This is the second article in a four-part series penned by the Institute of Race Relation’s Dr Frans Cronje. Two scenarios are sketched, one which Cronje believes will emerge within the next 12 to 24 months.
You will notice that the argument in the first part of this four-part series restricted itself to events up until 2007 and nothing has been said, as yet, about more recent developments. In December of 2007, the ANC held a conference at which it elected a new set of leaders. To the surprise of many (although not analysts at the IRR), Thabo Mbeki, who had served as leader of the ANC as well as president of South Africa, and who had been central to the economic policy making of the party and the government, was dethroned as ANC leader. This later forced his resignation as president of South Africa.
Former president Thabo Mbeki, left, and President Jacob Zuma at the African National Congress elective conference in Polokwane, Limpopo province, on December 16 2007.
Picture source: Bloomberg News
In dispensing with Mbeki, the ANC dispensed with more than the man. It also rejected much of the pragmatism of his economic policies. The South African Communist Party and the Congress of South African Trade Unions, both of which had been central to the axing of Mbeki, became increasingly prominent in policy making. Following the 2009 national elections, a number of key economic portfolios in the cabinet were in the hands of leftists and communists. They quickly set about dismantling the policy infrastructure of the 1994-2007 era and replaced it with a concept they called “the developmental state”. Leaks from cabinet meetings suggest that animated ideological debates took place about what such a state would entail – mostly concluding with ideological dogma about nationalisation and state direction of the economy.
Sharp left turn
Policy soon began to reflect that dogma. Proposals were made to nationalise mines and banks. A cabinet minister spoke of the need to destroy the capitalist system. A deputy minister accused foreign investors of looting the country. Another member of the cabinet proposed putting a ceiling on all private sector management salaries until economic equality had been attained (he seemed oblivious to the consequences for tax revenue). Labour laws were tightened. Firms that failed to meet with the state-driven racial targets were publicly shamed. It was proposed that the private security industry be nationalised. Proposals were made to nationalise all land in private hands. An antagonistic line was adopted towards western capitals. Chavez in Venezuela, Castro in Cuba and Mugabe in Zimbabwe were hailed as role-models to be emulated.
That this shift in policy coincided with the global financial crisis and growing risk aversion to emerging markets greatly exacerbated its impact.
At a time of heightened global investor concern, South Africa was sending out the message that it did not value investment and would not protect the rights of investors – foreign or domestic. South Africa’s economic position was then further worsened by the pull-back in global commodity prices.
Structural problems emerge
A fund manager put it to us during a briefing we delivered that the slurping sound the world was hearing was the draining of the commodity pool and that the world would soon learn which commodity producers had been “wearing pants”. South Africa’s trade deficit numbers soon showed that it had not been wearing pants. The country now runs a significant trade deficit with almost every major country and region of world. The United States, because of the generosity of the African Growth and Opportunity Act (Agoa), is not one of those countries – even though the post-2007 South African government went out of its way to place that agreement in jeopardy.
South Africa’s weak trade performance and particular vulnerability to commodity prices comes as no surprise. Data shows that the majority of its export products are dug out of the ground. The manufacturing economy’s share of GDP is half of what it was in 1994, despite the weakening of the real effective exchange rate.
If the era of 1994 to 2007 was characterised by gradually rising economic growth rates and falling debt levels, the era from 2008 until today has shown the opposite. Public debt levels have roughly doubled since 2007 (a figure that excludes generous guarantees to wasteful state-owned companies). Economic growth that had averaged 5% in the four years to 2007 came in at 1.3% in 2015 and South Africa will find itself flirting with recession by the end of this year. Formal private sector job creation has been effectively stagnant for five to six years (while public sector employment increased by roughly 25%, thus placing further pressure on the budget deficit).
Indicators show magnitude of sliding economy
The example of public sector employment is a very good prism through which to view the post-2007 government’s concept of a “developmental state”. Essentially, money was being borrowed to employ more government workers, even as growth levels declined and investment levels tailed off.
The full gamut of indicators we track to develop an advance view of the South African economy appear to be in some considerable trouble at this point. These range from mining and manufacturing production indices to residential property prices, vehicle sales, credit extension and default numbers, business confidence indices, consumer confidence indices, and consumer spending itself. The most telling number of all is that, in real GDP terms, South Africans are again becoming poorer – as they did in the volatile and very violent 1980s.
The political consequences are turning out to be severe for the ANC and may bring about political shifts approaching the significance of those in 1994 – when a once powerful and entrenched administration was dethroned by its antitheses.
The political shifts triggered by South Africa’s recent economic underperformance have shaken the seemingly once impregnable political edifice of the ANC. In South Africa’s 2014 national elections (the most recent), just more than a third of all eligible voters (South Africans over the age of 18) turned out to cast their ballots for the ANC. This was a far cry from the over 50% of all eligible voters who turned out to vote for the ANC in 1994. Today there are more people over the age of 18 who are entitled to vote but choose not to do so than there are people who chose to vote for the ANC. If half the non-voters vote again, but do not vote ANC, then the party will lose its national majority, ushering in a new era of what will probably be coalition politics for South Africa.
The prospects for such an outcome must now be taken seriously. In August South Africa staged local government elections. Support for the ANC fell to a record low of 54%. More importantly, it lost its outright majorities in major urban centres. Its support in poorer rural communities also declined but in a country that may be 80% urban within 20 years the future voting market has swung in favour of the opposition.
To its left, the party now faces a passionate, if misguided and at times vulgar, challenge from the Marxist inspired Economic Freedom Fighters, led by a former ANC youth leader. To the centre, the ANC faces a challenge from the Democratic Alliance – the party that had its nucleus in South Africa’s white-liberal anti-apartheid tradition, although it now has a black leader and has moved to the political centre, more social democrat than classically liberal, in an attempt to attract more black voters.
In the considerable aftermath of those polls, four trends rose to the surface.
- The first is that younger and more educated voters are turning against the ANC. Our own research now suggests that as an individual’s level of education and income increases, he or she becomes more likely either not to vote, or to vote for an opposition party.
- The second is that urban and more upwardly mobile people are leaving the party faster than more rural and poorer people – although the latter, too, are beginning to abandon the ANC.
- The third is that, in the run-up to August’s polls, more than ten ANC candidates were assassinated – seemingly not by rival party forces, but by their own party colleagues. In-fighting and internal recrimination is likely to reveal deep-seated divisions that can no longer be kept hidden.
- Fourth is that a significant number of young people did not bother to register or vote. If that changes, political outcomes will swing to significant new extents.
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