Allan Greenblo: Memories of PW Botha’s failure loom large – Will Zuma follow suit?

The commonality between the 1980s and now, according to financial journalist Allan Greenblo, is embedded in the political will to effect essential changes that challenge the mind sets of party electorates. And while PW Botha lacked the will 30 years ago, so President Zuma has yet to show if he too lacks it. And as Botha’s lack of reform lead to sanctions, will Zuma’s inaction on ‘better lives for all’ point to ‘junk’? As just as there was a flight of capital and ‘bloodbath’ on the JSE back then, so a repeat can be expected if South Africa does step off the cliff. The Government Employees Pension Fund lost R95 billion because of Nenegate, the aftermath of sub-investment grade status would make this look like child’s play. And it won’t be a political reflex, but rather a mechanical one from funds around the globe. One has to wonder, outside of Pravin Gordhan, is anyone really listening, or are they merely planning for the inevitable? Another fantastic article from Greenblo. – Stuart Lowman

By Allan Greenblo*

Allan Greenblo (Today's Trustee)
Allan Greenblo is editorial director of Today’s Trustee.

Funny, in a manner of speaking, how little is learnt from history. Paradoxically, given their long struggle of one against the other, the present ANC is exhibiting some discomfiting similarities with the previous National Party government.

Late in the day for the former, and too late for the latter, they awoke to the realisation of SA’s reliance on foreign capital. As disinvestment accelerated, and the economy stagnated, political fissures exacerbated. The effect on the once-immutable National Party was disastrous, as the ANC might do well to recall.

It was 31 years ago that then President P W Botha delivered his so-called ‘Rubicon’ address. The dire consequences were aggravated by non-delivery of the reform promises that the world had been led to expect. Similarly today, President Jacob Zuma faces a ‘Rubicon’ that he addresses by contradictions.

Nobody knows what to expect. Zuma might go one way, giving the world the reassurance it anticipated after his reappointment of Pravin Gordhan as finance minister and his high-profile meetings with private-sector luminaries.

Or he might go quite another way, to shatter business and investor confidence. The test is whether he white-ants the efforts of Gordhan (if not Gordhan himself) to assert fiscal discipline, insist on sound governance at state and state-owned enterprises, and stimulate economic growth.

Read also: Dave Steward: Internal power struggles could thwart Moody’s reprieve, push SA into ‘junk’

These are three prerequisites to avoid a relegation of SA sovereign credit to sub-investment grade. Should relegation not be avoided, junk status will herald disinvestment on a scale akin to the late 1980s.

Then, the good that came from the withdrawal of US and European bank loans hastened the demise of apartheid. This was intended. Now, the best intention of the rating agencies is to signal that no good could come from their demotion of SA’s sovereign credit to junk.

Then, Botha’s actions caused the imposition of financial sanctions. Now, Zuma has been warned. His actions will determine SA’s credit status.

As sanctions could have been avoided, junk can be too. Their commonality is in the political will to effect essential changes that challenge the embedded mindsets of party electorates. Then, Botha lacked the will. Now, Zuma has yet to show it.

Then, Botha’s reformist sentiments rang hollow. Now, Zuma’s promise to prioritise job creation – and give substance to the ANC slogan of “better lives for all” – does too. Then, Botha was eventually kicked out by once-loyal party colleagues. Now, Zuma hangs on because his grip on the organs of state and party (which Botha, like Thabo Mbeki, had lost) position him dictatorially.

Read also: Allan Greenblo: Silence of the Pension Funds – Need power of collective

Recall what happened when Botha disappointed the world. In the aftermath of his ‘Rubicon’ speech, there was a flight of capital from SA. In the ensuing debt crisis, the rescheduling of loan repayments had to be internationally mediated. Noose-like exchange controls were introduced. Commentators described a “bloodbath” on the JSE.

And the rand crashed to its lowest-ever level against the US dollar. In early July 1985, before ‘Rubicon’, one rand bought 52 US cents. In late July, immediately after, one rand bought 43,5 US cents having briefly sunk to 38,5 US cents. (At time of writing, incidentally, one rand buys 6,4 US cents.)

Everybody gets hurt. What happens with pension funds, and other savings vehicles on which millions of South Africans rely for their future wellbeing, is illustrative. Late last year, the damage by Zuma’s fleeting appointment of Des van Rooyen as finance minister caused an immediate R95bn loss to the portfolio value the Government Employees Pensions Fund alone. Then, it was able gradually to recover.

But now the cold fact is that, to focus on pension funds’ portfolios only, the big Western savings institutions are strictly mandated by fiduciary duty to steer clear of asset classes rated as sub-investment grade. These funds’ departure from SA bonds and equities will not be a political choice but a mechanical reflex.

Given the extent of their exposure to SA, the 1980s can resonate with all the social instability that resulted.

  • Allan Greenblo is editorial director of Today’s Trustee, a quarterly magazine mainly for principal officers and trustees of SA retirement funds.
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