Cleaning up SA’s political mess
As long as the poor people living in the rural parts of the country are dependent on social grants for their survival, they will continue to support the ruling party.
the key to wresting control of the economy away from President Jacob Zuma and averting a spiral of crippling credit rating downgrades lies in winning over rural voters who are the main support base of the ANC, a panel of high-profile analysts concluded last week. But that would be difficult as this group of people – who are generally poor and unemployed – relies for their survival on social grants dished out by the government every year, the four participants warned at an event hosted by the Gordon Institute of Business Science on 19 April.
Channelling private investment into impoverished rural areas was the only way in which alliances could be built with the country’s poor majority, loosening the ANC’s grip on power, alleviating unemployment, and ensuring business sustainability, they said.
“What is missing in our society today is – how do we wrest this massive underclass from the control of voting for the ANC? You can’t do that without the capitalists investing and creating employment for this group,” said political economist Moeletsi Mbeki.
“They are so incredibly locked into state dependency. You need investment, you need private sector investment to break that dependency and that is where the business community comes in.”
Mbeki maintained that the biggest hurdle that South Africa faces now was lack of investment, which according to figures from the Reserve Bank contracted sharply last year.
He said that the main reason for reluctance by the private sector to invest was the lack of security of ownership – the main component of the political uncertainty that ratcheted up after Zuma’s shock Cabinet reshuffle late on 30 March.
In a move described by the other panellists as the “Night of the Long Knives”, Zuma axed finance minister Pravin Gordhan and eight other Cabinet members, leading to South Africa’s credit rating being quickly downgraded to junk for the first time in 17 years.
The term was used to refer to Adolf Hitler’s violent purge of political opponents in 1934 and the abrupt dismissal of seven cabinet ministers by British Prime Minister Harold Macmillan in 1962.
Iraj Abedian, CEO of Pan-African Advisory Services, said that stunned investors were reassessing their strategies and that R8bn to R9bn worth of planned investment had been put on hold.
Colin Coleman, Goldman Sachs managing director for South Africa, said that the reaction in domestic financial markets had been muted so far because at this point in time emerging markets generally were more attractive to global investors Political economist than developed markets.
But South Africa had done itself no favours and all of that would change if there were further credit rating downgrades, which would also nudge the country’s rating for local currency debt into junk territory, leading to a massive sell-off in government bonds, he said.
Prior to the reshuffle, unprecedented collaboration between government, business and labour had made enough progress towards the structural reforms needed to foster economic growth to keep South Africa’s investment grade status, he said.
“That is all now in question – broken by one night of madness,” he said. The patronage network within the ANC and the constitutional, modernising faction were now contesting each other for the future of the country and it was not yet clear which would win, he said.
“We are going to find in the next year that we know where we land. I think it’s too close to call – it’s very evenly balanced and I think international investors know this,” he added.
Banking Association managing director Cas Coovadia said the tragedy was that prior to the Cabinet reshuffle business was actually beginning to understand the imperative for structural change to make the economy more inclusive. “All of that is gone – to rebuild it is going to be a herculean task,” he stated.
Mbeki said that SA needed a new type of political party as the main opposition – the DA and the EFF – were “middle class” and middleclass consumers, who were too comfortable to start a revolution.
He also believes that, contrary to some opinion, the ANC was unlikely to split – the fracture had already happened with the collapse of its alliance with Cosatu, he said.
Deputy president Cyril Ramaphosa was among the “crony capitalists” created by BEE, who had zero constituency in the ANC and in the black population. “They are not going to split – they are going to enjoy their money,” he added.
Standard Bank chief economist Goolam Ballim warned in a radio interview on 20 April that if what he described as the policy cycle in the country “locks”, economic growth could fall short of 1% for the next four to five years.