks since our last conversation, which has been viewed by more than 300,000 people—320,000 views the last time I checked. Time for a catch-up..Alec Hogg (00:35.97):I was going through it this morning, trying to see what we missed in the last two weeks, Frans. We've had a Cyril Ramaphosa article published in Foreign Affairs in Washington. Solidarity in every forum has been accused of treason for visiting Washington and speaking to congressmen there. The DA rejected the second budget, Ebrahim Rasool's outburst led to his ejection from the United States, and there was the proposed renaming of the drive. On the positive side, Paul Mashatile has stated that the ANC did not take money from Iran—he told us that at the business conference—but rather got it from businesses in South Africa, presumably from Patrice Motsepe..There've been strong arguments at BNC7 about retaining the government of national unity, and the departure of Rasool opens a door for a different ambassador in Washington—perhaps even opening up the United States for engagement. The ANC, through Mashatile, also admits that it has learned a great deal about operating in a coalition. And of course, the news in the last 24 hours is that South African troops are now pulling out of the DRC. My goodness, and that's just in two weeks! How do you keep up with all of this?.Frans Cronje (02:08.862):No, you—well, if it's what you do, you know, it's always coming in, processing the information, and trying to make sense of it. I'll add another one to your list. We polled again in June, 200,000 people, and 32% support for the ANC. And I don't think we're the only ones with numbers like that. I think there's another poll, also in the thirties, but I can't tell you the exact number. So, they're having a very hard time..Alec Hogg (02:40.162):So, Frans, what are we to make of all of this? Clearly, when all these news headlines hit you, as a South African, on one hand, you feel buffeted, thinking, "It can't get any worse." And on the other hand, there are these little glimmers of hope that suggest it could get better. But behind the scenes, with your second-level thinking—the kind of stuff you do—what are you making of all this?.Frans Cronje (03:04.99):Well, the country is just changing. It's changing very quickly. But what's causing the change is relatively well understood. In the immediate period after South Africa became a democracy, the economy performed relatively strongly—certainly compared to today or the past decade. Employment numbers increased sharply, and standards of living improved. All the indicators tell the same story: the ANC did well in many respects, and as a result, people's material circumstances were improving. Support for the ANC remained strong and even grew a bit, while protest actions decreased..What's happened in the last decade, or 15 years, leading to today, is that levels of fixed investment have dropped sharply. As a result, the country couldn't maintain the growth rates it had between, let's say, 2000 and 2008. Job growth stagnated..Think about this—during the Mandela and Mbeki years, South Africa was creating around half a million net new jobs per year. Under Mr. Ramaphosa, that's dropped to between 50,000 and 70,000. It's totally collapsed. South Africa is a free society, for the most part. You can do what you like without being charged with treason—using a contemporary example—just for being critical of the government. But when people's material circumstances don't improve, and you hold open and free elections, they start looking for alternatives. And that's what's happening now. The ANC got hammered last year, dropping to 40%. Since then, they've done absolutely nothing to address the core reason for their decline in support..Frans Cronje (05:26.238):That reason is that South Africa's fixed investment levels are too low to generate the economic growth needed to create jobs and to revive ANC support. Fixed investment is measured as a percentage of the economy, and South Africa's current number is about 15%. That's perfectly consistent with an economy growing at 1%. But if we want the economy to grow at 4-5%—and that's important because at that rate, we could reduce unemployment to 10% over the next 20 years—we need to increase fixed investment by at least 10 percentage points. From 15% to 25%..If you want to survive or thrive politically as a South African government, that should be your single objective. And if you achieve that, you'll be very politically successful and command a stable governing administration. But there's been no effort in that direction since the ANC's defeat, and as a result, its support continues to slide. What's more dramatic is that in recent polls, we tested what would happen if there were an election without Mr. Ramaphosa as the leader. The ANC support drops into the 20s. So, this is a party in serious trouble. And yet, even after last year's electoral defeat, they haven't taken action to close the fixed investment gap and boost growth. Emerging markets, on average, grow at about 4%—South Africa has been stuck at 1% for the last 15 years. Why? Because fixed investment is only at 15%..Alec Hogg (07:35.181):Hmm..Frans Cronje (07:47.974):Emerging markets generally invest 25% or more..Alec Hogg (07:52.938):Ideology seems to be trumping practicality. That's the message we keep hearing. Why does the ANC not abandon this ideology that's clearly taking it further down, and just focus on what needs to be done? Surely it's not that hard to shift that mindset?.Frans Cronje (08:16.381):It's funny, because for all that I do, I still don't really understand why the ANC allows itself to continue losing support. It's so easy to see what needs to be done to reverse this. I recently spoke to a small ANC group about where they're headed, and one point I made was that the voters who left the ANC really didn't want to. They would have preferred to vote for the ANC; it would have made them happy. But the state of the economy and their material circumstances were such that they felt they had no choice but to vote for someone else..Ideology does play a role, no doubt. You can certainly see it in some of the decisions being made. But I think a bigger issue is the structure of the ANC as an organisation. It has a very large executive committee—about 80 members, but with all the hangers-on, it's closer to 100 people. Led by Mr. Ramaphosa, who wants to find consensus. Anyone who's run an organisation will know that trying to get 100 people from different backgrounds to agree before moving forward is just unworkable. The ANC's executive is ineffective. The leader of the ANC and the country has executive powers, but in Mr. Ramaphosa's case, he's reluctant to use them..Then there's the problem of corruption. The ANC has become a vehicle for extracting cash from ventures within the party. At the lowest levels, someone might be a branch chairperson in a municipality, and at higher levels, the opportunities grow even greater. Once you're involved, it's very hard to challenge your peers—especially when they might have access to compromising information about you. So, it's a combination of ideology, poor management structure, and corruption. Even with all this, it's still hard to believe that the ANC couldn't easily recover to 50-60% support and govern the country stably on its own terms. Yet almost every decision seems engineered to ensure the party's eventual political destruction..Alec Hogg (12:01.166):Is there any hope left in all of this? The way you've unpacked it, it seems like the ANC has no future. What emerges from these ashes?.Frans Cronje (12:17.31):I wouldn't say there's only one future for the ANC. It's still very easy, even at this late stage, for the ANC to turn things around. It's elementary—they could do it. I don't think it has to go this way, but this is the direction it's heading. South Africa is a fundamentally free and open society, which distinguishes us from many other post-colonial emerging markets. In countries where the government gets into trouble, they often resort to violence or terror to stay in power. We haven't seen that here, so we're fortunate in that regard..Secondly, where the state fails in South Africa, private actors often step in to fill the gap. For example, we're allowed to install solar panels on our roofs—something that might be restricted in a more authoritarian society. There's a direct inverse relationship between blackouts and solar installations—so much so that we can almost predict the future direction of the energy sector based on these trends. We're not there yet, but things are progressing in a good direction. So, even though the ANC is taking us in a very troubling direction, there are opportunities for a way out—whether it's in coalition governments or by strengthening our private sector. The environment is dynamic and there's still room for improvement..Alec Hogg (26:09.752)So this is the hill on which the DA should sacrifice the GNU if it is to be sacrificed..Frans Cronje (26:17.117)You don't have to sacrifice the GNU. There are many options. One is… something that's quite pleasing is… sometimes at the same time, maybe I wasn't aware, but I felt the DA was kind of the guest inside the government—the government was the ANC's house, and the DA was a guest in the city. It didn't work out in the DA's favour, but the government couldn't survive without the DA's presence. It also has options. One of those options is calling a vote of no confidence in Mr. Ramaphosa. Now, that would take extreme provocation to get there, but it would have the power to do that. And a vote of no confidence in Mr. Ramaphosa in parliament would succeed. He would lose. And it would be the end of his political career..The consequences of that, given his importance to ANC support, would do great damage to the prospects of that party. And after that, it's perfectly possible to build a new coalition government, perhaps with a new ANC leadership, if it can find someone within 30 days to put forward as a presidential candidate—or even at the right point, pushing the country to new elections..The point is, the country is changing very quickly. It's changing because the government can't meet the expectations of the people for their standards of living. It can't draw in the right amounts of fixed investment because its policies are hostile to investment. The GNU is not the end point of that process. It's a potential catalyst to accelerate South Africa to a point where it has a reform-oriented government..And if that means that the GNU at times must break up and reconstitute itself differently, or perhaps trigger new elections, then that's part of the process we must move through to get to change. Obviously, there are risks involved in that. But there is no alternative to get to broad reform. If you're stuck in a situation where the question arises—well, what if the GNU is hopeless, and it keeps finding its way back to itself?.Frans Cronje (28:35.162)It's ANC and the DA, no one pushing for reforms, and the economy grows at 1% if we're lucky. Then what we'll see for a period is an accelerated process of enclave formation, where life for poorer South Africans will get a lot worse. But life for the established middle class will retain a degree of normality within these enclaves and citadels, as we've discussed..Alec Hogg (29:05.912)But given all the maths, and the way that you've sketched it, it does look like this is a period of make or break—certainly in the short term..Frans Cronje (29:15.036)Let's pause on the maths quickly—it's really interesting. The GNU has 287 seats in parliament. The DA has 87 of those. So, without the DA, you're down to 200. But it's unlikely that the Freedom Front will stick around in the GNU without the DA. So now you've got 194. Bring back ASA and Herman Mashaba, and you get to 200. Add in one or two smaller actors, and you might get to 201 or 202. So conceivably, the ANC could build an alternative GNU without the DA. But that GNU isn't going to drive reforms. Its credibility would be shot, and its popularity—along with the popularity of its partners—would collapse. The DA looks stronger going into the next election..Even with 202 seats, to get something through parliament that requires a 201+ majority, the ANC would have to have all its members on board—which it doesn't always manage. That's a perennial problem for the ANC. Another alternative the ANC has, just based on the maths, is this: if the DA walks or is turfed out, or whatever happens, and the Freedom Front goes too, the ANC and its remaining partners (around 190 seats) could try to piecemeal or nickel-and-dime legislation in parliament. Much like they've tried to do with the budget recently, but they often run into dead ends. So, they continue as a minority government. But again, no reforms would be triggered, and ANC credibility continues to slide, and that march into the 30s continues..So the way to think about the politics in that case is this: the ANC is assaulting the 30% mark from the top, while the DA is assaulting it from the bottom. There's a race to see who can get closest to 30% first. Even if the ANC creates an alternative GNU without the DA, or tries to proceed as a minority government and escapes a vote of no confidence, in the greater scheme of things, South African economic growth, internal stability, and the prognosis for reform would be pretty much the same as what we've seen in the GNU up to the point where the DA grabbed hold of the VAT question and said, "Actually, this isn't good enough." The thinking behind the DA on that is sharp, very shrewd so far..Alec Hogg (32:01.582)Thank you..Frans Cronje (32:08.542)Life point—while I'm at it—it's not just hostile to the ANC. The ANC people who are appalled at what's going on, Alec, have their heads in their hands when they think about why their party is fighting for a tax increase—of all the things to fight on. This is terrible. As the DA takes a harder line, particularly given that the ANC is not led by a particularly strong person, that encourages pragmatists within the ANC ranks to think, "You know, maybe this is something we could work with towards reform more easily than we were able to with Mr. Ramaphosa." The balance of his time in office has been with an absolute majority, and he's done absolutely nothing to raise the level of fixed investment..Alec Hogg (33:06.2)So, two things to end off with. On the one hand, Helen Zille did say coalitions start now. The way she addressed the BEE bill, the NHI, and the EWC was to say those things were from the previous parliament, so they were on the table anyway, and they'll fight them in different ways—perhaps extraparliamentarily, perhaps in court. But she said, "Now this is where coalitions begin." Do you agree with that? And the second thing is, what about the international picture? We haven't even touched on that yet. You have a potentially very strong partner in Washington if you play your cards right as South Africans, but we're just playing all the twos at the moment..Frans Cronje (33:44.358)I think there's merit to what Helen says—that the GNU starts now, because they did well in the negotiations, I thought. Afterwards, I don't think the DA and the GNU did amazing, nor is the ANC just carrying on with what brought it to its knees to begin with. Now, this VAT thing could potentially reset it. Yeah, that's probably right. On the international picture, well, it's exactly what we've been talking about. Why is the ANC holding a VAT baby in its arms? Why is it fighting with the United States? US fixed investment levels in Africa have been lagging behind China for a decade. The implications of that for the Americans could be quite serious..There's some really interesting data that came out last week—China is central to about a third of all the port developments going on in Africa right now. Africa has 50 votes in UN forums. The data network—Africa has more cities with a million inhabitants than Europe and America combined. The economy is growing faster than the developed world, outside of South Africa, which is the laggard of the continent. It's growing very quickly. This is a space where the US would want to be present. When ISIS was displaced from the Middle East, terrorism took root in Africa. Terror threat indices, which measure the extent of a terror presence, are now higher in many African countries than in the old Middle Eastern hotspots..The US does have an interest. I was reprimanded in Washington on my last visit for telling Americans what their interests in Africa are. I do that advisedly, though, by friends who said, "You don't come here and tell us why we need you," which shows how the culture there has changed..Alec Hogg (35:36.617)Mm. Mm..Frans Cronje (35:38.881)The US is behind the curve on fixed investment. If it wants to catch up to China continent-wide on fixed investment, let's say over the next decade, the quantum of dollars it would need to invest is amazing. And if we could convince it to focus those on us here, it would be enough to close our fixed investment gap to 25%. We'd be growing at 4%, and we'd be fine there. We'd see our economy back at 60% growth most likely..Now, why, Alec, are we fighting? Where will the capital come from to close the fixed investment gap? At 20 to 1, the dollar could do it. But our foreign policy is… this wasn't some ambassador off on a personal gambit. You saw it in Mr. Ramaphosa's letter in Foreign Affairs—his backing of South Africa's formation of the Hague..The presidency and foreign affairs here have positioned themselves in the Trump administration to be the spearpoint of an effort to take on the United States and bring it down. It's mad. It's not in our best interest. It has nothing to do with South Africa's national interest. But madness seems to be the theme of the season. We're going to fight the great Satan in the US and raise taxes at home. And off the back of that, the ANC expects to get back its political majority. What an extraordinary time to watch..Alec Hogg (37:18.03)Is it possible—some very smart guy suggested this to me the other day—that our foreign affairs has been captured by Muslim interests? We have, I was looking at the numbers today, 1.6% of South Africa's population, according to the 2022 census, are Muslim, 85.3% are Christian. It seems really strange for an overwhelmingly Christian country to be taking on the interests of a tiny, tiny minority. Then I had to look through it and thought, but hang on—our foreign affairs minister was a converted Muslim. Her husband, who's quite a firebrand, is the Director-General… and so on. Is it possible that's why we're doing all these crazy things and that foreign affairs has been captured?.Frans Cronje (38:05.598)I've read some compelling analyses of that. What I'd say, optimistically, is that the circle driving this mad policy towards the United States is very small within the ANC and the government. I think it's a small group, and there's a broad range of people who would completely agree with the idea of forming a constructive relationship with the United States..Look at India, for instance—it's a BRICS country, a prominent one, maintains excellent relations with Russia and China. But no one is issuing executive orders or kicking out their ambassador. Because the US isn't asking you to break ties with China or Russia, or entirely pick sides, but to stop taking actions that threaten US national security. There are common strategic interests..I've spoken before about the strategic importance of the South Atlantic and Simon's Town, being one of three points that anchor control of the Indo-Pacific. South Africa could build a very constructive relationship with the Trump administration. But here, mainstream South African media is so nasty about Trump and doesn't miss an opportunity to blame American taxpayers for the suffering of AIDS patients in South Africa. But you could think about it differently—the US does have strategic interests to protect, and the ANC has an interest in getting back into power. If it doesn't, we'll find our way through future coalitions..Even those interests—the interests of the people in the Tuli House and those of the Trump administration—aren't as misaligned as the media portrays them. It may just be a matter of changing how influential people in both South Africa and America think about their relationship..Alec Hogg (39:43.244)Mm, yeah..Frans Cronje (40:01.81)The US is behind on fixed investment. If it wants to close that gap with China across Africa, we're talking billions. If we could convince them to focus those investments here, it would be enough to close our gap to 25%, and our economy would grow at 4%. We'd be fine. But again, why are we fighting? Who else is stepping up with the necessary capital?.Alec Hogg (41:25.55)And Frans Cronje is the Chairman of the Board of the Social Research Foundation and a political and economic analyst. I'm Alec Hogg from BizNews.com..Raed also:.BNC#7: Paul Mashatile – The GNU; US-SA relations; Iran; Budget; Gauteng; corruption; EFF/MK; the future of the ANC🔒 Trump and SA's coming world of pain – John MatisonnColonel Chris Wyatt slams SA's "venomous" and "lying" politicians…

Dr Frans Cronjé: DA has no choice – it MUST reject VAT increase or SA will fail

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