Opinionista J Brooks Spector 6 February 2018

Africa’s Next Round: A Poisoned Chalice, a Hobson’s Choice and a Zero Sum Game

Too much of the current commentary is what in America has come to be called horserace political reporting. But there are issues and policies to debate and a future to consider for anyone who would be in charge.

The first time I lived and worked in South Africa, over 40 years ago, whenever I spoke with business figures, their minds were on the possibility of keeping up with the industrial and business developments in some of the smaller European and Asian economies, places such as Italy, Spain, the Scandinavian, and the Benelux economies. Such countries were ahead of South Africa, to be sure, but the race was on – and besides the great weather and scenery, South Africa was awash in the natural resources that could power the economy forward, despite the anchor of apartheid policies holding things back.

Then, in the late 1980s, when my family and I returned to this country, most people we spoke with would admit that those top drawer OECD economies had lapped South Africa and there was little chance of catching up, but there was still a race to be run – and maybe win – against the Little Dragons of East Asia such as South Korea, Taiwan, Singapore and Hong Kong, among other smaller, rapidly industrialising nations.

But, returning to South Africa for a third time, the conversations had by then turned to how competitive South Africa was with such countries as Turkey, Botswana, Rwanda, Kenya and Nigeria, let alone places like Mexico or Chile. The acknowledgement was that the Asian dragons had flown right past South Africa, and in their wake, places like Bangladesh, the Philippines, Vietnam and Sri Lanka were already in the process of elbowing South Africa out of the running lane.

(Of course, had apartheid somehow persisted on through to that third assignment, the discussion with economists and business figures might well have been how it might still be possible to stay close to a clutch of West African nations and a war-torn republic or two elsewhere, instead of a booming place like Rwanda.)

This has all been years in the making and it will take years to undo much of the damage. The de-industrialisation did not happen overnight and it will not be reversed easily – if at all.

Many of the difficulties of this problematic and troublesome present – socially, politically and economically – now flow from the alarming policy drift; the inconsistencies and prevarications in government policies towards growth and investment; the rampant corruption and captured state organs that have evolved from almost a decade of misrule by Jacob Zuma and his (now dwindling) coterie of government cronies – and their increasingly grasping, and visibly desperate business associates. The problem, of course, is that much in these circumstances is not immediately fixable by simply switching the country’s apex politician – regardless of his impulses. Much of the rot is simply too pervasive and too deeply embedded now.

And, of course, too, this is not simply a matter of domestic politics. It is much more than simply vote counts and debates in the various organs of the current governing party, or calculations of how the votes are coming out, or of the various clashes between warring groups in the streets. The larger perspective of how to govern a nation is being lost in all the to-ing and fro-ing over how much longer the incumbent president will continue to reign or how he will be replaced.

And yet that larger perspective is precisely what will be crucial in the years ahead for the country’s success. This will be true even assuming Cyril Ramaphosa becomes the nation’s president shortly, or even if he wins a general election in 2019 as head of the party.

Looking back over the past two decades, it is important to note that South Africa largely failed to take maximum benefit – in terms of new investment, of job creation to decrease unemployment, of vastly adding to the nation’s infrastructure, of royalties and tax revenues – largely deriving from the previous commodity boom. Now, the globe is entering yet another commodity boom cycle – most of the globe’s leading economies are growing at increasingly robust rates.

But with this country’s current policy muddle over the rules of the road for mining, and with a mining minister who is both politically and ethically compromised and also unable to articulate a clear policy direction, the risk continues to grow that South Africa will miss this cycle again. And investment will go elsewhere instead of into South Africa where it is desperately needed. It has been easy to say that mining is now a minor share of the economy and employment, but it still accounts for over 40% of foreign exchange earnings for South Africa, even as its global place for many minerals such as gold (!) continues to slip in international rankings.

The country’s government – if it is not going to be forced to confront yet another lost decade – must, at the minimum, find a way to reassure potential investors that the political and social landscape is going to be inviting; that the policy environment is consistent, and that good returns are possible for businesses that commit themselves to the country’s growth as well as their own.

(Of course, with enough of a promise of a return on investment – ROI – nearly any place is a possible investment venue, even a place like the Democratic Republic of the Congo. The returns on coltan mining there, for example, are sufficiently good that as long as a business can get away with hiring young children and paying such workers a pittance, as well as contracting with mercenaries to guard the works from raiders, the money will show up to support such digging. But who really wants to build a modern economy on such efforts and with such social costs?

The core challenge for any government in South Africa is that there is simply no consensus over how to build the economy. There is no agreement on how to create an educational system for the future world of work for all its citizens. Similarly there is no national consensus on how to finance expanded education and health expenditures. Moreover, there is, as yet, no national agreement or compact on how to carry out a process of building a more equitable dispensation of its land resources that takes into consideration the iniquities of the past even as it guarantees national food security.

But absent a government that can lead cogently and build broad national buy-in for its actions as well as its plans, the country will increasingly be overlooked or deliberately avoided by future foreign investors. Along the way, of course, if the government’s sovereign debt (with its knock-on impact on the bonds of state-owned enterprises and even private commercial debt issues) falls below investment grade ratings, the cost of borrowing will rise dramatically, putting yet more of a drag on an already overstretched national budget and its ability to fulfil the deeply felt expectations of the population. Such developments would not be a good landscape for even a decisive, competent, determined government in efforts to meet the promises it may make to its citizens.

Of course foreign investors do not simply rely upon cost-benefit analyses, market surveys, or consultants’ evaluations of likely returns on investment. Potential foreign investors, investment advisers and international economic consultants, and international institutional analysts also track the news and how it is covered. And right about now, the only two stories with any traction from South Africa are the chaos in the nation’s political environment – and the imminent collapse of water access in Cape Town – or “Day Zero” as it has been dubbed. Day Zero may be bad enough but there will be Day Zero +1, +2 and so forth.

The thought of four million-plus people lining up for their daily allotment of water at public squares from tanker trucks while guarded by police and the army – and international broadcast images of the city’s magnificent scenery being juxtaposed with a scene reminiscent of a third world nation in the grip of a horrible civil war – may well be sufficient to convince people South Africa is not ready for prime time any time soon. The global admiration of “Madiba Magic” and its fabled storyline from a generation ago has long since faded, and Cape Town’s travails (plus a growing realisation that water issues transcend that city) will put a punctuation mark at the end of any remaining afterglow to the golden era.

And still, even now, the city, the province and the national government (not to mention civil society and business) have yet to seize this moment to demonstrate any unity of purpose or a real grasp of the crisis that is coming – and one just over the next ridge line, like invaders ready to pounce at their discretion. Moreover, there has been virtually no demonstrable appreciation that the current water crisis can fatally undermine the region’s two key economic drivers: tourism and agriculture. Few tourists, after all, are going to want to spend money to visit a place where simply staying clean and appropriately hydrated are virtually insurmountable tasks, let alone staying in facilities that have been well-scrubbed. And that will quickly take much of the air out of the property market and the construction sector, further generating yet more job losses in the region.

Maybe it doesn’t even matter much whether the country is governed, alternatively, by a desperate incumbent president grimly holding on to his throne while his putative replacement tries to push him aside in order to confront the upcoming election in 2019; or by a president pushed out of office in the next few weeks to be replaced by the party’s president and with the inevitable sniping and in-fighting by Zuma’s former backers and supporters; or even if the incumbent president goes quietly, recognising the need to unify his party for a chance to hold onto governmental power in the next general election. Regardless of any of these outcomes, those underlying problems will remain – and they probably will remain intractable, even if various Cyril Ramaphosa missions to Davos and related international conferences and forums are unremittingly positive and upbeat in their words. Regardless, there will still remain a government budget stretched beyond its ability to cover its costs, the deep divisions and unhappiness among the country’s citizens over unfundable promises unmet, and international investment decisions foregone and – instead – going to Thailand, Rwanda or Chile.

In that sense, no matter how Cyril Ramaphosa gains the country’s presidency in the coming months or if he gains a full term of office next year, a national leader in South Africa is going to be in the awkward and dangerous position of calling on citizens to sacrifice in the face of difficulties. He will have to argue that the nation must somehow come together across divides that so many organisations and bodies have been stoking and feeding. And, crucially, that those who still have very little must put aside their real grievances in the face of yet a new national need for patience, forbearance and tolerance, where there has been very little of these values on display in recent times.

And he will have to do this in a world where there are so many other places for investors to weigh carefully in their plans. Of course, all bets are off if the struggle between Ramaphosa and Zuma continues on into the coming year. By the time that is over, as unemployment soars, as the currency takes a new beating or becomes increasingly erratically priced, as the country falls out of those global bond indexes, and still-unknown black swan events make things that much more difficult, people may begin to look back longingly to the halcyon days of the early part of the Zuma era, when a jolly, man-of-the-people populist seemed on a course to reverse some of the paranoias and excesses of the Mbeki era.

But if that happens, don’t expect international capital to rush to bail out the country with any kind of mythic Marshall Plan. South Africa will just have to stand in line with other nations in deep difficulties, swallow hard and accept the IMF’s conditions for economic support. And nobody here will like that outcome, except for the doomsayers who can then say, “We told you so.” DM

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