Following a second quarter retraction of 0.7 percent, South Africa now finds itself mired in a technical recession. The Zuma hangover has properly begun, and the resultant downturn will warp our historical trajectory in fundamental and surprising ways.
I: Mezze splatter
The world hit a grim little economic milestone last month: On 20 August, Greece finally graduated from its third and final bailout programme. More than eight years ago, on 23 April 2010, former prime minister George Papandreou announced that the inventors of both democracy and grilled calamari no longer had access to capital markets, and that the country would require many billions of euros in order to stave off complete collapse.
The euro klatch shuddered, and ponied up — they’ve been ponying up ever since. Greece made much of its own mess, of course, but the mess was compounded by its being lashed to the euro zone. Down came the shackles of Austerity, imposed from beyond Greece’s borders by Bavarian technocrats with triple-barrelled surnames.
€289 billion later, Greece is not so much reformed as transformed, and not by those who inhabit it. Austerity has done very little to improve the country’s economic circumstances: its GDP is still 25 percent lower than it was pre-crash. In other words, a generation of Greeks did the time for their leaders’ economic crimes.
They now know what it’s like having to live in a country colonised by an actuary’s spreadsheet.
Despite the leftist rhetoric and the short-lived revolutionary frisson generated by the Syriza movement, Grexit — or a true default — was never a real option. But as bad as 2010 may have been, it belongs to a different, quainter historical epoch: no Brexit, no Trump, no neo-Nazis marching on the streets of American cities. (Well, no neo-Nazis mass chanting “blood and soil” marching on the streets of American cities.)
What’s become clear is that the world has changed viciously following the crash of 2008 and its attendant crises. Leaving aside some tighter banking regulations and several new iPhone models, it hasn’t changed for the better.
What is there for South Africa to learn from Greece’s experiences? Well, we can console ourselves with the fact that everything ends, even bailout programmes. (This knowledge will almost certainly be useful in the future.) That said, here at the bottom of Africa, the Greek meltdown seemed very far away. That it actually wasn’t — the euro zone is, after all, our largest trading partner — is neither here nor there.
But President Jacob Zuma had other obsessions. His State Capture project, which focused on the near-total strip-mining of Eskom, Transnet and the rest of the state-owned enterprise complex, was a remarkably successful endeavour: he managed to enrich a small cabal of cronies while almost destroying every single working institution of governance, including SARS and the Treasury.
Only 179 “votes” during last year’s ANC electoral conference separated the continuance of the Zuma-led State Capture initiative from the Ramaphosa-led other type of thing. But the damage was done, and very few observers and commentators have been honest as to the extent of the fallout.
Now, the hangover begins. And it’s going to be so brutal that it’ll change the historical trajectory of this country.
II: Turkish leery
We can’t properly blame the Zuptas for the cratering of the rand, but economists have been warning of the dip in emerging market currencies for at least a year now. This grim little sequence of economic horror began not at home, but with the implosion of the fake Turkish economy. (That said, don’t let anyone from the ANC blame “outside factors”. There are always “outside factors”.)
Recep Erdoğan is a hardman nationalist populist moron of the 21st century staple, who fuelled Turkish growth by borrowing in American dollars. As the lira dropped in value, investors became nervous he’d be unable to pay them back. (No shit, right?) Meanwhile, interest rates have been rising in the United States, and so emerging market currencies no longer provide attractive yields. Hence, the rand fell 3.34 percent against the dollar three weeks ago, back when analysts were predicting that South Africa would dodge a technical recession. It was clear then that the currency had become Fat Boy atom bomb in the middle of an economy that had grown fatally addicted to an unsustainably strong rand.
Anyway, as of this writing, the rand sits at R15.34 to the dollar.
Several weeks ago, Goldman Sachs South Africa, which serves as a shill for the corporatist wing of the ANC, that despite the currency dip, South Africa’s fundamentals remain sound, and that we were on the “right track”—evidenced by the fact that they projected over 2 percent year on year GDP growth for 2018. But which fundamentals would those be?
The part where the economy shrank by 2.2 percent in the first quarter of 2018, the biggest drop since 2009? The part where June’s public sector wage settlement blew past budgeted estimates by R30-billion the government doesn’t have? The part where the government has a R50.8–billion tax collection shortfall problemo because SARS was used as the deadliest weapon in the gangster state’s arsenal?
The part about a 52.5 percent youth unemployment rate, which rises to over 65 percent if discouraged job seekers are included?
Goldman’s bafflegab was likely an attempt to mute the impact of a report released by Moody’s ratings agency around the same time. It contends that the most recent budget’s “fiscal consolidation targets” — read: austerity regime — will be botched. This is despite the fact that in April VAT was raised to 15 percent, effectively imposing a corruption tax on every single South African. Fuel levies were raised 52 cents per litre. And the poor were whacked even further by the sugar tax, initially termed a “health promotion levy”, even though state hospitals have been reduced to charnel houses. (The supposedly commensurate rise in social grants is little more than a sick joke.)
III: Recession sessions
The ANC’s response to the floundering economy has been typically incoherent. In the mode of a banana republic either anticipating or experiencing a structural adjustment package, President Ramaphosa has promised to shave down the public sector by 30,000 employees.
Shortly before this, he gave a speech in his capacity as president of the country. He laid out the ANC’s policies on land expropriation without compensation — it’s a go, folks! — and on jump-starting the shitty economy — a massive stimulus package focused on women and “the youth”! How does the government engineer a stimulus initiative in the middle of an austerity regime? No idea. But that’s the ANC for ya. (FYI, the stimulus package would, according to Finance Minister Nhlanhla Nene, cost around R48-billion.)
Compounding this mess, South Africa in general — and President Ramaphosa in particular — still thinks of the nation as a mining Mecca. It is not.
Mining corporations have killed 51 people so far this year in on-site fatalities, 17 more than were murdered in the Marikana massacre. South Africa recorded 490,000 mining jobs in 2005. There were 190,000 at the beginning of this year. There is still no mining charter, and thus no agreement between the government and corporations on what transformation actually means.
The platinum belt, due to diving prices and horrendously operated companies, is presently being transformed — into a desert. And while the standard line is that government and mining corporations can’t agree on anything, corporate/government collusion has robbed billions from communities across the country.
Meanwhile, Mining Minister Gwede Mantashe, a politician so past his prime he might as well be serving in a Palaeolithic era century, makes absurd pronouncements on job figures, and even had the temerity to invent his own land policy: he promised that farms over 12,000 hectares would be subject to expropriation, this at a time when the government doesn’t know how many farms there are in the country, how big those farms are, nor how to define the term “farm”. (I should add that in the second quarter of this year, mining was one of the only sectors of the economy that posted positive growth. This is when you know you’re fucked.)
And while we’re on the subject of the private sector, the white men in suits are sitting on record cash deposits of R810-billion. Despite the fact that South Africa boasts one of the worst rates of corporate corruption in the world, these upstanding citizens are afraid of investing in South Africa… because of all the corruption. KPMG, McKinsey, Multichoice, Steinhoff, SAP: I could do this all day. The self-serving self-righteous short-termism is staggering: not only did the economy fail to transform following apartheid, it calcified into an actively anti-poor regime of monopolisation.
Even so, you can’t really blame the bastards. They do it because they get away with it.
On one element of South Africa’s fundamentals, Coleman was correct — even Moody’s was bullish on our ability to meet the budget deficit target by 2020/2021, and for debt to stabilise at 56 percent of GDP. But it’s difficult to justify this outlook when a staggering 11 percent of debt to GDP ratio is devoted to SOEs, 6.5 percent of those 11 belonging to the exploding dwarf star Eskom.
As Moody’s noted, guarantees to these Zuma-gutted relics could reach R795-billion this year. There is a big argument to be made for bigger debt-to-GDP ratios — in other words, borrowing in order to create stimulus — but not in South Africa, which has borrowed around R1-trillion in the past eight years in order to prop up the likes of SAA, which simply doesn’t make any business sense. (Even the Maoists in Ethiopia are partly privatising their national carrier, which is far better run than SAA could ever hope to be.)
The one upside is that there are real opportunities for economic growth in judicial commissions of inquiry, at which we excel. The Judge Zondo commission, currently under way, will cost the fiscus R230-million — cash that would have been better spent, frankly, on furnishing Nkandla with a few more bay windows and a home theatre for the chickens. And while the commission is showing us just how revolting it was to make the Zupta sausage, I’d wager that South Africans prefer prosecutions over testimony, however shocking.
The other upside — what I take to be the single largest opportunity South Africa has ever encountered — is land reform. But even here the ANC can’t get its messaging straight. It fell for the Economic Freedom Fighters’ tactic of demanding a constitutional amendment for Section 25, which will explicitly allow for expropriation without compensation, effectively chasing away the kind of policy certainty that outside investors require.
Team Ramaphosa has been swanning around, showing off fake investment cheques from the Xi Jinping and Theresa May, of all people. But the deals come with murky terms, and the truth is that the South African economy faces the real possibility of a ratings downgrade.
Any money that comes our way will be enormously, catastrophically expensive. In fact, we may soon call the International Monetary Fund our bankers of choice, which is another way of saying that, much like the Greeks, our sovereignty and our agency will have been outsourced to our creditors. It’s impossible to quantify what that means over the long term to national dignity.
The blame game has begun: its all because of neoliberalism, or socialism, or socio-neoliberalism, or white people, or black people, or Indian people, or colonialism, or neo-mercantalism, or Trumpism, or the national democratic revolution, or the failure to understand millennials in the workplace. And while several of those factors certainly apply, the economic mess is a direct result of a failure to govern.
Cyril Ramaphosa deflects responsibility for the cratering economy, but he and the rest of the governing class protected and enabled Jacob Zuma’s plundering project for over a decade. They allowed him to get away with it, they allowed his cronies to get away with it, and they never allowed themselves to understand the existential threats that State Capture posed to the lives of every South African who has to earn a crust in the sandblasted hellscape of late-stage capitalism.
In a globally connected mega-economy, outside factors always count. But South Africa pissed away the possibilities offered by a decade of rampant global growth, and now we sit at the bottom of a curve that actually has no bottom.
The rich, of course, will be fine. But South Africa doesn’t have a wide-enough taxpayer base to weather successive downturns. And average South Africans, most of whom are poor and black and were screwed over by the previous dispensation, deserve something better. DM