By Felicity Duncan
After reading about the electricity crisis in Venezuela and noting some striking parallels with the fate of Eskom, I got interested in the story of Venezuela’s decline and fall and the lessons it holds for South Africa.
There’s no doubt that Venezuela is in a state of near-anarchy. Millions of people have fled the country as economic refugees, and millions more have remained to face starvation, violence, and crippling shortages. What’s most striking about the anarchy is that it is almost entirely self-imposed. There was no war or natural disaster. Venezuela is a homegrown and manmade crisis.
How did it happen? Well, the tale of Venezuela’s decline stretches back several decades.
In the 1970s, it was a Latin American champion – a thriving liberal democracy with a per capita GDP just 13% lower than the UK’s. But that prosperity took a blow in the 1980s when oil prices slumped. Falling oil prices meant falling living standards and lower government spending, which fuelled growing economic discontent. Inequality rose as growth stagnated and many ordinary people felt left behind. Into this unhappy scene stepped Hugo Chávez. A charismatic populist, he spoke to ordinary people, promising to uplift the poor and make life better for those who were struggling.
Chávez swept to power in a landslide and quickly implemented a host of policies designed to appeal to the masses, such as price controls on necessities and a sweeping program of expropriation of land and businesses. He also began to systematically dismantle the trappings of democracy, jailing opponents, intimidating journalists, and rigging elections.
Chávez was able to paper over the problems these policies caused for many years thanks to booming oil prices. Flush with petrodollars and cheap loans from China, he could afford to import all the goods that Venezuelan companies stopped making when price controls made profitability impossible.
In pursuit of revolution, Chávez nationalised utilities and seized factories, oil ventures, and land. But rather than allowing them to continue to run unmolested and using the proceeds to invest in the country, he installed cronies and loyalists to manage them despite their lack of relevant skills. These cronies systematically stripped assets and loaded payrolls with Chávez allies. As a result, steel and oil production slumped, the country faced chronic water and electricity shortages, and widespread shortages of food, medicines, and consumer goods.
When Chávez died in 2013, power passed to his most loyal follower, Nicolás Maduro, in a narrowly won and controversial election. By this time, democracy was dead in all but name in Venezuela, with opposition leaders in prison, a compliant and intimidated press and parliament, and sham elections. Maduro, a student of Cuban political theory, believed in harsh political tactics and autocracy.
The crisis really got rolling, however, when the oil price began to tank. Venezuela was already dealing with falling oil output. Cronies were mismanaging oil ventures, skilled foreigners had fled, and investment had collapsed as no foreign firms would invest when they knew expropriation was rife. Thus, when oil prices fell, the bottom really fell out of the economy.
No longer able to paper the cracks, Venezuela’s internal situation deteriorated. Maduro tried to make up budget shortfalls by printing money, triggering hyperinflation – Maduro’s political opponents estimate that inflation was 1,300,000% in the 12 months to November 2018. Life has become untenable for most people – although the corrupt cronies continue to make a nice living out of bilking the rigged exchange rate and stealing oil revenues – and the capital city Caracas has become one of the most violent cities in the world. At present, the country is locked in a deep political crisis over its leadership.
In summary, then, we can say that Venezuela’s crisis can be attributed to the following:
- Over-reliance on a single economic sector (oil)
- The well-known corrupting effect of oil money
- Antidemocratic behaviour by leadership, including muzzling the press, jailing and intimidating opponents, and rigging elections
- Widespread corruption
- Hollowing-out of the economy by incompetent management of key nodes such as utilities, farms
- Economic policies that discourage investment
So, what are the warnings this tale holds for SA? And what can South Africans take comfort in?
Well, for a start, the ANC had not behaved like Chávez when it comes to issues of democracy. While the SA media is far from perfect, journalists clearly still feel free to criticise the government and expose corruption. The Zuma years were essentially one long and detailed exposé. Opposition politicians also remain free and noisy, and SA’s elections have been widely commended as free and fair. Election violence happens, of course, but politically speaking, Venezuela this ain’t.
SA also doesn’t have the blessing and curse of oil. Oil is dangerous. It’s easy to steal oil revenues and easy money breeds corruption. Oil also acts as a prop, disguising underlying economic rot until a crisis comes. SA, in fact, has a relatively well-diversified economy, with a strong services sector, decent extractive industries and agriculture, and a stub of manufacturing. It does not rely on one sector to the exclusion of all else.
That’s the good news – and it really is good news. But there’s also some bad news.
As in Venezuela, SA’s rules have a policy of deploying political loyalists to manage key economic infrastructure. And as in Venezuela, this has led to corruption and mismanagement. Deploying a political crony is not a bad thing per se, provided the person has the skills for the job and is incentivised to deliver. In China, all infrastructure is run by Chinese Communist Party loyalists. But they’re trained for the job and if they mess up, they face scary consequences. In SA, too often political loyalty has been the only qualification of those appointed to top jobs. The result? Eskom, SAA, PRASA, and the rest.
Further, SA has a tendency to implement economic policies that discourage investment, such as the troubled Mining Charter. The government is right to prioritise better economic integration for disadvantaged groups in SA – remember, those are the people who elected Chávez. But this must be balanced with the need to promote growth and investment.
SA stands at a turning point. With the election approaching, the country must decide which way to go. Politicians like Julius Malema stand ready to take on the Chávez mantle. If enough ordinary people become disillusioned, they will turn to a radical option. The ANC has shed voters by failing to deliver. When (and it seems very likely when not if) it wins the election in May, it will have one last chance to make things work. Let’s hope it learns the lessons of Venezuela and the Zuma years well.