Defend Truth


The new world order beckons and South Africa has chosen its endgame


Natale Labia writes on the economy and finance. Partner and chief economist of a global investment firm, he writes in his personal capacity. MBA from Università Bocconi. Supports Juventus.

Why deal with the meddlesome, lecturing and patronising West when one can deal with emerging, autocratic powers who are altogether more indulgent of sclerotic post-liberation movements hellbent on hanging on to power?

Pity Ajay Banga. The new president of the World Bank, who started his job this week, will oversee a much-diminished organisation compared with that of the 1980s and 1990s. 

Then, in the glory days of the Washington Consensus made famous by the cult book, “Confessions of an Economic Hitman”, the Bretton Woods institutions of the World Bank and the International Monetary Fund (IMF) were the long arm of America’s economic and political might, projecting its heft through macroeconomic policies enforced on the long-suffering Third World. 

Terms such as “structural adjustment” and “conditionality” evoked contempt towards the US from many (including leftist economics grad students, as this columnist once was).

Much has changed. First, low interest rates have made World Bank and IMF funding far less alluring. Free money in effect opened up international capital markets to formerly barred sovereign borrowers. Why should a country like Zambia bother with the red tape and meddling from a World Bank loan when it can just raise a $750-million, 10-year Eurobond at a 5.375% coupon with zero conditions attached, as it did in 2012?

Second, China has long since surpassed the Bretton Woods institutions as the primary lender to the emerging world. According to data from the New York Times, China has extended almost $1-trillion of loans to 151 emerging markets in the last decade, making it by far the most important and influential creditor.

Finally, the BRICS countries have stated their desire to break free of the monetary and fiscal clutches of the West’s financial straightjacket. 

Sanctions imposed on Russia following their invasion of Ukraine – which led to around $750-billion of foreign exchange reserves being in effect confiscated by the West – made clear the vulnerability of countries like China and India to the dollar. The greenback will not be replaced overnight, but its omnipresence will wane. As this happens, so will the centrality of the World Bank and IMF.

All of the above matters for South Africa. As long as sanity prevails in the National Treasury and at the SA Reserve Bank, the country is far from a default. However, the trend lines of its macroeconomic deterioration are clear.

Since 2010, SA government debt to GDP has ballooned from 26% to 71%. 

It has gone from running a budget surplus in 2007 to consistent budget deficits of more than 4%. The cost of the SA government borrowing for 10 years has risen from under 7% in 2013 to almost 12.5%. 

SA government one-year CDS, or the cost of insuring against its default, has gone from $7 in 2007 to $133. 

Last week in its financial stability report, the SA Reserve Bank warned that local investors may be unable to take up the bonds dumped by foreign investors from 2019, especially with ever-higher volumes of issuance.

Given the realities of political mismanagement and endemic corruption, it is very hard to imagine how these trends will be reversed. If they are not, at some point in the future – be it in three, five or 10 years – South Africa will require emergency external funding in order to pay its bills.

If bankruptcy is assured, then the moment calls for clear-eyed realism. 

Perennial Cassandras of SA’s political economy, like RW Johnson, have long predicted that the country will eventually be reduced to going cap in hand to the IMF and the World Bank for a bailout package. However, the ANC may be several steps ahead of such commentators. 

Dewy-eyed observers like Johnson are stuck in the past, wedded to the context of the 1980s and 1990s. Times have moved on. There has been much confusion and even ridicule as to the SA government’s determination to side with its fellow BRICS members, especially China and Russia, much to the chagrin of the West. 

How can SA possibly snub its most critical trading partners, such as the US and the EU, risking sanctions and economic ruin? The answer is that for the ANC, there is something far more important than trade and economic growth – and that is survival.

The ANC has realised that the Bretton Woods institutions do not enjoy the monopoly of being the lender of last resort to bankrupt sovereigns they once did. 

When coffers run dry and the existing appetite for SA debt is exhausted, it will be critical to choose a lender willing to acquiesce to their overriding priority of staying in power at all costs, regardless of what any democratic process might say. 

Why deal with the meddlesome, lecturing and patronising West when one can deal with emerging, autocratic powers who are altogether more indulgent of sclerotic post-liberation movements hellbent on hanging on to power?

The IMF and the World Bank were far from perfect. 

Their structural adjustment and liberalisation policies supercharged the brutal realities of globalisation, impoverishing millions. However, South Africa’s economic collapse will force it into the clutches of some or other lender of last resort. 

For those that value ideals such as democracy, free speech and the rule of law, being an indentured debtor to the likes of China will be a nightmare. 

The ANC has chosen this endgame. DM


Comments - Please in order to comment.

  • Errol Price says:

    This is certainly one of the most astute analyses of the ANC mindset written in recent times.
    It also demonstrates why those who endlessly implore the ANC to pursue sound economic policies, observe the rule of law, respect the precepts of a constitutional order which they supposedly endorsed have as much chance of changing anything as a dog baying at the moon.

  • Pet Bug says:

    Good analysis of we’re the ANC is heading.

    But the sentence “ Their structural adjustment and liberalisation policies supercharged the brutal realities of globalisation, impoverishing millions” is surely incorrect.
    The world’s population has never had it so good the last 50 odd years, ever.
    A quarter of the world’s population is poor, but 100 years ago, a larger proportion were dirt poor.

    • Natale Labia says:

      Thanks for the feedback. I would argue that the majority of people lifted out of poverty in the last two decades (mostly in China and India) were not affected at all by the structural adjustment/Washington Consensus programs foisted on other parts of the global south in the 1980s and 1990s. On that the track record of the World Bank to alleviate poverty is mixed (as it has subsequently admitted)

  • Carsten Rasch says:

    Astute analyses, in case anyone still wonders about ‘why’. It’s less about Russia than it is about China. I’m no supporter of the American way, but the Chinese way is incomparably worse. Give me democracy, even broken democracy, any day.

  • André Pelser says:

    This is not a bipolar issue, governments can tap both sources of loans. Chinese terms are as potentially damaging as those of the Bretton Woods institutions. Bilateral development aid programmes must also be included in this mix. Most important are the values that underpin democracy and the fundamental concepts of rule of law, freedom of movement and expression, separation of powers and free and fair elections.

    • Natale Labia says:

      Fair point, just not sure in that instance the ANC would be willing to tap IMF loans with harsh conditionalities given alternatives. But let’s see.

      • André Pelser says:

        Western development “aid” to counter the Chinese belt and road programme? Both have strings attached.
        Development Aid as a foreign policy instrument does not get the attention it should.

  • Roelf Pretorius says:

    Well, the ANC must look at what happens in other countries who borrowed money from China, when they can’t pay the money back. China simply comes in and take over the enterprises which were funded. I don’t want to be part of the ANC when that happens, because my information is that the ANC voters are not going to be impressed once that happens. And the culture that the ANC has developed in SA will put their houses in the line of the protests that will follow. Eventually the IMF and World Bank will be a far better option even for them too.

  • David Forbes says:

    I agree there has been “political mismanagement and endemic corruption”, but the “sanity of Treasury & SARB” takes no account of a brewing revolution due to poverty, inequality and joblessness. Wonderful to concentrate on how GDP is slowing, etc etc, but these are Western economic markers that do not take any account of the well-being of the mass of South Africans, most of whom go to bed hungry! Most! But all this is forgotten in the hysteria against BRICS and defence of Capitalism. Well, China is actually our biggest trading partner, and we have not chosen to become an indentured debtor to China, we have chosen a path of non-alignment, meaning we trade with everyone (as does everyone else in the world), and we are free to make our own decisions. It is only Western-schooled and biased economics writers like Natale Labia who can’t see that the Western Empire is in steep decline, and multilateralism is the future.

  • William Dryden says:

    I think they should teach Chinese and Russian language at schools just in case.

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