All year, alerts have asserted that SA is approaching the edge of a cliff. Such warnings build on last December’s success at avoiding capture of the national Treasury. But there are risks.
The concept of not letting a crisis go to waste is sound. This is unless repeated raising the alarm about one crisis diverts attention from another, larger one. A ratings downgrade would be far less consequential than Treasury being captured by cronies. Yet even if Treasury’s independence and SA’s investment grade credit status are maintained and economic growth improves, a major historic challenge appears to have been provoked.
SA has never come close to providing adequate opportunities for the average South African. Now, rather suddenly, national politics and international economics suggest a troubled long-term trajectory. The window that opened in the early 1990s for achieving broad upliftment seems to be closing.
A new voting regime emerged last month. As long as poor and low-income households make up massive voting blocks, potent incentives will encourage capturing their votes through aggressive populist measures. Such paths align well with patronage strategies.
Focusing on prospective credit downgrades distracts from appreciating that marrying patronage and populism would not only be devastating to SA’s economy; it has become the path of least resistance.
The crony crowd is expected to prevail at the ANC leadership election conference next year and the party’s odds of maintaining a majority in 2019 are diminished, but still quite high. Threats of credit downgrades provide opportunities for the cronies to be seen as making concessions and losing skirmishes - all the while further entrenching their patronage machine.
The cronies have many cards to play. It is hard to know when an apparent setback for them is actually a tactical diversion. “Being forced” to buy a smaller presidential jet or to ratchet down the proposed nuclear programme will make headlines but such tolerable setbacks are quite acceptable to them so long as the patronage network prevails through 2019.
The risks posed by rampant populism have not been lost on the credit agencies nor have they failed to focus on SA’s need for a powerful growth model. The real ticking timebomb relates to how time is running out for SA to develop an economic model which meets the country’s broad needs.
In addition to there being no promising plans to oust the cronies, the National Development Path and the New Growth Plan look less capable than ever. Since they were drawn up, the pace of global growth has slowed and currents have shifted in directions less aligned with SA’s interests. The ruling party is in disarray and the opposition party is suddenly severely stretched.
The sharply lower commodity prices of the last few years reflect a profound global shift from industrial-led growth to services-led slower growth. All resource extraction focused economies must adjust. SA’s transition must also correct a wide range of anti-business policies which impede inclusive growth.
SA’s challenges have always been a jumble of politics and economics. Geology has been kind whereas geography and politics excluded SA from integrating into what has become an intensely integrated global economy. Now, as the value of SA’s below ground treasures have been sharply impaired, probably permanently, technology has flattened many of the costs which underlined SA’s geographic isolation.
The dominance of the patronage crowd has come at the expense of the SACP. The influence of trade unions has also suffered. Unlike communists and unionists, cronies are not offended by investors seeking profits. They could be far more amenable to the profound policy adjustments necessary for SA to steadily ratchet up its global competitiveness.
Prominent among the resource endowed countries which are transitioning effectively into the age of services-led growth are the United Arab Emirates and Qatar. SA can compete effectively with such countries as well as high growth India. But investors and businesspeople are not going to jump out ahead of policy makers.
Among SA’s formidable competitive advantages is that the country is a beautiful place to call home. The 2010 World Cup demonstrated that the country can collaborate to achieve high global standards.
The core patronage crowd should want to relax comfortably in retirement. Perhaps the key warning to heed is: Whether SA flies or falls hinges on aspiring to both collaborate and compete.
Shawn Hagedorn is an independent strategy adviser
