South Africa nears the point of no return

Country is being pushed to the edge of economic and political disaster.
Clothing hangs on a washing line in front of windows of a dilapidated residential apartment in the CBD of Johannesburg. Image: Waldo Swiegers/Bloomberg

DCD Wind Towers should have been a South African success story.

When DCD opened its doors in the Eastern Cape in 2013, it was the first factory set up to take advantage of the country’s abundant wind-power resources. Government policy was fuelling a clean-energy bonanza, and DCD brought valuable jobs to an impoverished province.

“We took unemployed people, some of whom were in their 30s who’d never had a job,” Alta-Mari Grebe, who was the company’s general manager, said by phone. “We really had a good thing going.”

A sudden change of heart by the government in Pretoria brought the country’s promising wind and solar energy program to a crashing halt. In June this year, DCD’s state-of-the-art equipment was auctioned off.

DCD’s unrealised potential is a footnote in South Africa’s story of the last decade, one of chronic under-performance that is pushing the continent’s dominant powerhouse to the edge of economic and political disaster.

With debt surging and the coronavirus pandemic threatening the deepest economic contraction in almost 90 years, business leaders are warning that President Cyril Ramaphosa’s government can no longer procrastinate. With the situation deteriorating rapidly, they say, South Africa faces a choice between loosening the grip of vested interests to embrace radical — and likely painful — reform, or risking a sovereign debt crisis and more permanent scars.

“We are looking at a wasteland,” said Martin Kingston, chairman of Rothschild & Co’s South African unit and deputy president of Business Unity South Africa, the country’s main business organisation. “The ramifications of not taking the necessary action in the near future are catastrophic.”

The fact that government officials broadly agree with the prognosis underlines the seriousness of South Africa’s plight. Yet addressing the challenge is far from straightforward, and will require a wholesale change in the African National Congress government’s approach to marshalling the $350 billion economy.

Investors in South Africa are wearily familiar with policy inconsistency. The frustration of the renewables sector was a result of former President Jacob Zuma’s decision to start pursuing an ultimately unsuccessful nuclear power deal with Russia from about 2014, leaving purchase agreements with renewables companies unsigned. That ultimately brought a halt to what was one of the world’s most successful clean-energy programs.

Telecommunications companies have waited over a decade for the sale of spectrum needed to expand their services and potential offshore oil resources lie untapped because the requisite laws haven’t been passed. Labor unions have used their political power to block everything from education reform to the closure of heavily polluting coal-fired power plants.

South Africa may now be running out of road. Without urgent action, national debt could exceed 140% of gross domestic product by the end of the decade, according to an emergency budget presented in June. That’s almost on a par with Lebanon, and compares with only about 26% in 2008, when the last global economic crisis began.

Covid-19 is accelerating the downturn. By the time coronavirus restrictions were imposed in the country in March, South Africa was already in recession and unemployment, at 30.1%, was at a 17-year high. One of the world’s strictest lockdowns has probably left millions more jobless and slashed economic output, while the number of confirmed cases has surged to over half a million regardless.

The economy probably contracted more than 30% on an annualised basis in the second quarter, according to central bank forecasts, and portfolio outflows in the first three months of 2020 were at the highest level on record. Consumer confidence is at the lowest since 1985, when the United Nations Security Council urged further economic sanctions against South Africa over its apartheid policies and the Whites-only government declared a partial state of emergency.

All of this is bad news for Ramaphosa, who came to power promising to revive the economy. Surging debt and a stagnant economy would hurt him, opening the door to populists in the ANC whose interventions could further weaken investor confidence.

After more than two decades in power, pressure is growing on the party of Nelson Mandela. In municipal elections in 2016, it lost control for the first time of the country’s biggest city, Johannesburg, and the capital, Pretoria, to opposition coalitions. While the political opposition nationally remains splintered and ineffective, the ANC won last year’s elections with its lowest ever share of the vote.

The government is moving to act. Finance Minister Tito Mboweni’s emergency budget stressed the need to keep debt in check and last month South Africa took out a $4.3 billion loan from the International Monetary Fund, its first ever from the organisation at a sovereign level. The president launched a drive in June to attract private investment in infrastructure over the next decade.

For the first time, government officials, unionists and business leaders are in lockstep on the need for change to tackle ills from unemployment to a housing shortage. They are less united on the path forward, however.

South Africa is not a nation that’s short of plans. Its problem lies in finding the political will to overcome powerful vested interests and implement them, according to Thabi Leoka, an independent economist in Johannesburg.

“We’re not making the tough decisions that we ought to have made,” she said. “Instead we’ve seen two plans that were released, one from the ANC and the other from business, which means that we are still at the creating plans instead of implementation stage.”

And for all the government rhetoric, the early signs are not promising.

Allegations of corruption around efforts to procure personal protective equipment to fight the virus stretch to the president’s office, with his spokeswoman implicated. The first projects in Ramaphosa’s infrastructure drive took over a month to be announced when they had been promised within days. And even though the country is regularly subjected to power outages, the energy minister has dragged his feet over opening a new clean energy investment round.

“A crisis is what is needed to break the current political impasse to make way for meaningful reform, however, it is becoming increasingly clear that the crisis that is Covid-19 is a lost opportunity,” said Boingotlo Gasealahwe, Africa economist at Bloomberg Economics. “I shudder to think how much worse things must get before any action is taken.”

One possible way ahead lies in leveraging pension funds that are flush with cash, giving South Africa the financial wherewithal to solve some of its problems. Together with private pensions and bank assets, South Africa has 12 trillion rand available for investment, according to Business for South Africa, an alliance of the country’s main business organisations.

Yet for now it’s hard to argue that much has changed. State-owned companies that were saddled with debt during Zuma’s scandal-ridden nine-year reign remain dysfunctional, little new legislation has been passed and there have been no significant convictions for graft despite widespread evidence of pervasive corruption.

True, Mboweni has pledged to cut government spending by 230 billion rand over the next two years, partly by freezing most civil servant wages — after earlier agreeing to raise them despite years of above-inflation pay rises. But he may struggle to get his way in the face of entrenched labor opposition.

That sets up a battle ahead over South Africa’s economic and political future.

“Structural economic reforms are going to be contested and they are going to be contested very, very hard,” said Lumkile Mondi, an economics lecturer at the University of The Witwatersrand in Johannesburg. “It is going to be a very hard sell.”

© 2020 Bloomberg

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Trump would have sorted this mess out in 6 months…

What now? Trump has only increased the USA’s debt levels and increased unemployment. Also what does Trump have to do with South Africa?

Trump would be no better. We need competent leadership unfortunately this seems to be lacking across the globe.

Spot on

Mark, I think leadership is the wrong word. When politicians come for your vote, they are your humble servants. Once elected, they demand respect, because they are now “leaders”. This has diluted the term leadership to such an extent that it became worthless, as clearly illustrated by our current “leadership”. What we need now are competent managers who can sort out the mess we are in.

I think that we are beyond the point of no return.
Structural reforms are not sold but implemented.

Indeed we are past the point of no return.

People look at South Africa as a snapshot of the present thinking that somehow the ANC will change.

The reality is that we are stuck with the ANC for at the very least another 3 years, and there is zero chance that they will change their ways.

They have intentionally broken state institutions to enable their corruption and looting without consequence for them. There is no incentive for them to change their ways now.

The S.A. government is basically a “criminal organisation masquerading as a government”. It is essentially a Gangster State and as such, nothing will change.

It seems they are also now trying to control social media in order to stem the flow of criticism.

TryingToRetire
Methinks much worse is coming from the ANC dictators.

FRANCE, BELGIUM…TAXES ARE AROUND 60-63 percent. So SA has still a way. Plus VAT in Belgium and France of 15%-16%. Their politician are as corrupt as in SA. Earning a fortune. Most of the Europeans parlement members are earning on average 9000-13000 EUROS per month plus all the other benefits!!! They are on full pension after serving only about 14 years I think. Pension of at least 8-9000 EUROS a month. Plus they psuh their sons, oncles, , family members into the political sphere. Europe is a HUGE MAFIA STATE.

So SA is corrupt, Europe, USA, …?
Is there anywhere that these kinds of problems are under control?

The ANC has no vision, no consistency and no sense of urgency… they are only concerned with pillaging the coffers at every turn. We keep saying it like a broken record, until there is a new government run by a party that puts South Africa’s needs first (hint: Democratic Alliance), we will continue down this path. Even if there are ‘good’ elements in the ANC, which is doubtful, they are paralysed to do anything by their ties to the unions and other vested interests. It is obvious what the problems are, but they see nothing wrong and can barely acknowledge their failings. How can we ever turn this country around when they won’t even admit there’s a massive problem?

Agree totally but the heart of the problem is an electorate that continues to vote ANC. That isn’t going to change given that 57.5% of the electorate voted ANC last year despite what was done to them. It is a very sad state of affairs.

I totally agree with you, the electorate is the real problem but I remain ever hopeful that one day they will have a ‘road to Damascus’ moment and the scales will fall from their eyes. It’s hard to stay hopeful in this country but I feel South Africans in general are growing more ‘gatvol’ by the day with the ANC and are looking for alternatives. The problem is with politics nowadays is many swing either harder left or harder right. More division is not going to help us.

Unfortunately I expect the ANC is going to stay in power for a while longer. Even if the ANC loses their majority they will form a coalition with the EFF which will be much worse, economically and corruption wise. With NDZ, David Mabuza or possibly Malema as president.

Never in history has any country under the rule of labour unions, ever escape financial collapse and hyperinflation. Union members are the new wealthy elite whose positions of privilege leads to growing unemployment and inequality. The Tripartite Alliance is a parasite that drains the lifeblood from the economy. Union members rule the country, without being appointed through a democratic process. They ride into the legislature on the back of the ANC, where they jump out of the trojan horse to take control of parliament.

The ANC needs to split apart and let the members contest elections on their own. The communist party and the unions rule the country without any accountability. This is tyranny and a recipe for disaster.

South Africa is like a factory where the floor workers took control of the boardroom and management. With it comes aggression, faction-fighting, backstabbing, looting, corruption, finger-pointing and bankruptcy. The only solution is for investors and management to start afresh in a new jurisdiction.

“The communist party and the unions rule the country without any accountability. This is tyranny and a recipe for disaster.” … you forgot the taxi industry.

When normally careful and conservative (IMHO) Bloomberg says this; one had better listen and act as best you can.

Think about it: Loadshedding for 12 years, massive unemployment for decades, poor economic growth for at least 10 years. No meaningful progress on any of these issues. The conclusion: While they can ‘loot with impunity’ the ANC cares zilch for this country and its people. I hope I’m wrong but as things stand the country is finished.

Never underestimate the capacity of the anc and it’s supporters to destroy and loot. Do so at your own peril!

The writing is on the wall for SA, sadly.

Can only come right when the denial that they are not capable to govern a Democracy is dealt with, Africa’s track record is there for all to see, very little success stories, if any!

And apparently another 3 million unemployed thanks to the virus probably giving us about 35-40% out of work. This is from the 2019 Statistics SA: “Of the 20,4 million young people aged 15-34 years, 40,3% were not in employment, education or training”. This is just this specific age segment.

The solution to the free-fall of the economy is patently obvious: get rid of the ANC control of the SOE’s and associated decision-making in any financial transaction.

I invite readers to go to Satellite Google Maps and have a look at a random farming area like Caledon or the Free State and understand that this is the wealth of the country, created by generations of hard graft. This is what will be destroyed if they continue their chaotic path of destruction of national, historical wealth to enrich family and friends.

Years of mismanagement, corruption and looting by the ANC has gutted South Africa. Unless bold business and energy friendly reforms are implemented now, we will soon become the next Zimbabwe and Venezuela with mass unemployment (+90%) and starvation. There is still a little time, but unfortunately no political will for positive change. South Africa is now bankrupt and our future looks very bleak indeed.

Come February and the minister presents his budget, Mrs Z, Ace the rest of the illiterates see the numbers , reflective of their bans and theft, they may (may not) see the precipice. By then it certainly will be too late.

Am not shocked. It’s expected.

SA does not come to an “end”. A country never “ends”….it’s economy merely shrinks to a point of lower significance. (Like Zimbabwe = equal to Ethekwini/Durban metro)

Only in our (western measured) mindset the country comes to an “end”. The end of western value system. SA to date has been like a “European outpost” to the south of this continent. Many locals benefited in this part of Europe…nice paying jobs, leading to an obese African society…totally out of sync with rest of Africa.

SA is NOT coming to an end! In fact IT’S THE BEGINNING….

…the beginning of true Africa, with it’s (so-called) hardships. Those hardships in Africa are only measured on a western mindset….but in an African mindset, it’s NORMAL.

Have no idea how come SA became so over-developed industrially the past 400 years, compared to rest of continent. It must be that our locals have special abilities I guess…

Sad to say, one day I’ll miss the full shelves of produce in SA’s shops, limited choice of products, and queues at fuel stations. Few farmers left = expensive pap. Lekker man, lekker….my Africanacity 😉

Michael, you get the post of the week -trophy for this one. So true, except that I suspect that you slightly overestimate the size of Zimbabwe’s “economy”.
My descendants will hopefully be spectators from afar when the New Beginning that is now dawning in South Africa reaches its zenith. I hope to be long buried then with an irreverent smile on my face.

Reading thorough all the comments I see most use pseudonymous names.

Perhaps it is time we stood up and expressed our personal opinions on the way forward – and not how Trump and his cohorts etc etc can help us – but how we can and will help ourselves if need be.

Most of us are not “protesters” – using violence and intimidation to achieve our aims – and so we become empty threats to the powers that be.

One way to express our dismay at it all, and to really move forwards – as many of our forefathers did – is to “nail” our united objections on the wall and move on.

The only “wall” I can find at present is to join Capexit – https://capexit.org/index.php/registration/ – Perhaps if a few million of us join they will take note.

But then again did the British?

Cigarette sales in lockdown were stopped on the basis of about 400 signatories to some petition to the minister.

Rest assured that western cape independence will fail in the face of 50 million signatories, as will the abolition of e-tolls, EWC, and so on.

There are none so deaf as those that will not hear.

End of comments.

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