RW Johnson says now that govt has run out of funds SARB and the commercial banks are under pressure
PITY THE BANKERS
One of the hallmarks of ANC-ruled South Africa has been that power is often exercised not formally but by pressure, indeed often by bullying. This has, for example, always been very clear in higher education. Vice-chancellors run scared of the government and are also scared of having to confront radical black students. This means that they are a pushover for any determined minority. Moreover, the academic faculty, seeing that their leaders are unable or unwilling to stand up for themselves, realise that if perchance they incur the wrath of their students, the authorities will not protect them – so they too become a pushover for even the smallest organized minority.
Bullying at university
Even at some of our leading universities we have seen such pressures produce quite remarkable results. At UCT, for example, in one department the curriculum was prone to change repeatedly in the course of an academic year as small groups of students objected to this or that set work as “racist”, leading to the book's hurried withdrawal. Sometimes quite blameless individuals who happened, by some slip of the tongue, to have offended a few campus activists, can have their careers broken and their lives made a misery.
Of course at graduation ceremonies vice-chancellors like to make bold speeches about their exaltation of free thought and academic endeavour but in practice they will not just betray any academic who thus falls foul of the mob, but join in their denunciation. And in order to demonstrate how committed they are to transformation they are quite willing to appoint as lecturers candidates whose claim to academic distinction is somewhat tenuous.
The remarkable situation is thus reached in which South Africa's universities have for many years now been busily committing institutional suicide. No doubt future historians will look back at their gathering academic collapse and sadly conclude that these are but further examples of the death of the African university and that UCT, Wits and UKZN have merely followed the example of Makerere, Dakar or Algiers. Yet that will, in certain respects, be wrong: first, because South Africa has not seen the gross invasions of academic freedom committed by an Obote, an Amin or a Kaunda; second, because change has occurred more through informal pressure than by law; and thirdly, because so much of the damage was done not by blacks but by whites.
Universities are but one example of this pervasive pressure – let's be frank and call it bullying - but it is widespread. Ministers routinely threaten sportsmen with dire consequences if they do not magically make their teams demographically representative (though soccer is immune). The minister of labour, Thulas Nxesi, is busily threatening businessmen that he will be “very hard” on them if they don't pick their workforces by the colour of their skin.
Farmers live with a permanent and high level of threat: at any moment their farm can be the subject of a land claim; the big stick of expropriation without compensation is waved over their heads; and anyone who makes a fuss about farm murders will be accused of reactionary political motives, so it's not even clear that it's acceptable to mourn a farmer who dies in a farm attack. One could go on.
Pity the bankers
So it may seem somewhat eccentric to express sympathy for another group now under ever-increasing government pressure: bankers. And yet that is increasingly where the action is.
We have, of course, had a dry run. As it became ever clearer how outrageously crooked the Guptas were, one bank after another declined to handle their accounts.
This wasn't just a matter of morals. Banking is an international business and it is easy for a bank happily domiciled in a country where no questions are asked to nonetheless fall foul of regulators in Britain or the USA. This is, after all, what happened to the Bank of Credit and Commerce International, domiciled in the UAE. It was the seventh biggest private bank in the world – which also (illegally) held a controlling share in a major US bank, First American Bankshares. British and American investigators discovered that BCCI was involved in money-laundering on an industrial scale, that it was handling huge amounts of drug money and that it was also the banker to the Abu Nidal terrorist group. It all ended in tears with the bank closed amidst large losses.
Dry run with the Guptas
South African bankers were thus awkwardly aware that if the eye of British or American regulators fell upon the Guptas, there could be devastating consequences for those who acted as their bankers. The result was a progressive squeeze, forcing the Guptas out of business in South Africa. Note that if it had been left to the government or the ANC, the Guptas would no doubt still be in business here and would no doubt just have made another huge killing in the Covid-19 business. As we can see, they would have had a wide choice of well-placed collaborators, some of them operating in the ministry of health or the president's office itself. Just like the old days.
When Standard Bank closed the Guptas' accounts, it was summoned to Luthuli House by Gwede Mantashe, then the ANC Secretary-General, to answer charges that it was colluding with white monopoly capital to oppress black-owned business (viz. the Guptas). Moreover, Mantashe insisted, the Guptas had not been convicted of anything. Mantashe had asked for the meeting at the behest of Oakbay, a Gupta company.
In modern South-Africa-speak, of course, the accusation Standard Bank faced was tantamount to treason and it is greatly to the credit of the bank that it stood its ground and refused to re-open the Guptas' accounts. FNB, which had more shrewdly understood what the game was, simply refused to attend such a kangaroo court at Luthuli House. Mantashe, of course, later explained that it was perfectly normal for the ANC to thus summon the bankers. “The issue was topical. We didn't pressure them.”
No doubt the various cabinet ministers who also tried to twist the arms of the banks would say the same. And, of course, they did it out of the goodness of their hearts, not because the Guptas were putting money in their back-pockets. If one grades explanations out of ten this one scores about 12, for the scoring system resembles that in bridge where if you make a doubled contract you get something extra for the insult.
The difference now is that instead of putting pressure on the banks to oblige the Guptas, ministers are now doing it for the sake of the government itself. Naturally, the Reserve Bank is top of the list. Hardly a day goes by without an article in Business Day demanding that the Bank should embark on quantitative easing and by all accounts the pressures exerted more directly are something to behold. Thus far Lesetja Kganyago and Tito Mboweni have held the fort but remember that these are the earliest of early days and the money is still rolling in from the IMF, the World Bank and the African Development Bank.
Before long all that money will be spent and the miserable revenue returns from SARS will be apparent. At that point we will get closer and closer to a horrible either/or: either the Treasury cuts hundreds of billions from government expenditure (i.e. retrenches scores of thousands of public servants) or the Reserve Bank gives way and prints the money. One can imagine the huge chorus of Cosatu, SACP and EFF voices all demanding that Kganyago bend to their will rather than cut spending and jobs. It is difficult to see how Kganyago and Mboweni can stand against that unless Ramaphosa backs them up very hard indeed.
But Ramaphosa will have no easy way out. If he allows Mboweni and Kganyago to be over-ruled he could well lose both of them. He would be publicly humiliated and would lose control of his own cabinet. If he stands by his Finance Minister and Reserve Bank Governor, Cosatu and the SACP will never forgive him. On top of which he is likely to go down in history as the president who steered South Africa into a sovereign debt crisis. Having entered office on a wave of popularity he could well leave it even more disliked than Zuma was at the end.
Blade takes aim
At which point it is important to take account of Blade Nzimande's denunciation of “the grievous mistake” of the government taking the $4.3 billion IMF loan which will produce “suffocation by imperialist interests”. However, instead of denouncing the IMF for being so sinister as to lend South Africa a great deal of money at a super-low interest rate, effectively without conditions, Nzimande points the finger elsewhere: “...it is hard not to see the behaviour of the National Treasury and the Reserve Bank as an attempt to achieve through IMF conditionalities what they cannot achieve through a democratic discussion here at home”.
This is a quite remarkable statement – an open attack on the Finance Minister and the Reserve Bank Governor. In any normal country a minister who made it would have to resign from the cabinet. Quite clearly, the SACP can see the battle that is coming over the all-but-certain need to go back to the IMF for a full-scale bailout and it has decided to pitch this not as a fight against the IMF but as a battle against the Treasury and the Reserve Bank. For the SACP to win both Mboweni and Kganyago have to go. And if Ramaphosa supports them, he will have to go too. Ramaphosa is foolish in the extreme to allow Nzimande to get away with this.
This, of course, heightens the significance of the finding against David Masondo, the deputy finance minister, by the ANC's integrity committee for improperly trying to set the Hawks on his former girlfriend. The minor embarrassment is that Masondo is head of the ANC's political school, supposedly instilling revolutionary ethics in the young comrades. But the key point is that Masondo, a former head of the SACP Youth League, was clearly positioned to take over from Mboweni if Nzimande got his way. This is now in doubt.
Now for the other banks
However, commercial bankers are also now in the government's sights. In December 2019 the government had to lean hard on these banks to get them to lend the money to keep SAA going. This proved a very difficult negotiation and the banks insisted not just on a guarantee of repayment but a specific date on which repayment had to be made. Even so, this left the government seriously short so the DBSA (Development Bank of Southern Africa) had to be bullied into giving a further loan of R3.5 billion. Since the directors of the DBSA serve at the government's pleasure they probably did not feel able to refuse this loan, though they should have for it lay right outside their mandate. Really this should have been a resignation issue.
Now, however, the government has come straight back and asked the banks to lend another R5.3 billion to SAA. Naturally, the banks are extremely reluctant: who would want to lend to a bankrupt airline when all the world's airlines are in trouble? All the time that Pravin Gordhan was campaigning to save SAA he claimed private investors were interested in coming into the deal but of these there is, suspiciously, no sign. Indeed, even if the banks were to give in to government pressure, SAA would still be R4.7 billion short of the minimum required to prevent its liquidation.
There is no doubt that the banks will be exposed to the full panoply of government threats and promises but they have shareholders to think of too. And they have got to the point where they don't really trust government guarantees. Everyone can see the yield curve in the bond market which is saying quite straightforwardly that investors do not expect the government to honour its debts. At which point it becomes a game of musical chairs: who will be left with the bad debt when the music stops? And, after all, SAA is just one of many SOEs which has run out of money: if the banks decide to fund SAA this week they will be asked to fund Denel or the SABC next week.
A government melting away
The real point of all this is that the government and the ANC have lost all credibility. Neither the banks nor the rating agencies nor the media believe that they can now avoid a sovereign debt crisis and an IMF bailout. The man and woman in the street are completely cynical, willing to believe that the government is in the pay of the gangsters who run the illegal cigarette and alcohol businesses. Who, now, is surprised about even the most poisonous forms of corruption?
Businessmen have no confidence that the government will pursue necessary reforms. Both consumer and business confidence are at record lows. In our sixth successive year of falling real incomes, who believes now that the ANC will really bring “a better life for all “? Who trusts the police? Who believes the army could (or would) defend the country? Who has faith in Ramaphosa?
And again, look at the yield curve: two year bonds yield 7.49%, ten year bonds 9.28% and thirty year bonds 11.34%. A yield curve that steep is telling you that while the government may pay its bills in the near term that becomes increasingly hard to believe in the medium term and all but impossible to believe in the longer term. Compare Brazil. It's been downgraded to junk, has negative growth, one of the world's worst Covid-19 crises, and has seen one president jailed and another impeached. Confidence could hardly be lower. Yet Brazil has to pay only 6.8% interest on its ten year bonds compared to 9.28% here. The bond market is telling us all we need to know.
A government without authority
A government so lacking in credibility naturally lacks authority. When Ramaphosa comes on TV people switch off or assume that whatever he says will get changed if someone with more backbone dislikes it. Even when the government closes the schools the assumption is universal that it is just giving in to SADTU: nobody imagines the government is thinking of what's good for the kids or what's good for the country. The ANC has been unable to constitute a new ruling class, a class in itself with its own organic vision of the world it wants to build.
Instead the governing politicians appear to the citizens as a set of self-interested factional bosses, people without morality, patriotism or competence. With few exceptions, they are also figures without any intellectual or cultural depth. They do absurd things like dressing up in SAA pilots’ uniforms and have ridiculous and vulgar fights with their girlfriends. Not only do they seem incapable of carrying out necessary reforms but they seem not to want to do much of anything. They simply like being in charge.
This is a government which is melting away in front of our eyes. It could be overthrown with ease by any determined and well-organized minority, let alone a popular revolt. Interestingly, even Blade Nzimande recognizes this. The national liberation movement, he says, “enjoyed revolutionary moral high ground. With the overwhelming support of the people, the liberation movement finally dislodged the apartheid regime in 1994. Today we cannot say the movement has the same level of support. The rise of corruption has eroded and continues to corrode the support that the movement enjoyed”.
This is not how a Communist leader normally talks. He can feel the power ebbing away.
The lacking alternative
This loss of credibility and authority is remarkably general. The other political parties have not enjoyed any corresponding increase in their credibility or authority, and nor have the unions or business. Moreover most of the provincial and city governments are also in a parlous state, unable to offer a better alternative. The sole exception to this is the Western Cape provincial government and the city governments of Cape Town and the larger towns of the Western Cape. These are rare islands of (relative) competence and fair play.
The real question about the Western Cape is whether it is doing anything like enough. With the country flat on its back now, this was the time that the DA needed to step forward and show the country what the alternative looked like. This would have had enormous national importance. But it absolutely hasn't happened.
For example, the Western Cape's schools were back and working well for several weeks when Ramaphosa closed all the schools down again – and did so illegally, without gazetting any change. It would have been open to the Western Cape to announce that education was a provincial competence and that it would keep its schools open. This would have been entirely legal and widely applauded and it is not clear that the government would really have wanted the opprobrium of forcibly shutting these schools again. It would have been a demonstration of what a competent administration could achieve in the face of the pandemic.
Similarly, SAMWU – the municipal workers union – is demanding a 6.25% increase, though the Treasury and SALGA have both recommended against it. With inflation at 2.1% this means a very large real increase at a time when ratepayers, who will have to pay for it, are flat on their back. Yet Cape Town has agreed to pay this crazy increase – and has also increased the salaries of councillors and municipal managers by 4%. This would have been a perfect time for Cape Town to do different to general applause, to demonstrate another way.
SAMWU, it should be noted, has been plagued by runaway corruption for the last decade. R178 million has disappeared from its accounts, its strike fund has been pillaged and it has been involved with VBS. But to fund his deal with SAMWU Dan Plato has put property rates up by 3.9%, water rates by 4.5% and electricity by 4.8%. These will be unaffordable for many. Manifestly, this was a year for a 0% freeze in rates, wages and salaries – but with a guarantee that no jobs would be lost. Such a demonstration would have had a huge impact right round the country. Everywhere there would have been demands to copy what Cape Town did.
The only reason why Dan Plato and the DA can hope to get away with this highway robbery is that everyone knows they are the lesser of two evils and that at least they won't wreck the schools and hospitals. This is hopelessly lacking in ambition and vision. It is as if the DA has given up all hope of providing an alternative. This is a great pity not just for citizens of the Western Cape but for the whole country. The DA had it in its power to offer a ray of hope and to show just how different things could be. Instead they have thrown it away.