ANC’s corruption crisis may shift debilitating economic policies – Hagedorn

CAPE TOWN — Our politics and economics, entangled in a vice-like death grip, need urgent separation which, ironically, the ruling party’s current corruption may accelerate by providing the necessary crisis. That’s the profound paradox which independent strategy adviser, Shawn Hagedorn, highlights in this astute analysis. It reassuringly highlights the emerging shift in political allegiances that must inevitably accompany Zuma’s political demise, with his younger about-to-be former allies looking to the future and reading the flag posts on the political path ahead. Finance Minister Gigaba’s picture of desolation painted in his mini-budget speech, regardless of its intent, highlights the fruits of several iterations of ANC leadership. Iterations which Hagedorn says, illustrate the counterproductive aspects of SA’s hyper-populism. Ironically, policy reversals that seemed unthinkable a mere year ago are now possible with new political blood eager to prove its worth. Whether it can flow to the extremities of the body-fiscus and get South Africans back in the job-creation trenches instead of simply redistributing existing wealth, will be the acid test. – Chris Bateman

ANC Policy Conference 2017: Tinkering with the party’s engine while the country’s wheels are coming off. More magic available at

By Shawn Hagedorn*

Jacob Zuma created a massive patronage network without benefit of a complicit finance minister. Viewing this through morality-focused lenses forfeits necessary insights.

The ANC’s policy prescriptions had become hopelessly misguided long before the Zuma era arrived. SA’s politics and economics have never aligned along a viable path.

Shawn Hagedorn

If a talented and complicit finance minister had guided the patronage roll-out, SA’s current trajectory would likely be a gradual decline extending across multiple election cycles. Instead, as the patronage system was installed with blatant disregard for financial prudence, both the cronies and SA’s misconceived economic policy precepts, which trace to the 1990s, are now quite endangered. 

While the oldest cronies can still hope to play out the clock, their younger accomplices are imminently vulnerable unless they can somehow achieve redemption through advancing SA’s interests. Consider how, against long odds, Julius Malema has earned – often begrudging – respect through significantly reinventing himself to fight corruption. While such successes will be elusive, the fact that young cronies are highly motivated to similarly demonstrate their worth, sharply improves the environment for much-needed policy reversals. 

Amid intense factional infighting, Zuma’s first crony-aligned finance minister, Gigaba, is now openly, albeit inconsistently, highlighting inherently counterproductive aspects of SA’s hyper populism. The country’s policies must sharply pivot yet, in the absence of reckless clientelism, such a pivot away from what the poor want toward what they need, would probably have been postponed for at least another decade. This would have entrenched SA’s endemic poverty for another generation.

SA’s core circumstances blunt democracy’s effectiveness. The root cause of SA’s looming economic decline is the prioritising of redistribution ahead of growth. As a majority of the country’s voters are poor, they support redistribution-focused policies. This political-versus-economics deadlock has shown no signs of being broken without a severe crisis. The sooner such a crisis arrives, the more manageable it will be.

South Africa’s finance minister Malusi Gigaba speaks during a Bloomberg Television interview in London, U.K. Photographer: Simon Dawson/Bloomberg

Recklessly managed corruption has displaced the “slow boiling frog syndrome” with an urgent crisis. This is a constructive development as is Gigaba’s expressing new found apprehension for SA’s developmental state underpinnings.

It is also time to recognise how systemic sins of commission have been accompanied by widespread sins of omission. Many of SA’s best resourced media houses and its dedicated journalists have much to be proud of, yet somehow they missed that Zuma was building a massive patronage network. It took a former professor’s well footnoted book followed by the Gupta’s leaked emails to awaken the nation. 

The two people who have most publicly chastised KPMG have provided an important public service. Should they not ask how their professions, economics and asset management, have also let SA down? 

Read also: Love him or hate him, Hain the Pain is back – this time, slaying Zupta corruption!

There are no workable growth plans being offered in large part because SA’s economists persist in perpetuating false perceptions. SA is not a wealthy country. It’s purchasing power is grossly inadequate to support the volume of poverty alleviation required. The country cannot prosper without surging value-added exports. Yet nearly all “solution” proposals are inward-looking and reflect an isolationist mindset.

SA’s private sector has mustered meagre opposition toward the nation’s unworkable economic policies. It’s high profile economists are mostly focused on capital markets and their understanding of SA’s economic development challenges has proven to be painfully inadequate. It is as if surgeons were pontificating on the virology of AIDS. 

SA’s top economists tend to be paid, one way or another, by the asset management community. This analytically robust sector has been slow to recognise that SA’s economic policies are hectically out of synch with global norms – and the world economy has been extraordinarily successful at eradicating poverty while SA has failed at this spectacularly thus risking political instability. Should the asset managers not have recognised the need to hire at least a few economists fluent in economic development basics?

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The core reasons redistribution can never work are mathematical. SA’s purchasing power is miniscule relative to the world economy’s and relative to SA’s volume of poverty. Instead of pivoting policies to surge value-added exports, SA excessively indulged consumer credit.

SA’s economists and others applauded the nation’s wisdom in avoiding much of the financial crisis of a decade ago. Yet SA was less adversely affected as its economy is much more isolated than most. Whereas so many countries wisely used the crisis to make their economies more competitive and resilient, SA reveled in its unsustainable isolation.

The collapse of African Bank was a fortuitous invitation for much needed policy reversals. Instead, the reaction of asset managers spotlighted their disinterest in understanding SA’s household economic dynamics. 

Read also: Worse than Greece! SA world’s third-slowest growing economy in last 4 quarters

SA is entirely too reliant on domestic consumption and its rescue plan for African Bank requires further over reliance on consumer indebtedness. Follow-the-money analyses show why this was always going to lead to today’s weak consumer spending. Capital market economists associate such weakness to a lack of confidence or weak sentiment. Rather, household finances are fundamentally weak. Thus domestic consumption cannot provide growth momentum. SARB, the big banks, and asset managers should have all seen this coming. 

SA’s has avoided the proven path to broad prosperity through fully integrating into the global economy. While refuting the path that has uplifted over a billion people in recent decades, SA’s leaders have indulged a misguided – and unaffordable – version of South African exceptionalism. The critical importance of blending economic development expertise with commercial vigour is ignored. 

The web of disconnects doesn’t stop there. Despite the relevance of central planning not having survived the arrival of the 21st century, SA’s policy makers resist international integration due to their inability to identify SA’s comparative advantages. In successful economies today, that is the job of small businesses. Neither central planners nor executives of large corporations are going to identify the multitudes of paths necessary to create SA’s missing nine million jobs. 

The benefit of the Zuma presidency is that it has brought forward the day when so many can atone for their sins of omission or commission by doing their bit to reconceive SA’s politics and economics.

  • Shawn Hagedorn is an independent strategy adviser. Follow him at @shawnhagedorn
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