The down-rating of South Africa's credit status, first by Moody's and then by Fitch, marks a new stage in South Africa's history but its full effects will be felt only later in the year. The Covid-19 crisis has dealt an enormous economic blow to developing countries: commodity prices have plunged, as have tourism receipts and capital has fled.
South Africa faces a huge budget deficit and runaway debt. The Institute for International Finance has singled out South Africa as one of the most vulnerable cases of all, in large part because of its prior and appalling economic mismanagement. Its situation now, the IIF says, “is increasingly untenable” and the country needs to approach the IMF for help as soon as possible.
All three of the credit rating agencies have concluded that the Pretoria government is incapable of carrying out the structural reforms which alone could obviate the need for such a bail-out. Ramaphosa's sudden enthusiasm for such reforms is thus implicitly dismissed as lacking credibility. In effect Moody's held their hand for two years because they thought Ramaphosa might bring real change, but they have now given up on such hopes.
South Africans are slowly beginning to confront what this means: in effect the credit-rating agencies – which are mere proxies for the international markets – have concluded that the whole experiment of ANC government has failed. This judgement will take increasingly concrete form as South Africa is pushed inexorably towards an IMF bail-out. This effectively means surrendering economic sovereignty so that the IMF can force through the structural reforms of which the government has proved incapable. There will simply be no dodging the huge failure that this represents.
This is a large psychological hurdle. Many will find it hard to admit that the whole ANC adventure in government, launched with such euphoria under Mandela, has failed so badly that control of our economic policy must now be handed over to foreigners. We have already seen hysterical articles in the press expressing the first two stages of mourning – denial and anger.
Some “progressive” economists insist that we must just somehow find the money to spend our way out of this crisis. This could only be achieved by a Zimbabwe-style hyperinflation. There are angry denunciations of Moody's for its 'heartless cruelty', while Blade Nzimande has denounced the IMF and declared that it has never benefited any developing country.
Oscar van Heerden, writing in the Daily Maverick, asserted that the IMF was “infested, sick” and would give South Africa far worse viruses than Covid-19. He assured us that South Africa's problems were not financial at all and that opting for a bail-out would undermine South Africa's ambition of “reforming the global multilateral financial world”.
He argued further that the IMF has “created a lot of countries suffering from debt dependency” - ie. they keep going back to the IMF time and again. So if Mboweni goes to the IMF he will “enslave generations to the debt trap of the IMF”.
Imraan Buccus, writing in the Sunday Times, asserted that the Left would never allow an IMF bail-out because “the IMF is a key weapon of contemporary imperialism that has been used to undo the national sovereignty achieved by the anti-colonial movements...it subjects the national interests of countries across the global South to the interests of Western capital”. He expressed the hope that the ANC Left would get together “with the Left outside the ANC” - presumably the EFF – to stop this.
Part of this hysteria is based on the confusion that the IMF has been talking of offering relief to poorer countries hit by the Covid-19 crisis. Applying for such help is a very different matter than asking for a bail-out and no wonder Mboweni has said he would be interested, but then so have 89 other countries. Already the IMF has disbursed a soft loan to help Rwanda over the crisis and literally dozens of African countries are queuing up at the IMF's door.
The fact that some of these countries keep lurching back into debt after they have had IMF help is hardly the IMF's fault. And, remember, neither imperialism nor Western capital ever imposes a bail-out: countries have to ask for one. And they do. It is, of course, ridiculous to suggest that the IMF is infested or sick or that it would give South Africa diseases. As for South Africa's ambitions to reform the planet, perhaps one should stifle a laugh at such absurd grandiosity.
Next came the open letter to Ramaphosa from the Alliance secretariat (Ace Magashule for the ANC, Solly Mapaila for the SACP and Bheki Ntshalintshali for Cosatu) rejecting any approach to the IMF or World Bank by the government, even merely to access soft loan finance to help with the Covid-19 emergency. Any contact with the Bretton Woods institutions was seen effectively as a surrender of national sovereignty and, in effect, Ramaphosa was asked to sack or at least discipline Tito Mboweni for daring to speak his mind on such matters.
The Alliance secretariat also outlined a complete alternative economic policy in which the Reserve Bank would “play a more developmental role” - presumably by lowering interest rates further, printing more money and putting South Africa's reserves at the government's disposal. In addition, the government should buy (or possibly just seize) a chunk of Sasol and other strategic sectors of the economy, sharply increasing state ownership. The government should also “explore all sources of domestic finance” including pension funds and any other assets it may be able to lay its hands on so that it can “tap into” (ie. expropriate) them.
In addition the government should seek aid from Russia and China and all moves involving any loans, co-operation or assistance from external sources had to be carried out only after consultation and negotiation “with social partners”. Which is to say that government policy in this crucial area should be made subject to the vetoes of Messrs Magashule, Ntshalintshali and Mapaila.
This makes it clear that in reality the statement is aimed at nothing less than taking power out of the hands of Ramaphosa and his government and handing it to the Zuma-ites and the Left. One realises that it is the frontal nature of this challenge which has resulted in Mapaila representing the SACP, for it would have been decidedly awkward if Blade Nzimande, one of Ramaphosa's ministers, had put his name to such a frontal challenge to the president.
The striking thing about these initiatives is that they already anticipate a split in the ANC. When Buccus says that Mboweni is a “neoliberal” and that Ramaphosa has neoliberal tendencies, he is sizing them up as enemies – for, of course, in the mouths of the Left 'neoliberal' is a swear word. Similarly, his suggestion that the Left garner EFF support is an open declaration of hostilities – in no other circumstance does one publicly call for extra-ANC support to fight one's own ANC comrades. And, of course, the Magashule-Mapaila-Ntshalintshali letter is a manifesto for a split.
It will be interesting to study Ramaphosa's response to this challenge. He cannot afford to abandon Mboweni and the SARB to the wolves of the Left but he will probably also wish to avoid an open confrontation with the Alliance secretariat, so we shall probably be treated to some more indecisive doublespeak – which will, of course, be seen as a sign of weakness by his opponents. They would like to flush him out into the open where they can either mow him down or publicly subordinate him to their wills. One should probably anticipate a lengthy lobster quadrille with many moves and feints, counter-moves and counter-feints.
It was more than five years ago that I first suggested that an ANC split would most likely occur over the issue of whether to seek an ANC bail-out. The Covid-19 crisis has accelerated the timetable and effectively the war has now begun. But we are still in a phoney war phase where the two sides are fighting a war of manoeuvre within the ANC Alliance, for the initial battle is for supremacy within that alliance. More precisely, the SACP and Cosatu are bound to resist an IMF deal to the end but the question is whether Ramaphosa or Magashule can assert their leadership over the ANC. If Ramaphosa can win this then the SACP and Cosatu will have to consider whether to press on on their own. If Magashule wins this contest then Ramaphosa's presidency is over.
But the Left has its problems too. Magashule represents the most unacceptable face of the Zuma bloc, quite openly and brazenly allied to the Guptas. There will be many on the Left who will feel uncomfortable about lining up behind that. There are any number of weather-vane politicians within the ANC whose behaviour will now reward close scrutiny.
But the Left's position is also difficult in other ways. In effect it is insisting that as a matter of pure principle South Africa must have nothing to do with the Bretton Woods institutions – although almost all other African countries are quite happy to deal with them. And no one can deny that South Africa needs help. It is difficult to see how Russia could offer more than symbolic assistance. But in any case, if help from Russia or China comes without conditions it follows almost as night follows day that such aid will be wasted – poured into bankrupt SOEs or used to fund another salary increase for the public service. At the end of that all the same questions will have to be faced again. So while such aid might defer the moment of choice, that is all it can do.
There is also the simple fact that there is almost no one on the Left who is economically literate. What this means is that many of those who urge apparently attractive policies on the Left have little or no idea of the true cost of such policies. Some, for example, happily urge the ANC to default on its debts – without reckoning on what the effects would be of being then frozen out of the world's credit markets.
Magashule & Co. can advocate the seizure of assets or the printing of extra money but have they reckoned on what the consequences of capital flight and hyperinflation would be? Those who gaily suggest dependence on Russia and China are not thinking about just how dependent South Africa is on American goodwill. And so on.
Perhaps above all the approaching showdown over IMF help should be seen as a process of psychological mourning over the epochal failure of the ANC. The first stage, we have seen, is anger and denial. We are doubtless in for a lot more of that as the situation sinks in. Gradually that will give way to (attempted) bargaining. We will hear suggestions that, OK, South Africa would like a bail-out from the IMF but only on conditions that we set including such things as no redundancies, preserving our inflexible labour labour laws, keeping BEE and so on.
All of which will, of course, be nonsense. At the end of the day it is simply a matter of arithmetic. If South Africa is short of, say, $40 billion, only the IMF has that sort of money. BRICS doesn't. If South Africa wants that help it will have to accept IMF conditionalities. If it doesn't, the IMF has no end of other suitors and can simply go elsewhere. It's the same with any bank loan. The bank manager sets the term of the loan and you don't.
The next stage is depression where South Africa realises that it is going to have to accept help on whatever terms it can get. Without doubt the voices of hysterical opposition will peak at this point but in the end the choice will be between real help on the one hand and mere bombast on the other, which is no choice at all. There will no doubt be much weeping and tearing of hair and, since not everybody goes through these stages at the same pace, this will still be mixed with much denial and anger. Only gradually and partially does depression give way to acceptance and the first stirring of interest in the opportunities offered by the new dispensation.
This process of mourning and ultimate acceptance is complicated enough but the fact that it will occur within the context of a bitter battle between and within the ANC Alliance mean that it will a protracted and pyrotechnic. But while the requirement of the political and psychological dramas is that it should be long drawn-out, the economic requirement will be for a speedier decision. There will be much tension between these different timetables.
In addition, of course, the macro-politics of the IMF will be crucial. It was only in January 2020 that the USA agreed that the IMF could double its borrowing capacity to $1 trillion. Yet the IMF's CEO, Kristalina Georgieva, already admits that dealing with the Covid-19 crisis in developing countries will require some $2.5 trillion. And that makes no allowance for country bail-outs beyond that. In other words the world badly needs some recycling mechanism which will funnel the huge amounts being fed into developed economies so that ultimately a good part of it reaches the 90 developing countries seeking the IMF's help. There are imaginative schemes for the use of the IMF's Special Drawing Rights to achieve such a result but as yet such a mechanism does not exist. A great deal depends on what happens at this macro-political level, much of which will escape South Africans' eyes.
Studies of the efficacy of IMF-led reforms show that the key variable is whether the host government embraces the reforms or not. If, like Mugabe, it tries to sabotage the reforms, then disaster follows. Today Zimbabwe pleads in vain for IMF help. If, however, the government realises the necessity of the reforms and the handy fact that it can blame the IMF for any unpopular aspects of these changes, there is a real chance of success.
South Africa is a difficult country to govern and the ANC's failure is not surprising. It tackled its task with an absurd over-confidence, even arrogance. For years it ignored warnings about the effects of its economic policies from all manner of international bodies. It even dreamed of completely changing the architecture of the international financial system and so on. Whichever government rules in the wake of an IMF bail-out will need to have a greater humility and less certainty that it already knows all the answers.
It will also need to realise that good governance is hard, that no one has a God-given right to govern South Africa and that it has to be a co-operative venture. The whites tried to do it without the blacks and that didn't work. The ANC has tried to do it without the whites and that didn't work either. The result is that the sufferings of the apartheid years have been followed by the at least equal suffering of the post-apartheid years. There are over ten million unemployed and fewer people have access to clean water or decent education than in 1994. If South Africa is really to see “a better life for all” it cannot afford to reject help from any quarter.