In South Africa, enter stage left: Jacob Zuma’s ‘Radical Economic Transformation’ alternative factoids

Patrick Bond

South Africa’s two main warring political blocs – the forces of Fiscal Patronage (‘Zuptas!’ in local parlance, referring to the immigrant Gupta family’s curious influence over the president’s family and government) versus the forces of Fiscal Prudence (‘Treasury neoliberals!’ to critics) – are still represented by two men who have begun to stumble on terrain potholed by what a Donald Trump aide terms ‘alternative facts.’

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Drum

After President Jacob Zuma’s State of the Nation Address (SONA) last Thursday, punctuated by intense protest and repression in parliament, the country’s leading political reporter (and former ‘Friends of Zuma’ insider) Ranjeni Munusamy predicted, “Radical economic transformation is going to be all the rage, apparently. Finance Minister Pravin Gordhan paid close attention to every word Jacob Zuma said. He has to operationalize this programme by allocating the requisite funding. Does he have the funds to fulfil these goals? Who cares? Zuma certainly does not.”

Perhaps, but even if it was just another move in the tired African National Congress (ANC) talk left, walk right dance-step, Zuma at least included a belated definition of the long-promised Radical Economic Transformation: “a fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor, the majority of whom are African and female.”

A leader of the SA Communist Party, Solly Mapaila, countered two days later with a more robust definition: “Radical economic transformation must essentially constitute a movement to restore the surplus produced in production, which has always been appropriated by the exploiters in the form of profit, interests and rent, to those who produce it each according to their contribution during the production process.”

On the other side of Parliament, centre-right opposition leader Mmusi Maimane called out Zuma’s dance, describing his SONA as “a tired rehash of old, failed economic policies – repackaged as ‘radical’…. racialized, divisive and anti-poor, designed to serve and empower the elite, the connected few, and the top 1% in his own party.”

Recall the ANC’s prior failed economic policies (not counting the largely symbolic Reconstruction and Development Programme of 1994-96):

Squarely in line with the other alphabet-soup acronyms, the NDP promotes export-led growth including associated subsidies for (generally white-elephant) corporate-serving infrastructure. NDP chair Trevor Manuel (from 2009-14 the planning minister after 15 years as an exceptionally neoliberal finance minister) and vice-chair Cyril Ramaphosa (deputy president and formerly the main local shareholder in Lonmin at the time of the 2012 Marikana massacre) were applauded by a narrow group of the country’s elites for their “market-friendly though unwieldy and aspirational document” (as Anglo-American’s Michael Spicer faint-praised the NDP). They also regularly back-slapped themselves.

NDP proponents are opposed by the ruling party’s trade union allies in the Congress of South African Trade Unions (Cosatu) and SA Communist Party (SACP), the Economic Freedom Fighters opposition party in parliament, and others. For good reason: the NDP’s first two priority infrastructure projects, for example, will

  • export 18 billion tonnes of coal from the Waterberg region of Limpopo Province through KwaZulu-Natal’s Richards Bay (damn the climate and the affected local ecologies – with Zuma not even mentioning these matters in passing in the speech) in a set of mega-projects estimated in 2012 to cost $60 billion; and
  • escalate annual container traffic in Durban (mostly carried on dangerous trucks) from 2.5 to 20 million by 2040 through port-petrochemical-pipeline expansion costing $19 billion, as reaffirmed last November by provincial Premier Willies Mchunu even though the world shipping industry had just collapsed and Transnet had requested a 16-year delay on the main component (a dig-out port where Durban’s old airport stands empty).

This policy choice represents massive Minerals-Energy Complex-influenced state investments in the next generation’s destruction thanks to climate change, at just the time the students call for social investment in fee-free tertiary education – and the society screams out for an end to the economy’s reproduction of extreme poverty, inequality and unemployment.

NDP alternative facts

Zuma (JZ) explains:

JZ: “Guided by the NDP, we are building a South Africa that must be free from poverty, inequality and unemployment.”

If ‘fundamental change’ is to occur, leaps and bounds will be needed far beyond the NDP’s baby steps. The 2030 NDP target is to “Reduce the proportion of households with a monthly income below $31 per person (in 2009 prices – $46 today) from 39% to zero.”

Instead of a 39% poverty rate, according to the leading University of Cape Town poverty researchers including Murray Leibbrandt, in 2015: “The StatsSA line indicates that approximately 53% of South Africans are poor, but ours suggests that this is closer to 63%.” The NDP had set the survival line far too low (it should be $105 in today’s currency).

JZ: “Social grants now reach close to 17 million people, mainly older persons and children. Many families would not be able to put food on the table if it were not for social grants.”

The $26/month for the Child Support Grant (received by 12 million) reaches only 25% of the poverty line, and is rapidly shrinking in inflation-adjusted terms. Poor people face faster-rising prices, Leibbrandt and his colleagues found, because they “have been relatively overexposed to high-inflation items such as electricity and food.”

Since 2008, household electricity prices have soared more than 300%, while the largest electricity consumer, BHP Billiton, still pays just a tenth of the price poor people do. Food inflation during 2016 was 16.5%, led by maize, samp and chicken pieces, the Pietermaritzburg Agency for Community Social Action calculates. For a family of four, the cost of basic nutritional food, services and transport now exceeds $270/month. The ubiquitous kombi taxi rides cost much more, for not even the dramatic fall in the world oil price ($145/barrel in 2008 to $55 today) made our pumps affordable: from $0.50/liter in 2009, the petrol price here rose to more than $1/liter today.

Also of concern is that even this tokenistic Child Support Grant is now threatened, according to a KPMG review of SONA: “the $270/month minimum wage translates into annual income of $3150. That figure is the current maximum income ceiling for parents to qualify for child support grants. This seemingly suggests that, if the minimum wage was implemented today, many employed workers subject to the $270/month minimum wage would no longer qualify to receive child support grants.”

The NDP also claims that by 2030 it will “Reduce inequality – The Gini coefficient should fall from 0.69 to 0.6” (on a scale where 1 is complete inequality and 0 is complete equality, so 0.6 is still the highest amongst major countries). This is a fantasy given recent trends, for the World Bank estimates that – prior to state fiscal intervention (which is highly biased in so many ways towards the rich and firms like BHP Billiton) – South Africa’s income Gini coefficient is a phenomenal 0.77.

As for wealth inequality, Stellenbosch University researcher Anna Orthofer shows, 90-95% of South Africa’s real estate, pension funds and shares of listed companies are now owned by the richest 10%: “The poorest 50% of the population, who still earn about 10% of all income, own no measurable wealth at all.”

Can the ANC claim progress since liberation? Income inequality became truly obscene under Manuel’s reign as finance minister, with the top 1% moving from early 1990s capture of 10% of the national income to a world-leading 21% by 2008.

At least the NDP was more ambitious on jobs: “The unemployment rate should fall from 24.9% in June 2012 to 14% by 2020 and to 6% by 2030.” In reality, it has been rising – measured even by the artificially low official rate (ignoring those who have given up the job search as futile) – to more than 27% at last count. So what’s the plan?

 

 

JZ: “Government runs effective poverty alleviation programmes such as the Expanded Public Works Programme [which] has since 2014 created more than two million work opportunities.”

Even if there were actually 2.5 million such ‘opportunities’ from 2014-16, they last at most three months (thus an annual average of 208 000). The work pays just $6.30/day, about half what has just been agreed as the minimum wage of $1.50/hour (which is still below the poverty line to support a family of four). Even the NDP argued that such public works jobs should “reach 1 million by 2015 and 2 million people by 2030,” so current levels are 20% of the target rate.

Moreover, there appears no prospect in coming years – what with the Fourth Industrial Revolution on the horizon – to get business to hire more workers.

The capital-labour harmony model

JZ: “The interaction that we started last year between government, business and labour, known as the CEO Initiative, has been most helpful.”

In October, when Zuma’s chief prosecutor harassed Gordhan, the CEO Initiative politely declared war: “We stand as one for the rule of law and against the decision to prosecute the Minister of Finance on charges that are, according to the preponderance of expert legal opinion, without factual or legal foundation and not in the public interest.”

JZ: “Our labour market environment is also showing signs of stability, due to cooperation by social partners.”

In the World Economic Forum’s 2016-17 Global Competitiveness Survey, South Africa was ranked worst in the world in “cooperation in labor-employee relations,” for the fourth straight year. And the current 2.5 rating is way below even the 2.9 achieved in 2012-13 (the year of the Marikana massacre), with steady deterioration in between.

State cooperation with big business, meanwhile, is characterized by blatant corruption. The Treasury’s procurement officer, Kenneth Brown, revealed last November that $17.5 billion per year (out of $45 billion in annual procurement) was lost to supplier overcharging, especially construction companies. What with PricewaterhouseCooper’s ranking of South African corporations as the world’s most prone to engage in ‘economic crime’ last year (at 69%, well ahead of the French and Kenyan bourgeoisies), some of Zuma’s ‘social partners’ are not playing fair.

JZ: “The fight against crime is an apex priority.”

Zuma’s only specific mention of crime in SONA – aside from noting that a May 2016 law “criminalizes the cartels and collusion” yet is thus far untried and untested – concerned Soshanguve Block L’s hijackings and robberies.

JZ: “Unity in action was also demonstrated again this week with the conclusion of the agreement on the National Minimum Wage and on measures to stabilize labour relations.”

Cosatu refused to offer its support until minimum working hours and inflation adjustments are agreed upon, and the state’s attempt to impose a strike ballot will be opposed intensely.

Housing, electricity and water

JZ: “Government is actively involved in the property sector, having provided more than 4 million houses since 1994… To date nearly 7 million households have been connected to the grid and now have electricity.”

The watchdog group Africa Check found three (not four) million houses produced in this period. And while there were many households connected to electricity since the early 1990s, there have been a great many disconnected due to inability to pay, with no further access until they either repay huge arrears with interest or simply resort to stealing. The number of such households is not known but 34 municipalities faced total disconnection by parastatal electricity supplier Eskom last month due to $750 million of arrears.

This is all too reminiscent of the 2014 SONA when Zuma declared that “95 percent of households have access to water.” The next day, the Water Department spokesperson admitted that “only 65 percent of households have reliable services.”

JZ: “The successful execution of the Eskom’s build and maintenance programmes helped ensure stability and an end to load-shedding.”

The primary factor was the 14% decline in electricity demand led by mining and smelting firms after the 2007-11 commodity super-cycle peak (at 23,800 gigaWatt hours/month, falling to 20,400 in December 2016). The end of the load-shedding (blackout) interruptions occurred after the 2015 crash of commodity prices and the massive dumping of Chinese steel in South Africa at the same time, which last year bankrupted the second largest steel producer (Russian-owned Evraz Highveld) and now threatens the largest (Indian-owned Arcelor Mittal), in a spectacular show of BRICS’ corporates’ self-destructive competition.

 

JZ: “Renewable energy forms an important part of our energy mix… Government is committed to the overall Independent Power Producers Programme.”

Leaders in this sector are worried that in reality, Eskom’s chief executive Matshela Koko parrots his predecessor Brian Molefe’s 2016 sabotage of further renewable energy, on the grounds that “all energy sources should be pursued at a pace and scale the country can afford.” (The same reasoning does not apply nuclear energy.)

JZ: “Government is working hard to ensure reliable bulk water supply in the various areas of the country to support economic growth whilst increasing access to vulnerable and rural municipalities.”

For more than a year the national Department of Water and Sanitation has been working hard – but towards bankruptcy. Treasury is considering a formal administrative takeover and Public Protector Busisiwe Mkhwebane and the police Special Investigating Unit are conducting enquiries into corruption involving the $2 billion Lesotho Highlands Water Project and $380 million Giyani Emergency Project, both years behind schedule.

South Africa in the world economy

JZ: “Mining has always been the backbone of our economy and an important foreign exchange earner. We welcome the recovery in commodity prices which has resulted in an upswing in mining output.”

Over the past year, mining again contracted with only August 2016 witnessing a tiny 5% upturn year-on-year but the rest of 2016 recording negative output. Resource rents as a share of GDP in South Africa had peaked at 13% in 2008 but are below 4% today.

 

JZ: “From issuing licences to visas, we should make it easy to do business in South Africa.”

Because Home Affairs backed down from its minister Malusi Gigaba’s tyrannical, irrational 2015 barriers to children’s travel, Zuma could claim “a 13% growth in tourist arrivals” to nine million, the only significant success story of 2016. However, not only did the currency crash in late 2015 help enormously in attracting bookings from wealthier countries, so did the earlier Gigaba-induced crash of tourists, to just 8 million in 2015. According to Africa Check, “arrivals in 2015 were much lower than the corresponding periods in 2014 and 2013, when more than 8.5 million tourists arrived.”

 

 

JZ: “We will continue to partner with the United States and work together on issues of mutual interest such as the full renewal of the African Growth and Opportunity Act.”

The two-word corrective to this fantasy is Donald Trump.

JZ: “During 2016, South Africa also signed a co-operation agreement with the People’s Republic of China to build the Moloto Rail Development Corridor.”

The Moloto line would, experts say, need 100 000 commuters a day yet only 40 000 have been identified on this route to Pretoria. (Even the up-market Gautrain also loses $110 million per annum because it runs at only half its 100 000 capacity.)

These deals with China are proving quite controversial across the region, what with Zimbabwe’s Marange diamonds looted (Robert Mugabe complained the government received less than $2 billion of $15 billion he had anticipated); a failed $1 billion electricity power station in Botswana; and a tragic conflict with Cosatu over immigrant construction workers in a North West plant who cost PPC Cement 25% less to hire than local workers.

JZ: “We successfully avoided credit ratings downgrades.”

There were indeed several ratings downgrades over the past year, and more generally after Zuma took office in mid-2009, especially coinciding with the end of the commodity super-cycle in 2011. True, last December, Standard & Poor’s did not downgrade the sovereign rating in international markets all the way to ‘junk’ status. But it came very close, “lowering our long-term local currency rating on South Africa to ‘BBB’.”

JZ: “We welcome the Goa BRICS Heads of State and Government decision to establish the BRICS Rating Agency.”

The BRICS’ October 2016 Goa commitment was to “explore the possibility of setting up an independent BRICS Rating Agency based on market-oriented principles,” and may not occur as it might simply replicate a half-dozen prior such attempts which failed, according to University of Cape Town finance scholars Misheck Mutize and Sean Gossel. Media reports suggest that the Chinese government is not really interested in this initiative.

JZ: “We will continue to pursue the reform of the international system because the current configuration undermines the ability of developing countries to contribute and benefit meaningfully.”

In late 2015 the only such ‘success’ to date was recorded: the BRICS reform of International Monetary Fund voting, which gave China 37% more power, Brazil 23%, India 11% and Russia 8% – while at the same time South Africa’s voting share fell 21% (and Nigeria’s 41%) as a result of BRIC countries standing on African heads to get their seat at the table.

Alternative facts now face fiscal austerity

These are just some of Zuma’s alternative interpretations of an economic reality for which he now definitely should seek a genuinely ‘radical’ antidote, not more talk-left SONA babble, in order to walk-right further and faster.

A different narrative will enter the public discourse, stage right, on February 22: Gordhan’s 2017 Budget Speech. Given the adverse balance of forces – he is fending off Zuptas on one side, Standard & Poor’s Konrad Reuss on another and diverse leftist pressures (such as #FeesMustFall, unions and service delivery protests) on a third side – Treasury staff are hardly likely to help make South Africa “free from poverty, inequality and unemployment” (but when have they ever?).

That means Zuma’s most sobering thought last Thursday should perhaps be the last word, for it is a sentiment that sounds dangerously ultra-leftist – but at least not alternative-facty, unlike so much else of SONA 2017.

JZ: “Oliver Tambo said, ‘It is inconceivable for liberation to have meaning without a return of the wealth of the country to the people as a whole. To allow the existing economic forces to retain their interests intact is to feed the roots of racial supremacy and exploitation, and does not represent even the shadow of liberation’.”

* Patrick Bond is Professor of Political Economy at Wits University in Johannesburg.

* THE VIEWS OF THE ABOVE ARTICLE ARE THOSE OF THE AUTHOR AND DO NOT NECESSARILY REFLECT THE VIEWS OF THE PAMBAZUKA NEWS EDITORIAL TEAM

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