With Competition case concluded, Zuma’s message: “Prepare to meet Construction Boom”

People like me go on about the need to embrace complexity. How we must admit we know a lot less than we think; and how each new discovery is like peeling an onion – we’re suddenly confronted with a whole new layer of stuff that was previously hidden to us. So best to know what we don’t know. The flip-side is “analysis paralysis”, the malady of researching so deeply you never get around to actually doing anything. Which is why, in a crisis, leaders ignore their advisors and often just jump in. They act in the belief that doing something is better than doing nothing. In a way that describes South Africa’s political leadership. They have seen the China economic miracle and decided to use it as a role model. Never mind the details like it being backed by an efficient public sector absent cost push pressures like BEE and funded by a massive fiscal surplus. We have been told vocally and often that SA will be turned into a giant construction site and that a R4-trillion investment awaits. This piece written for BrightRock’s ezine The Comet, considers why the infrastructure investment promise has been so slow to materialise. I’ve steered away from scuttlebuck claiming the connected elite are working out how best to line their pockets before pulling the trigger.

The Moses Mabhida stadium under construction - the boom that's promised will made the pre-World Cup  look like child's play
The Moses Mabhida stadium under construction – the boom that’s promised will made the pre-World Cup look like child’s play

By Alec Hogg*

Our neighbourhood has lost its most successful beggar. For months a legless, crumpled figure known as Zondo occupied the focal point of a busy intersection. Passing motorists happily tossed coins onto the cardboard that doubled as his seat. Despite his disability, he wore a ready smile. Only after some months did we discover why those pearly whites were so prominent.

The grinning beggar, you see, was not actually an amputee. A frustrated security guard proved it when his mobile phone recorded the beggar “growing legs” after a day’s work. His YouTube video went viral. Soon after, Zondo disappeared. Presumably for another busy intersection at the opposite end of the metropolis.

Zondo’s tale provides us with a useful insight into the murky world of economics. Strip away the Greek letters, big words and endless graphs; replace them with an appreciation of the power of incentives and suddenly the world of money and finance becomes less opaque. Zondo sat for hours in a perilous place with a painfully contorted body because of the incentive of hand-outs. A bit like the way so many in the corporate world lick their boss’s filthy boots because of the incentive of a paycheque. Yuck.

Understanding how incentives drives our behaviour also makes it easier to grasp the complexities of the national economy. South Africa is a developing country. Which, a Princeton Professor once explained to me, means political imperatives supercede economic ones. Only once a democracy reaches maturity does its citizenry vote according to economic performance. Until then, free tee-shirts and slap-up parties overcome empty political promises.

Any economist will admit that from their perspective, a dominant ruling party is a blessing. Without having to dispense vote-catching largesse, dominant political leaders are able to surpass the incentive of merely retaining power. And focus on an even more important motivator for the self-absorbed – legacy. Not just to their home village. But for the nation as a whole.

And that, dear readers, is exactly what President Jacob Gedleyihlekisa Zuma is thinking about while you read this. As shrewd a politician as Zuma might be, deep economic theory is not the former herd boy’s strongest point. He sees the world in a rather binary manner. Something which, as it happens, isn’t entirely bad – from an economic standpoint.

For Zuma sees a clear economic route map. He can learn little from the West with its Quantitative Easing and consequences of excessive capitalist zeal. But his NBF China, by contrast, has the answers. So Zuma, incentivised by his future legacy, has looked East for economic inspiration. Sending members of his cabinet to the Middle Kingdom to see how they do it. Building his country’s economic future by replicating the Chinese Way.

Beijing Style is deceptively simple. Ask a Chinese bureaucrat for their economic secret and they’ll likely answer: “First, we build a road.” In other words, it’s all about investing in infrastructure or, to paraphrase that Kevin Costner baseball movie, “If we build it, they will come.”

For as long as he discovered the Chinese Way, Zuma has been preaching a local version. Talking confidently about a R4 trillion infrastructure programme that, he promises, will transform South Africa’s fortunes. And before you ask, the money is available. National debt is comparatively modest at 43% of GDP. Comparing well to the USA, UK, and Germany over 80% and poor Japan which is over 200%.

So what’s delayed the infrastructure starting gun that Zuma and his followers believe will deliver the prosperity everyone craves?

If you’ve been anywhere near a television screen, newspaper or magazine these past couple months, it’s rather obvious. Since 2009, the people supposed to turn the country into a giant construction site have been under deep suspicion. Whispers of a construction industry riddled with collusion, cartels and greedy executives sparked the interest of the Competition authorities. An in a brilliant strategy called “Leniency”, companies were rewarded for telling on themselves (and others) by a first-to-talk-no-penalty promise.

The process uncovered some nastiness. Fines of over R1,4bn were levied. An army of accountants, paid for the by the companies themselves, went through the detailed tender documents of something 30 000 projects. They found 55 where the law was broken. That’s 55 too many. But taken in context, hardly an endemic plague of rottenness.

So the investigation is finally over. The public has been assured that the construction companies have been severely punished. So much so that they’d never dare appropriate a cent more than they are due. And can be counted on to compete with renewed vigour for their slices of the R4 trillion infrastructure investment.

It’s easy to punch holes into Zuma’s somewhat simplistic strategy. Our labour policies for starters are a universe away from incentive-driven Chinese ones. Ditto the bureaucracy, education and what we politely call work ethic. Also, China funded its infrastructure build from national savings. We’re having to borrow.

It’s got to be worth a shot. When 53% of your young people are jobless, it doesn’t help to fiddle at the edges. Zuma might be caution personified on other fronts. But he’s sold on infrastructure being the panacea for the country’s employment woes. Whatever the long term consequences, there can be little doubt of the impact a R4 trillion injection will have on an economy of about the same size. And it’s coming. Soon.

* This article is kindly republished with permission by  The Comet, the BrightRock ezine, where it first appeared.

 

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