NEWS & ANALYSIS

Where to now?

RW Johnson says Zuma's antics the past week have given a deeply disconcerting glimpse of how poorly governed we are

Reflections on Our Present Discontents

It says something that the best comment on the sacking of Nhlanhla Nene as Finance Minister came from Julius Malema. Describing the situation as one of “pathological crisis”, Malema said that “No one in the world will trust a political leadership that changes cabinet and finance ministers like underwear.” It is also difficult to argue with Malema's reference to Nene's replacement, David Van Rooyen, as having “questionable political credentials” - after all, Van Rooyen may have been mayor of the great city of Merafong but most diplomats and journalists would have some trouble locating that town on a map. Moreover he is not even a member of the ANC's national executive committee.

The NEC can have as many as 115 members so Van Rooyen has not previously been considered to be in the top 115 of a party which has no abundance of talent. Malema went on to suggest that the reasons for Nene's sacking – and it was a sacking: Zuma said simply that “I have decided to remove” Nene, gave no reasons and no other job for Nene to move to – were Nene's refusal to countenance first class travel and five star hotels for Zuma's staff, Zuma's wish for a new personal jet, the continuing pantomime at SAA and Nene's lack of enthusiasm for the projected nuclear deal.

In truth, most actors in the markets had a check-list of reasons very similar to that. Finally, Malema suggested that Van Rooyen had been chosen because he would be quite unable to stand up to Zuma and would be “absolutely starstruck” by his own sudden promotion. The markets made the same assumption when they immediately saw the Rand fall from 14.58 to the dollar to 15.38.

The shock created by Nene's eviction was profound. The only politician who grabbed the chance that this presented was Aaron Motsoaledi, the minister of health who had been instructed to get together with the Treasury to present a joint White Paper on National Health Insurance. The Treasury, knowing full well that NHI was an unaffordable dream, had consistently dragged its feet over the fantasy plans for the costing and funding of this gargantuan project.

Motsoaledi, who is not only strongly committed to NHI himself but is keenly aware of ANC and Cosatu pressures to deliver this project, rushed out a White Paper on his own, using a 2010 rough cost estimate instead of the worked out proposals that had been required. The idea, clearly, was to push through these half-baked plans while the Treasury and cabinet were at sixes and sevens.

Laughably, Motsoaledi's plan was based on the happy dreamland of a steady GDP growth rate of 3.5%. But within days Van Rooyen had been unceremoniously replaced with Pravin Gordhan – Zuma came up with a statement saying this was the result of much reflection and consultation, which rather begged the question of why he hadn't reflected and consulted before sacking Nene. The answer, without much doubt lay with Gwede Mantashe, who had been tight-lipped and furious at the damage done by the Nene sacking. Mantashe – and perhaps other members of the top six – had clearly let Zuma know of their strong displeasure.

Ironically, this places Gordhan – who was a weak finance minister in 2009-2014 – in a position of great strength. Even if he stands up to Dudu Myeni, Motsoaledi and the nuclear lobby, he can hardly be sacked now. But it is almost certainly wrong to imagine that he will play the role of the Iron Chancellor, the Horatio who holds the bridge. It is all a bit too late. This week's antics almost certainly imply a recession in 2016 and that will make a further credit downgrade extremely hard to avoid.

When I published How Long Will South Africa Survive? in May this year I suggested that South Africa was heading fast towards a major economic crisis as its bonds got down-rated to junk status. Thus far events have followed this script almost to the letter. But shortly after the book's publication I got a waspish email from a gentleman who worked in the Treasury who said I had things completely wrong.

Did I not realise that the Treasury had the situation completely in hand and that a tough fiscal discipline was in place which would steer us well clear of the rocks? I did not reply because, I realised, the real differences between us were a matter of judgement. He could certainly point to a whole series of statistical commitments by Pravin Gordhan and then by Nene to bring down the budget and trade deficits. The question was, how much credibility did those commitments carry?

My own assumptions were based on looking at the strength over time of the multiple pressures for higher public expenditure. It was, in particular, difficult to believe that the government had the mettle to stand up to the civil service trade unions. There was the enormous political pressure to keep increasing both the amounts and the number of recipients of social grants. There was the complete unwillingness of the ANC government to insist on financial discipline at any of the parastatals and thus always the likelihood that they would be bailed out no matter how large their deficits and no matter how irresponsibly they had been incurred.

Even when PetroSA incurred losses of over R14 billion in a year, it was not allowed to go bust. There were also the large promises already made for vast and unaffordable new spending on NHI and nuclear power stations. At that point none of us had factored in such new pressures as those for lower university fees, let alone for free higher education. If you looked at the track record it was simply very difficult to believe that the government would hold the line. If a Finance Minister really tried to do this, he would be sacked. QED.

Why is this so? There are, I think, three reasons. One is that the economy has been so lamentably mis-managed that there is a tendency to let public spending take the consequent strain – through new investment projects, more pensions, more grants and even down to creating large numbers of jobs. But the key point is that the ANC state relies completely on patronage networks and on private looting.

What this means is that there is always more pressure to find new means of patronage – new jobs, new contracts, new tenders and so on. And the expectation of the clients in this patronage kingdom is that each of these new initiatives will carry with them opportunities for extensive private gain. Both of these two factors require public spending to keep inching up.

Perhaps the best metaphor is that of an advancing crowd. Those in front face soldiers with guns, are scared to death and dig their heels in, trying as hard as possible not to be pushed forward. But behind them there is a large and happy mob, full of demands. It cannot see the danger in front and so it continues to push forward.

Together, such merrily ignorant folk exert quite unstoppable pressure so that the people in front are relentlessly pressed forward, despite all their efforts to stand fast. Nhlanhla Nene was the most important man in that front row. After a brief game of musical chairs, Gordhan stands in his place. But the crowd still presses on.

While Gordhan may be stronger than before in relation to the President, he is considerably weaker in relation to the markets. It is not just that we now stand just one notch above junk status. The main point is that Zuma's antics in this last week have given a deeply disconcerting glimpse of how poorly governed we are. After sacking Nene Zuma blundered through an address to a business audience full of paranoid imaginings and fundamentalist assertions.

In the midst of this meandering performance he revealed that he did not accept that value was dictated by the laws of supply and demand; instead he was an adherent of the labour theory of value which even Marxist economists stopped defending by the 1960s. In truth, Zuma is a semi-educated street corner activist and it showed. Zuma's hasty denial that he had had another love-child with Dudu Myeni merely drew attention to the fact that he had put the country's economy at risk in order to placate one of his girl friends – probably not even realising that he was doing so.

To put it mildly, the markets have been deeply shocked to see that a G20 country like South Africa could be governed in such a Ruritanian fashion and many investors were made to feel that they had dramatically under-assessed the country's political risks. That is why South Africa was already paying 8.6% on its debt until Nene's sacking took this figure to 10.4%.

This in turn is bound to create pressures for cuts in public spending, always an extremely tough ask for any finance minister in a situation of low or no growth and high unemployment. But what makes it all so much harder is the complete lack of economic education among ANC MPs and ministers.

Currently, it is easy to find activists of all stripes who advocate an all-out attack on inequality without any consideration for the fact that redistributive policies quite normally throttle growth. Others happily advocate a high minimum wage with no concern for the higher unemployment this would cause. And at a time when there is increasing talk of a tax revolt there are still some gentle souls advocating far higher rates of tax to fund NHI, free education and other such Scandinavian delights: a particular favourite since the flying visit of Thomas Picketty is a wealth tax.

No one seems to notice that when President Mitterrand attempted to introduce such a tax in Picketty's native France it quickly became a laughing stock, raised only a miniscule amount and had soon to be scrapped. This is all just froth and the time cannot now be long delayed when the considerably harsher contours of our real situation are made plain to all.

This is an amended and extended version of an article that first appeared in Rapport newspaper.