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This is the final part of RW Johnson’s trilogy, where he reflects on his best selling book – How Long will South Africa Survive? The Looming Crisis. Johnson is adamant the dominant ANC will lose ground due to their inability to deal with crises, he refers to Gigaba and the tourist visa, the country’s four-fold annual contribution increase to the African Union or the R60 billion loan, which was converted into equity by Eskom. All these events point to an increased spending bill, and there are more (PetroSA, SAPO), which government cannot afford. Given this, Johnson expects the ruling party to take a defensive stance, which is more likely to close any ideas on dramatic reforms than encourage them. He concludes that the current predicament will be broken by some form of external intervention, either the IMF, the Chinese or Zuma’s favoured approach (according to Johnson) the BRICS bank. And given recent developments, Johnson says the Chinese are less likely, but government has spent a lot of time in the East lately. The first and second instalments of Johnson’s relfections are available. – Stuart Lowman
by RW Johnson*
The oblivious elite
It is far from clear that cabinet ministers fully comprehend the crisis they face. Three examples may suffice. Mr Malusi Gigaba, Minister of Home Affairs has imposed visa restrictions which will cause huge losses in income and jobs to the tourist industry. But Mr Gigaba is the same man who, as Minister for Public Enterprises, decided that no maintenance should be done on power stations in order to keep the lights on for the soccer World Cup. The damage done by this decision was so great that it is fantastic that he should still be a minister at all.
Or again, during the AU Summit held in South Africa in June 2015 Dr Nkosazana Zuma the head of the AU announced that because she wished to end the AU’s dependence on Western donors, South Africa’s annual contribution to the AU was to increase almost four fold to R790 million a year. Without doubt Dr Zuma would have cleared this increase with her former husband before she made such an announcement. But it was no small thing to nod through the extra spending of over half a billion rand a year in this way.
Already the settlement with the public service workers had used up the contingency reserve in the budget for several years ahead. So where would this extra half billion a year come from? It seems highly likely that this decision was made by President Zuma himself. It is hard to imagine that Finance Minister Nene was consulted, for he would have known that this money could come only from borrowing – probably from the same Western nations from which Dr Zuma was trying to disentangle the AU.
Or yet again, the Government found the R23 billion it had promised to Eskom by selling its shares in Vodacom to the Public Investment Corporation (i.e. the civil service pension fund) at a hefty 10% discount, an extremely questionable operation which merely reshuffled money within the public sector’s pockets. At the same time the government announced that it was converting its R60 billion loan to Eskom into equity. This was mere sophistry for the State already owned all the equity in Eskom. In reality this was simply a loan write-off and since this debt, repayable by Eskom, had hitherto counted amongst the State’s assets this really represented a large increase in the government’s net debt.
It is impossible to predict exactly how long it will take before this downward drift produces a major policy crunch. In essence President Mbeki’s GEAR programme was precisely engineered to head off South Africa’s possible recourse to the IMF. In the wish-fantasy Ramaphosa presidency alluded to above,Ramaphosa would introduce GEAR Mk.2 to head off recourse to the IMF again.
But GEAR met with such strong resistance that it is difficult to believe that any ANC president will wish to introduce GEAR Mk.2. The entrenched factional pressures are too strong and it might require Bonapartist means – the famous “whiff of grapeshot” – to overcome them. As I have argued in my book the crunch is much more likely to take the form of further downward drift, leading to a final downgrading of South Africa’s bonds to junk status.
I did not, in my book, give any proper timetable for this because it is so hard to predict. Assuming I am right about the failure of indigenous reform, this process is unlikely to take less than two years and it could take five years or more. The only rule about such things is that everything takes rather longer than one might at first think because of the sheer inertia of institutions: think of Greece – clearly bust with unpayable debts in 2010 and yet here we are in 2015 with nothing really resolved. As Henry Kissinger puts it ‘If a bureaucracy invests heavily enough in a particular project it is much easier to see it fail rather than to change course.’
Crawling along into crisis
What makes prediction difficult in the South African case is that although the multiple constraints and inhibitions placed on the economy by the government have slowed growth to around 1.5% per annum, at present there are few indications that this will tip over into an all-out recession. This cannot, however, be ruled out simply because the collapse in both investor and consumer confidence has been so steep that there could be a net fall in demand, particularly given the sharp fall in commodity prices. On top of that we have the end of quantitative easing and the consequent prospect of interest rate increases by the Fed, which is already creating a powerful downward pressure on the Rand.
If, optimistically, one assumes South Africa surmounts this perfect storm, the problem remains that if the country continues to crawl along at growth rates of less than 2% then unemployment grows quite rapidly, with all its attendant social ills. This in turn further shrinks demand. Moreover, much of South Africa’s spending and debt obligations are based on assumptions of higher growth: it would not take many years of growth below 2% to make the huge bill for social grants unaffordable. In truth, such low growth should have already made it quite impossible to give public service workers an 11.5% increase, as has just happened.
The fact that this has nonetheless happened is a powerful indicator both of the way that key groups within the ANC coalition can overcome all considerations of the national interest and of the government’s continuing fecklessness.
As it is, without any public announcement all manner of much mooted projects are quietly disappearing from the agenda. For example Petro-SA had earlier announced plans to buy Engen and turn it into a state owned oil company, replete with over a thousand petrol stations. It had also announced plans to build the biggest refinery in the Southern hemisphere in the Eastern Cape. Quite clearly neither of these projects will now happen. Indeed, Petro-SA has just reported a huge annual loss of R14.9 billion and its top executives have been sacked.
Since the government won’t do the obvious thing and let Petro-SA go bust, that will be another R14.9bn. added to the national debt . It is equally clear that the much discussed National Health Insurance Scheme will not actually take place. Conceivably this process of gradually dismantling elements of the government’s programme could continue over several more years as the pressures increase to cut the budget deficit and the build-up of debt.
Similarly, and contrary to government policy, there is a process of creeping privatisation. Once Telkom owned the whole national telecommunications market: now it is down-sizing dramatically as its only hope of survival. The Post Office has also lost a great deal of business and market share to private couriers. More and more companies have gone off the Eskom grid and many private individuals and businesses have their own generators.
The continuation of the present squeeze over the years ahead may achieve some short-term gains – the collapse in demand has already cut the trade deficit – but it will provide no solution for the country’s major problems and little possibility of any serious breakout from this dreary cycle.
Were South Africa a dictatorship or one party state it might be possible for such an Autumn of the Patriarch to stretch on for many years but as it is this protracted squeeze is bound to create increasing electoral pressures at a time when the dominance of the ruling party is already clearly fraying. Moreover pressure will gradually grow against further concessions even to the core groups within the ruling coalition.
Currently the ANC is reacting to this mainly by increasing its reliance on the chiefs and headmen to march what Mbeki called their “voting cattle” to the polls in support of the ruling party. The recent large pay increase for traditional leaders was partially aimed at winning over the only chiefs still holding out against the ANC, the IFP amakhosi of northern KwaZulu-Natal.
Should this be successful the result would be the further consolidation of the Zulu bloc. But one should note, too, the recent statement by the Minister for Rural Development and Land Reform, Gugile Nkwinti that the chiefs were the “de facto owners of the land” . He explained to traditional leaders that “the government had assumed that everyone knew that traditional leaders were the legitimate owners of the land” – and even offered to insert a clause to this effect into legislation . Already, one should realise, the Zuma system, based on the alliance of the Free State and Mpumalanga with KwaZulu-Natal entails keeping David Mabuza, the son of the late Bantustan leader, Enos Mabuza ,in power in Mpumalanga.
It goes without saying that this re-centering of the ANC towards the chiefs and the rural voting masses in the old Bantustans sits awkwardly with the old, radical ANC ideals and the push towards more socialist policies. More to the point, it is not an adequate electoral response to the Opposition’s challenge which will, for the both the DA and EFF, be focused on the large cities.
So in all probability the ANC will suffer losses, which will see the party fall back into a defensive crouch as it tries to hold on to what it’s got. This is not likely to make the party any more open to the idea of embarking on the dramatic reforms necessary to stop the current downward slide.
Thus the likelihood remains that the current stalemate can only be broken by some form of external intervention – either by the IMF or (less likely) the Chinese. Even President Zuma seems to agree, though he is hoping for a different external wonder-worker.
According to Mr Zuma, the Western credit-rating agencies “do not always understand” the South African economy and are too influenced by the media. And the “Western” development banks treat developing countries as their “former colonial subjects”.
But BRICS will change all that. “The BRICS development bank says whenever people in the Third World… need to do something and they need funds, they are going to be provided, without difficult conditions”. Even more dramatically, “No country will go to the BRICS bank and say “I need to be rescued” and find itself not being rescued”  This vision is so fantastical that one hesitates to let reality break in. It seems kinder to say “dream on”.
 Estimating the “true” national debt is not easy. Not only does one need to add all the debts of the SOEs to the national debt but in addition one should realise that municipal debt is expected to reach R130bn by 2016, a figure that is now escalating by at least R30bn a year. The government will be forced to shoulder these debts too unless it wants to bankrupt further scores of municipalities. The same is true of shortfalls caused by provincial over-spending. Financial Mail, 23-29 July 2015.
 Business Day, 15 July 2015.
 Business Report, Cape Times, 5 August 2014; The Herald, 13 July 2015.
* RW Johnson is an Emeritus Fellow of Magdalen College, Oxford, and was the only South African Rhodes Scholar to return to live in South Africa after the fall of apartheid. He has published twelve books, scores of academic articles and innumerable articles for the international press. His former students include three members of the current British cabinet, an editor of The Economist and a large number of leading academics and journalists. He lives in Cape Town.
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