SA in early 2009: an assessment
In an important address at Chatham House in London on January 23, Michael Spicer, CEO of Business Leadership South Africa, International Marketing Council trustee and former executive vice president of Anglo American plc, gave a candid of assessment of the state of play in South Africa on the eve of elections. Here is the full text:
In giving a pre-election 2009 report on the country I will try to give a clear eyed assessment of the country’s politics and economics from the perspective of a business leader which neither underestimates the challenges and reasons for concern, of which there are many, nor ignores the country’s strengths and achievements which continue to baffle the pessimists.
At the outset I must acknowledge that we all live in a new world, where the global economic outlook is bad and getting worse, where the way that the financial sector is structured and performs is under complete review, and where no country can escape the consequences of the meltdown, many of them severe. What I will be seeking to do is to show that South Africa is relatively better positioned than many other emerging markets. Finally, I naturally seek principally to engage those who have open minds on South Africa and Africa and am less concerned with those segments of opinion especially those expatriate South Africans and those in the UK media who are theologically gloomy on South Africa.
The political scene has been dominated by the aftershocks of the ANC Polokwane Conference of December 2007. What has surprised many observers has been the resilience of the ANC’s structure as a liberation movement in alliance with the SA Communist Party and COSATU which brought together in opposition to apartheid the entire spectrum of belief from rampant free marketers and classical liberals to unreconstructed Stalinists. Many predicted that such a vehicle could not long survive the exigencies of running a modern industralised state in a globalised world where virtually every policy choice would offend large parts of this broad church. Leaving aside the obvious resort to policy fudge, which was a frequent strategem, in some respects it is surprising that the party and Alliance survived through three general elections. In other respects, given the three hundred years of racial domination and oppression and the legacies that they left in all aspects of life, perhaps it was not.
Nevertheless the stresses and strains of the ruling Alliance grew inexorably over the years and it was the persona of ex President Mbeki which catalysed first the intra-party/Alliance revolt manifest at Polokwane, and subsequently the formation of the new breakaway party, the Congress of the People, towards the end of 2008.
Mbeki’s perceived aloofness, his centralisation of power in the Presidency, his targeting of opponents, together with his policies towards HIV-Aids and Zimbabwe allowed the so called broad coalition of the wounded, led by the SACP and COSATU, to back Jacob Zuma as a candidate and to outmanoeuvre Mbeki and his supporters. Mbeki’s decision to go for a Third Term as ANC President in order to head off a Zuma presidency was ironically the mechanism of preventing alternative candidates to Zuma emerging at Polokwane and therefore contributed greatly to Zuma’s ultimate triumph.
Though the SACP and COSATU were key to the unseating of Mbeki and are pushing strongly to expand their influence, it is important for the likely future direction of the ANC to bear in mind that for the moment, the Zuma-led ANC remains as diverse as the Mbeki ANC. It was Cyril Ramaphosa, backed by Tokyo Sexwale who led the charge at the ANC NEC meeting which decided to defenestrate the President in September 2008. These two capitalists remain embedded in the current ANC leadership, joining another politician turned businessman Matthews Phosa (the third of the Troika accused by the late Steve Tshwete in 2001, at the behest of Mbeki, of plotting against the President) who has long been a staunch Zuma supporter. These three together with Finance Minister Trevor Manuel, Governor of the Reserve Bank, Tito Mboweni, the powerful Kwa-Zulu Natal based Zweli Mkhize and many others remain within the ANC structure to counter the desire of the SACP/COSATU for a strong leftwards shift in policy. The ANC election nomination list which was due to be completed over this past weekend will give us some indicators, but the situation is complex and subject to growing complexity as the following section on the advent of COPE will illustrate.
It was the Alliance’s crass overplaying of its hand in beginning to fire Mbeki sympathisers from national, provincial and local structures, together with the even crasser behaviour of the leader of the ANC Youth League Julius Malema, whose negative influence on the attitudes of much of the educated black middle class should not be underestimated that all directly contributed to the formation of the Congress of the People.
So COPE was formed firstly out of the unhappiness by many (mainly but not exclusively Mbekites), at the way the President was hustled out of office. Secondly, it reflected a concern by many of more middle class and centrist political and economic values at the perceived excessive influence of the SACP and COSATU. Thirdly, the debasement of political behaviour and language as epitomised by Julius Malema and the ANC Youth League, ably supported by the SACP Youth League, deeply offended a range of black middle class and even working class players such as Zionist Christians who espouse conservative personal values and who were already alienated by Jacob Zuma’s personal indiscretions. Finally, and relatedly the attacks by this coalition of forces on the judiciary particularly, but also the media, individuals like Archbishop Tutu, the universities and so on gave impetus to those who sought an alternative home.
The leadership of COPE is a mixed bag. Mosiua Lekota has had a somewhat chequered career as a Minister, but as a robust attack politician he complements the more substantial, and statesmanlike figure of Mbhazima Shilowa, the former Gauteng Premier who is one of the ablest political communicators in South African politics and who is supported by his wife Wendy Luhabe, a formidable and influential businesswoman and opinion former.
The significance of the emergence of COPE is threefold. It introduces more lively political competition into a one party dominant political system which was showing all the classical symptoms of growing arrogance, lack of accountability, corruption and patronage on the part of the ruling party (one should of course note the irony of these symptoms emerging under the Mbekites many of whom now find themselves in COPE!). Secondly, it increases the pressures for accountability which were sorely lacking and to which many including myself attribute much of the moral malaise of the country. Thirdly in the medium to long term it presages a realignment of South African politics along more conventional lines, medium to long term since COPE does not (yet) have a sufficiently clear set of policies to distinguish it from the ANC.
The speed at which that occurs will also depend on how the parties perform in the General Election. Here one enters the realm of speculation, but my own instinct is that COPE will perform perhaps less well than its enthusiasts hope but well enough to reinforce the competition which at the moment is provided by the skilfully led Democratic Alliance and a range of other small parties. I believe the opposition parties will have the leadership skill to form alliances to take control of at least one Province, the Western Cape, where the ANC’s lamentable race-based performance has alienated much of the coloured electorate, and possibly one or two others. This will be in addition to the DA Alliance control of the city of Cape Town, currently the only major political entity not controlled by the ANC. In sum, in my view, it is therefore likely that the ANC will fail to win a two thirds majority at the election, though I should note that the liberal SA Institute of Race Relations no friend of the ANC thinks otherwise and I agree that the ability of the ANC to regroup should not be underestimated.
The continuing legal travails of Jacob Zuma, together with continuing tensions within the ANC between the SACP/COSATU and others including President Motlanthe, will not help its fortunes. It is hard to predict the outcome of the complex legal challenges which now seem to be again the principal focus of the ANC’s efforts to protect its President Jacob Zuma and his candidacy for the country’s Presidency. All that can be said is that the costs and tensions associated with the enterprise are rising, and continue to be exacerbated by the enduring baggage of the arms deal. (Here one interesting proposal by the Business Day is that the NPA suspend charges against Jacob Zuma on the explicit condition that a full commission of enquiry be instituted immediately on the assumption of office of the new administration).
Yet the likelihood must remain that Jacob Zuma will emerge as President of the country. What will he be like as a President? His legal and moral difficulties will be a burden, but he has personal strengths. He is a warm, personable individual who is approachable to a wide section of domestic and international audiences. He is one of the few people who can reconcile the diverse elements of the ANC and the Alliance. He is a man of traditional and in some respects conservative views (there are notes of irony in this comment) but, for example, his several visits to the US and the building of a strong network of contacts there illustrates that he has not seized of intellectual and ideological obsessions unlike his predecessor and so may well have a more pragmatic approach to foreign relations in general. Much has been made by himself and other senior ANC leaders about his desire for continuity in both policy and leadership in key positions, as well as change. Hence there will be great interest in the cabinet, particularly in the appointments to key Ministries such as Finance. My own view is that the ANC is acutely aware of the impact on confidence and the markets of missteps in this area and will want to send reassuring signals, whatever the desires of the left.
Let me say a word on Zimbabwe and then foreign policy in general. In this interim phase ahead of the elections, the constitution of a new cabinet and the new administration finding its feet I do not, unfortunately, believe that South Africa will find the political will to tackle the urgent crisis of Zimbabwe. My own view is that Zimbabwe is now definitively a failed state and that its politicians in whatever combination, even with a generous international aid package, will be wholly unable to address the breadth and depth of state failure brought on by the disastrous Zanu/PF administration or Robert Magube. Only a UN driven international administration combined with a recovery plan and both backed by the AU and the SADC, will do the job. Regrettably, I fear that the SADC and AU will take more time to come to that conclusion, but today’s emergency SADC meeting in Pretoria will give us some pointers.
In general, I think a Zuma administration will be less interested in foreign policy and leading a continental African revival than its predecessor and, whilst that will disappoint many in the international community who wish to see it play a stronger leadership role, it will be no bad thing if it means focusing on the economy and resolving the many demanding domestic challenges.
The Socio-Economic Challenges
The balance sheet on the management of the South African economy has strong pluses. The disciplined macro-economic framework pursued under the Mbeki administration and synonymous with Finance Minister Trevor Manuel has not only ensured South Africa’s longest growth period since World War 2, some fourteen years of interrupted growth, but has ensured that its financial system was relatively unscathed by the first round effects of the global financial crisis. It has low levels of debt, a strong and well regulated banking system, has run a budget surplus precisely to build capacity against rainy days and generally is much less exposed than many other emerging market economies. Though the deficit on the balance of payments has been a core weakness which constrains growth, it does have the virtue of forcing the currency to depreciate in times of adversity thereby ensuring greater competitiveness of the export sector. Also, with food and energy prices declining rapidly over the past few months and domestic demand weakening, inflation and interest rates are set to decline rapidly this year with inflation re-entering the target 3 – 6 percent band possibly as early as the third quarter. Wage inflation should also be constrained against this backdrop. The $50bn capital programme that the state is rolling out over the next few years to remedy urgent infrastructural and logistical shortcomings, will provide a useful floor for growth and employment, as has infrastructure related to the 2010 Soccer World Cup. Funding infrastructure spend, though, has clearly become much more difficult and will require more innovative approaches as I say later.
The dramatic slump in commodity prices is the immediate focus of slowing GDP growth – which at best looks set to remain only just in positive territory in 2009 – and will be accompanied by significant job losses and the cancellation or postponement of a number of private sector capital projects, predominantly in the mining sector. Though retail sales over the Christmas period where surprisingly buoyant, they are now significantly off last year’s level. The auto industry has seen dramatically lower sales alongside its international counterparts and with constrained export opportunities, will also see a contraction in employment. Overall, this will be a very difficult year for the South African economy, a fact recognised by government, business and labour who right now are finalising an emergency support package aimed at mitigating the pain caused by significant further unemployment. Details of this should be announced in Finance Minister Trevor Manuel’s 11 February 2009 budget, which for all sorts of reasons will be even more interesting than usual.
The risks on the socio-economic front come only in part from the global environment and the possibility of a leftward tilt in policy – as indicated earlier this remains contested territory in the ANC and Alliance with the election manifesto not going much further in most areas than existing policy directions already set out in the past few years. And that is the problem: the major socio-economic weaknesses and failures are almost all inherited from the Mbeki era whether it is the weaknesses of the education, health or rural/agricultural sectors, the challenge of crime (all Polokwane priorities), the politicisation of the civil service, its lack of accountability and accompanying patronage and corruption, and a culture of mediocrity and inability to implement policy: all of these challenges are legacies of the Mbeki era. They derive from a culture of the primacy of politics and a subordination of the interests of the state to the interests of the party.
The ANC election manifesto reflects debates at Polokwane and highlights many of these areas for action. Unfortunately it also has a naïve faith in the so called “developmental” state which posits a more active interventionist state without any indication of how the existing weaknesses of the state are to be addressed. From a private sector point of view, a glaring omission from the manifesto is the virtual lack of reference to the private sector and its role in helping resolve all these challenges. Against such vanguardist tendencies, however, the renaissance of Parliament encouraged by the Zumaites in their struggle with the Mbeki administration is a genie that is proving hard to rebottle, and civil society, having enjoyed a flowering of participation in debate over the past eighteen months is in no mood to subordinate itself to such vanguardism. The judiciary, press, churches, universities and NGO’s are all providing to be remarkably robust. Also helpful is the decline in the influence of the exiles, who were so strong under President Mbeki, and so prone to a culture of conspiracy and a concomitant reappearance of many ex UDF players who are much more in tune with South African society.
Taking each of these areas in turn, the poor quality of the educational system particularly in the fields of maths and science, but also literacy skills, is one of the two or three greatest challenges facing the country from a private sector perspective and is one of the core constraints holding back a higher growth rate and more employment opportunities. The current leadership of the Department under Minister Naledi Pandor is competent and knows much of what is necessary, (an excellent roadmap on education reform has been produced by the Development Bank, complemented by a comprehensive study by the OECD on the same subject), but the devolution of powers to weak provinces and districts and the vice like grip of the teachers’ union SADTU in protecting weak teachers are major stumbling blocks. Though the private sector is significantly engaged in educational interventions from pre-school to the tertiary sector, this often lacks sufficient systemic impact in the absence of core problems being addressed.
On the crime front the picture remains mixed. The Mbeki administration from 2006 on and the ANC post Polokwane have highlighted fighting crime as one of the country’s core priorities. Positively the government has adopted a comprehensive re-engineering of the criminal justice system and given considerable space to a Champion to drive that process in the form of Deputy Minister Johnny de Lange (these are proposals first made by business ten years ago). More policemen are being trained and appointed and the budget for safety and security has been significantly increased in the medium term budget. Joint private sector/police targeting of priority crimes like cash heists and high-jacking are producing results.
But on the other side of the coin, President Mbeki seemingly shielded the Commissioner of Police, Jackie Selebi from prosecution by the NPA on charges of corruption and associating with known criminals and fired the Prosecutor General, Vusi Pikoli, and President Motlanthe has just ignored the recommendations of the Ginwala Commission which essentially vindicated Pikoli, and refused to reinstate him. Further, the new Minister of Safety and Security, Nathi Mthethwa recently called for the appointment of a full time Commissioner of Police saying, a view endorsed strongly by Business Against Crime, that it was unacceptable to have an acting Commissioner in charge of police more than one year after Jackie Selebi was suspended on full pay pending the outcome of the charges he faces. I now see, pleasingly, that the ANC NEC has just endorsed this view. But the most worrying sign was the concerted attack on the Scorpions by the ANC after Polokwane which has led to their proposed replacement by a less independent body reporting into the police. Coupled with the dilatory and evasive handling of corruption charges against MP’s in the Travelgate saga, the ruling party’s credibility on crime and corruption is often placed in question.
An illustration of how strong leadership can rapidly improve even the direst situation is provided by the health sector. An almost unrelieved tale of decline and woe under Minister Manto Tshabalala Msimang, epitomised by her eccentric and devastatingly costly views on HIV/Aids, has brightened considerably in the short few months since the widely respected Barbara Hogan has taken over. Not only has Hogan moved energetically to reconcile with civil society on HIV/Aids and to end all foot dragging on the implementation of the State’s comprehensive HIV/Aids programme, but she has moved equally energetically to end the endless and destructive feuds between the Department and the private sector on a range of issues. It is my strong belief that, again backed up by an excellent roadmap for reform produced by the Development Bank, she will be able to harness the energies and resources of the private sector to extend private health coverage to a much wider proportion of the population, relieving pressure on the heavily overstretched State sector. The improved tone and morale of the sector is remarkable. Nevertheless, the challenges remain formidable, recently compounded by the spillover of Zimbabwe’s cholera epidemic.
The energy sector where blackouts last January saw the shut down of the mining industry for a short period also presents a mixed picture. Improvements in maintenance, procurement of coal, restructuring of the management team, the recruitment of the respected Bobby Godsell as Chairman of the Board, and ironically, the fairly marked decline in consumption as a result of the mining and heavy industry slowdown, have all ensured that the blackouts of last summer have not been repeated and have provided some room to manoeuvre.
But the challenges of financing the ambitious power plant expansion programme have equally become more difficult in the globally credit constrained environment. Progress in bringing in the private sector in the form of Independent Power Production and Co-Generation has been painfully slow and the dysfunctional institutional framework that sees a confusion of roles and responsibilities between various government departments and bodies remains unresolved.
Also painfully slow has been the so called “managed liberalisation” of the telecommunications sector. But after eight years, with the defeat of government’s most recent attempts to restrict competition in the sector, despite its preferred desire to lower costs and consequently attract a Business Process Outsourcing Industry, the advent of a number of new licences and intercontinental cables will see broadband and other telecommunication costs drop significantly in the near term. This will be a boon for the entire economy and is particularly pleasing for my organisation which has campaigned for such an outcome.
The final piece of the State’s logistics services, transport again provides some ups and downs. Maria Ramos leaves Transnet this year in significantly better shape than before with progress in port and rail efficiency and the advent of a new liquid fuel pipeline to the industrial heartland arriving belatedly in 2010. But as with energy and telecommunications, the OECD’s analysis of the network industries is apposite: like their private sector counterparts, the OECD observes, they need both better regulation and more competition in the form of concessioning, contestability and even privatisation.
Whilst such competition is ideologically anathema to the Alliance parties, the constraints that reality imposes will perhaps temper some of the naïve nostrums of the developmental state. For example it is my view that the infrastructural programme that government is rightly determined to continue in order to offset weakness in the rest of the economy and build capacity required when the economy recovers, will not in current global circumstances be fundable without a significant role for the private sector.
To end this section on an upbeat note, I personally have no doubt that South Africa will not only complete all the infrastructure required for the 2010 World Cup on time, but that it will host a spectacular event with a distinctive African flavour. Yes it will be more Athens than Beijing, but that is culturally appropriate.
If I have a worry about the overall direction of the South African economy it is in its declining competitiveness. This is set out in the three major analyses of the SA economy that appeared last year, the so called Harvard Panel, the OECD study and the Michael Spence survey of the thirteen economies that have grown over 7 percent for twenty five years or more. All the weaknesses of the political system, not least the two year time-out that the ruling party has taken to settle its own domestic affairs, have meant that the requisite focus on competitiveness, building skills, productivity, innovation and global mindedness has been highly muted. As I have observed elsewhere, a culture of parochialism and mediocrity, born in part of the patronage model and inappropriate forms of transformation, an inflated belief that South Africa is unique, as well as the ruling party’s increased flirtation with an inward looking protectionist model have all conspired to see South Africa slipping down the competitiveness leagues.
Greater political competition and more accountability could assist in focussing on the need for greater competitiveness. It could also go the other way.
Let me say a few words about Black Economic Empowerment and Affirmative Action or Transformation as it has been called. Since my days at Anglo American I have been one of the firmest proponents of the need for BEE and transformation in order to ensure that the majority of South Africans who were democratically enfranchised could also be economically enfranchised in a politically sustainable period of time. I had no patience with free market purists – and I am a strong free market advocate myself – who supposed that a generational trickle-down project of purely market and merit based economic development would have washed. Both I and my colleagues in the business sector recognised that BEE was an artificial mechanism with many imperfections. As BEE has mutated into BBBEE and a salutary emphasis on empowering a broader base of South Africans than just the elite has developed, some of those shortcomings, particularly the continued privileging of a small elite, have been partially addressed.
Nevertheless, the emphasis of BEE employment equity have too often been a zero sum, exclusive game where for every winner there has to be a loser. It has sacrificed skilled white workers and denied careers to ambitious young non-black professionals. This may not have been the intention, but has often been the outcome: some of the worst culprits have been corporations themselves for the thoughtless and ham-handed way in which they have handled transformation. One recently proudly asserted that no white person could be employed in management ranks in the firm except specifically at the behest of the CEO. Imagine the message that sends to non black employees and ambitious young potential employees.
At a time of acute skills shortage in the country South Africa can no longer afford to sacrifice its previous existing skills base as it seeks to build and expand a new inclusive model where the majority will inevitably over time be numerically dominant. Hence every aspect of immigration, skills development, education, affirmative action and BBBEE should be open to live debate with the purpose of ensuring that South Africa harnesses all its talents in pursuit of its goal of being a prosperous non-racial market democracy.
In conclusion, I would be inclined to argue that the threats faced by South Africa are substantial and complex: but that key institutions especially our judiciary, media and public debate are indicating their robustness and resilience. That the fundamentals of our economy equip us to respond to the global economic meltdown competitively, as we have less debt, and less foreign debt, and a very large scale infrastructure programme already underway: that economic, social and political progress is in no way guaranteed, but that if South Africans of good will rise to present threats and opportunities there is no reason why our democracy should not deepen, our economy diversify and strengthen and our society realise that rainbow promise of our peaceful transition.
23 January 2009
Category: Events
