Change is in the air, Jacob sings to Dudu

IT is almost impossible to describe or quantify the damage President Jacob Zuma has done to South Africa in the space of just a few days. Sacking finance minister Nhlanhla Nene because he declined to give in to the demands of the SAA chair and Zuma acolyte Dudu Myeni will change completely and for the worse the lives of just about every child (let alone their parents) in the country. He swore to protect them. Instead, on Wednesday, he betrayed them.

I know nothing about his relationship with Myeni and in normal circumstances neither would I care. It should be none of my business, but he has made it every South African’s business. Here’s how:

More than 10 years ago, SAA ordered 20 A320s from Airbus. It took delivery of 10, but with the model ageing and the rand falling they became too expensive and SAA called a halt to the purchase. Earlier this year, after Myeni had clashed with two ministers of public enterprises, Zuma moved control of SAA from the department to the National Treasury.

Under Nene’s guidance, SAA was able to renegotiate its original contract with Airbus from the purchase of the 10 remaining A320s to a lease of five more fuel-efficient A330s, thus saving SAA the pain of paying for aircraft it didn’t want. Airbus agreed, but then, suddenly, just a few months ago, Myeni tried to make a new deal.

The A330s would be bought instead by an as yet unnamed third party, an agent, and then re-leased to SAA, which would pay only in rand and thus be spared the effects of a volatile exchange rate. The aircraft are priced in dollars.

Airbus pushed back, saying that was not what it had agreed with the government (the Treasury) and that it would now press ahead with the original deal for 10 A320s and that it expected predelivery payments for those aircraft to begin immediately. Nene pleaded for time to study Myeni’s proposal and Airbus granted an extension until December 21, which is Monday week.

Nene’s people did their homework but concluded the proposal was too risky. The “agent” would have to put up $100-million in predelivery payments on signing and they still didn’t know who it was! So Treasury said ‘‘No” to Myeni on December 3. Nene was fired a week later.

His successor, David van Rooyen, will have been appointed with the express instruction to allow Myeni to go ahead with her arrangement. In the same time the rand has fallen from about R14.20/$ to R15.80/$, adding an extra billion rands to the predelivery payments Airbus would require, assuming they agree to the deal. Van Rooyen has a week to force Treasury officials to bend to Zuma’s will, despite their experience, intuition and principles. Cabinet’s economic cluster will dutifully rally around him.

It is a total cock-up, driven solely by Zuma’s unexplained but fiscally critical attachment to the SAA chairwoman.

But it is also much worse than that. South Africa is a consumer-driven economy. That is why successive ANC governments, rightly or wrongly, have tried to rebuild industry here. We import too many things we should be making ourselves — even food staples. So, when the rand falls as far as it has since Nene’s sacking, the prices that we pay for these imports go up. The speed, or rate, at which they rise is what is called inflation.

Everything will soon cost more for ordinary people because of this, hundreds of billions of rand more. Food, petrol, education, medicines, you name it. And because we make so little other nations want to buy, our weak rand won’t help exports.

Inflation is like a mugger in a dark alley. You retire with your R2-million pension and before you know it you’re struggling to buy even your basic necessities. The Economist once called inflation an “economic serial killer” and I can’t improve on that.

But even that isn’t the worst. At the moment the Reserve Bank is mandated to fight inflation through interest rates. When inflation rises, as it now will, interest rates will have to go up. Your car and your house are harder to finance. The worst will happen when Zuma finally understands what he has done and has to try to prevent interest rates from rising before, say, an election.

The only way to do that is to compromise the independence of the Reserve Bank. Politics will always win that battle and when it does, the rand will fall further. Zuma has lit a fuse he cannot extinguish. Comment on this: write to tellus@sundaytimes.co.za or SMS us at 33971 www.sundaytimes.co.za