Despite economic woes there is still place for optimism – Katzenellenbogen

Jonathan Katzenellenbogen discusses the current state of South Africa’s economy and the growing national anxiety about the country’s future. Economic hardship is increasing for most South Africans, and the failures of state-owned enterprises are becoming more and more glaring. The article explores the question of whether there is hope for the country, considering the deeply vested interests that prevent the ANC from undertaking the necessary reforms. However, Katzenellenbogen also points out that amidst the crisis, there are opportunities and sources of potential optimism, such as the increasing scope for private sector involvement and the potential for a reformist coalition to emerge as a real alternative to the ANC.


Amidst the despondency, is there hope?

By Jonathan Katzenellenbogen*

There is an intense and growing national anxiety about the country’s future.

Economic hardship is increasing for most South Africans. Unemployment is persistently high, food price inflation is rising, and the economy is flatlining. Power cuts this year are the worst so far. 

Consumer price inflation is more than seven percent, and is not expected to significantly subside for months. Rising food prices are a sure way of fueling social unrest. Former President Thabo Mbeki’s prediction of a Tunisia moment where an incident acts as a spark for widespread social unrest is credible.

Most of these trends have been under way for more than a decade, but they now show greater intensity. Economic growth has been slowing since 2007 and per capita income has been almost flat since 2010. Investment has been low, mining and manufacturing have contracted, and the state owned enterprises are a disaster. The failures are all the more glaring with Stage 6 power cuts.

Read more: SA Energy Crisis: Blackouts cost economy almost a fifth of its potential size

The real crisis is that the ANC appears incapable of turning around state failure and boosting growth and jobs. Its fundamental aim is to win the next election and ensure continued patronage for its support base. For the elite it’s government contracts, for the unions it’s pay increases, and for the voters it’s expanded social grants. This is a crisis that results from deep vested interests. 

That is precisely why it is highly unlikely that the ANC can undertake reform to the extent that is needed. It is not just a matter of its leadership.  Lack of action is due to the interest groups and ideology to which it is beholden. It won’t privatise the state-owned enterprises, free up the labour markets, crack down on corruption or substantially reduce red tape. 

In the midst of crisis, however, there is opportunity and with that there are mildly credible sources of potential optimism.

Read more: ANC in crisis: polls show steep loss of support ahead of elections – Katzenellenbogen

Fundamentally, there are two arguments behind taking a mildly optimistic view about South Africa over the longer-term. The first is that the ANC is in decline and, ultimately, there will be a coalition government in place with a vision for reform. The second is that state failure will allow greater scope for the private sector and self-reliance. Both may take some time to come about, and along the way there are big dangers.

As the country becomes more urbanised, the ANC will increasingly face structural decline. The big question is then the extent to which its supporters will stay away from the polls and the speed with which they will support other parties. 

A weakening ANC is a danger, as it is likely to double down on populist policies to gain support. A National Health Insurance scheme combined with increased grants and the distribution of land that has been expropriated without compensation are all on the ANC agenda. While South Africa’s elections since 1994 have all been free and fair, it is not clear that this will always be the case, particularly if the ANC is under pressure.

An ANC coalition with a few small parties or with the EFF is most likely after next year’s election. Either way, the ANC having to rely on support from other parties would be a sign of weakness and could further accelerate its loss of support. Even to save the country from an ANC-EFF coalition, the DA cannot both lead an anti-ANC coalition and join the ANC in coalition.

Read more: ANC-EFF coalition: Could South Africa’s two biggest parties run the country together? – Prof Dirk Kotze

The DA’s Moonshot Project to join with like-minded parties like ActionSA, the Freedom Front Plus and the Inkatha Freedom Party is not about to replace the ANC. But it could happen at the election in 2029. An ANC with greatly diluted power, greater economic hardship, and rising popular disdain for a party that betrayed the struggle could find itself out of power. 

Ultimately, it is likely that a reformist coalition can be seen by the voters as a real alternative to the ANC. That is faith, but then political optimism is always based on a degree of faith.

Another source of potential optimism is already unfolding. Private education, private security, private healthcare, more privately owned airlines, and installation of solar systems have been making up for state failures for years. The scope for private initiative will increasingly widen, whether the ANC allows it or not.

Eskom’s collapse allows greater scope for the private sector and forcing reforms. There is a plan to allow the private sector contractors to run Eskom’s coal fleet. Households and businesses are increasingly producing their own power and not relying on Eskom. 

Read more: SA’s energy market needs true free market deregulation, not Public-Private Partnerships

Municipal collapse is also paving the way for new services. In Johannesburg, a number of firms provide private fire services to those who pay a monthly subscription. The Post Office is in the process of liquidation and it is likely that the sort of services it provides will be replaced by private courier companies.

But the state-owned enterprises will remain a drag on the economy. Disasters at Transnet and Portnet are a bottleneck on exports and the South African economy. The state might eventually allow increasing private involvement in some of these, to keep critical services running. 

But the process of expanding the role of the private sector to make up for state failure will involve multiple fights. Eskom recently obtained a court order to prevent Frankfort, a small town in the Free State, from buying its power from a privately owned solar facility.

What if private medicine is actually banned with the introduction of National Health Insurance? 

The state might simply overlook this, as our rulers might also want access to the best medicine.

Where activities are banned or access to a market is restricted, black markets with high prices are to be expected. That might well be a consequence of our direction of travel. But at least goods and services will still be available. 

The success of Cape Town and the Western Cape is also a source of optimism. There are limits to what a city and provincial government might be able to achieve, but it shows up a glaring contrast between what should be done and misrule.

Read more: Premier Winde on why Western Cape outperformance on growth, jobs, security set to continue

Another source of potential optimism is that the National Treasury and the Reserve Bank are still in a position to put brakes on our descent. The Treasury is still run by technocrats and has probably dissuaded the ANC from at least a few big and disastrous spending decisions. 

And the Reserve Bank is independent under the Constitution and can do its job of ensuring control over the inflation rate. That is vital in stopping the state from ordering the central bank to print money, thus avoiding the hyper-inflation of other failed states like Venezuela and Argentina.  

If the central bank’s independence is compromised and elections are no longer free and fair, we will be in new and treacherous waters. But we are not there yet, so stay and take up the fight.

*Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist. His articles have appeared on DefenceWeb, Politicsweb, as well as in a number of overseas publications. Jonathan has also worked on Business Day and as a TV and radio reporter and newsreader.

This article was first published in Daily Friend and is republished with permission.