Inherited institutions offer troubled future
Financial institutions play a critical role in economic development. By mobilising savings, they allocate funding to areas that can achieve high growth rates, creating jobs and increasing revenues for the state that are needed to fulfil its constitutional mandate.
The demise of VBS Mutual Bank is therefore to be regretted. It could have had a positive effect in rural areas, where credit in small packets and large volumes can have a huge developmental impact on rural lives. But earlier in the week the Prudential Authority’s unopposed application to the Pretoria high court to liquidate VBS was successful.
VBS played a critical role in rural communities when it started operating in 1982. The Prudential Authority’s move to protect VBS depositors’ money is commendable, but the bank’s ability to give rural communities access to a financial institution, and the mobilisation of the savings that are required for investment in a country whose economic infrastructure continues to be defined by spatial apartheid, will be sorely missed.
There were many calls for the Reserve Bank to intervene to save VBS, but those behind the calls were not in court to oppose the liquidation. Perhaps there is an appreciation that as the VBS door shuts, a window of opportunity opens for other entrepreneurs to service this market. Austrian political economist Joseph Schumpeter envisaged institutions dying and new ones emerging to offer better, faster service through innovation.
While it was relatively easy for the Prudential Authority to successfully apply for the liquidation of VBS in the prevailing circumstances, it would not be so simple with regard to troubled state entities such as the SABC, SAA, Eskom and Denel, whose futures are also up in the air.
These institutions formed the backbone of the apartheid development state, which was underpinned by cheap black labour. To deliver on its constitutional mandate as government, the ANC needed to use the state institutions it inherited from the apartheid era, including the state-owned enterprises (SOEs). Unsurprisingly, transforming the core administrations of the SOEs into vehicles for service delivery and development was a major challenge. In ‘Betrayal of the Promise: How SA is Being Stolen’, a report published by a team of leading academics from four universities, it is shown how a Zuma-centred power elite managed to capture key state institutions so they could be repurposed to subvert the constitutional and legal framework established after 1994.
Former public enterprises minister Barbara Hogan’s testimony before the Zondo commission has provided an indication of the lack of professionalism in the presidency, with no support staff in critical meetings and therefore no minute-taking or record of decisions taken, robbing researchers of critical archive material.
What is emerging is that the ANC as an organisation, through its deployment committee, facilitated the malfeasance that has defined the Zuma presidency. Speaking out against corruption within the ANC could lead to expulsion, as in the case of Bantu Holomisa.
In a country with chronic unemployment of 27.5%, the exclusion of a large part of the population from the resources of the state demands radical economic transformation.
While President Cyril Ramaphosa is trying to rescue the Zuma political project that used the term "radical economic transformation" to mask the real ambitions of a power elite that was only really interested in controlling access to rents and retaining political power, he needs to show his economic policy hand too.
He has hosted a jobs submit and an investment summit, and recently SA hosted the Africa Investment Forum. But there is no clear economic plan. As the government mulls what to do with the SOEs, there is now widespread dissatisfaction across society, and within the ANC itself, over the financial position of these institutions. Yet Ramaphosa continues to equivocate, ostensibly concerned that pulling the plug on SOEs could lead to a crossdefault that would result in all SA loans being recalled.
The state cannot burden taxpayers any further and therefore has no choice but to put privatisation on the table. This is not a debate about state-led development versus free markets, but a debate on economic survival and creating an environment that facilitates growth and entrepreneurship. Some of the proceeds of privatised state entities can be used to promote economic inclusivity.
The infrastructure deficit in schools, roads, housing and health care requires SA to focus on inclusiveness through universal access. Such an approach should be underpinned by a growth strategy. However, in a country with a governing party whose cadres did not struggle to be poor and self-interest reigns, the government seems paralysed. SA is at risk of becoming a failed state. My confidence in the ability of the ANC government to fight for a better life for all is vanishing.
A Zuma-centred power elite managed to capture key state institutions