Zuma is sowing the seeds of his own demise
Fiscal meltdown helped end apartheid, and it will set the course for the coming years, too, writes Mills Soko
SOUTH Africa’s meltdown under the Jacob Zuma administration has reached its apotheosis. The shocking axing of finance minister Nhlanhla Nene has brought into sharp focus the colossal governance crisis that has plagued our country since Zuma became president in 2009.
On Zuma’s watch, the South African economy has experienced a precipitous decline, which has been evidenced by a sharp depreciation in the value of the rand, sluggish growth, waning business confidence, labour market instability, high government and household debt, dysfunctional state-owned enterprises, high current account and fiscal deficits, and credit rating downgrades.
The dismissal of Nene has not only saddled South Africa with arguably its worst crisis in the post-apartheid era, it has also underlined Zuma’s callous neglect of the national interest. Zuma thinks he has the power to do what he likes without having to account for his actions. He will soon learn that he has power over the ANC but not over the broader South African populace. South Africa’s future political direction will be determined not by the Zuma administration, but by the state of the South African economy.
International experience has shown that economic crises breed political crises, which can lead to political change. The fall of the apartheid government was driven by several domestic and external factors, but it was accelerated by the financial crisis that unfolded in the wake of former president PW Botha’s Rubicon speech. When political instability reached crisis proportions in the ’80s, it triggered net outflows of portfolio investment and direct investment. Capital outflows reached more than R33-billion, following the decision of about 40% of transnational firms to disinvest.
To stem the tide of capital outflows, the South African monetary authorities tightened exchange controls and in 1985 imposed a unilateral moratorium on the country’s short-term international debt. This move precipitated a dramatic collapse of international investor confidence in the South African economy, culminating in massive capital flight and a record 20% depreciation of the national currency.
Major international banks announced that they would neither extend credit on South Africa’s maturing loans nor advance new credit. In addition to the net outflows of foreign direct investment and portfolio investment, South Africa had to contend with the reality that it could no longer have access to debt capital.
By the end of the ’80s, foreign capital had ceased to flow into South Africa completely.
Economic crises have prompted changes in government — and in some cases, regime collapse — in several other countries, including Korea, Argentina and Brazil, as well as the Czech Republic, Poland, Turkey, Mexico and Indonesia.
Zuma’s actions will not only breed policy uncertainty; they could also lead to political instability that would harm prospects for economic recovery.
The priority should be to restore confidence in the government’s ability to manage the economy.
We need competent leaders who can create conditions for the emergence of a competitive and thriving economy that will increase job creation, boost infrastructure development and the skills needed to help diversify our economy.
That will not happen under the leadership of Zuma and the incompetent, weak, divided and corrupt ANC government. Zuma has shown consistently and conclusively that he lacks vision and leadership ability.
Even so, we must draw comfort from the fact that our country still has numerous economic strengths.
It is a robust emerging market economy that rests on a secure constitutional and legal order, guaranteeing the rule of law, property rights and the enforceability of contracts. It also boasts one of the more open emerging market economies, with liberal trade and fiscal regimes.
Yet South Africa needs to convince itself that it is worth investing in. It has to recognise that confidence in its business environment is a crucial prerequisite for attracting capital investment.
International investors are largely guided by domestic business sentiment. Without local business confidence, therefore, the possibility of cultivating foreign investor confidence is severely diminished. Building this confidence will require improved co-operation and strong partnerships between the public and business sectors. Both these sectors have a crucial responsibility to foster a high and sustainable economic growth path.
There is no doubt that our country is at a dangerous crossroads. The crisis triggered by the axing of Nene represents a national emergency. We need to extricate our country from the mess it finds itself in.
The Zuma administration has wreaked untold harm on the South African body politic. Our country is staring down the barrel of a gun. We have been here before and we can pull from the brink of disaster. Together, we can stop the rot of the current leadership and dysfunctional governance.
It requires a collective effort and we all need to engage in this and take responsibility for our own futures. But together we can achieve it.
All this is possible if we raise our expectations of ourselves, our leaders and our country.
Economic crises have prompted changes in government and in some cases, regime collapse Together, we can stop the rot of the current leadership and dysfunctional governance. It requires a collective effort