I see President Cyril Ramaphosa has arrived at the European Parliament in Strasbourg, a venue where I spent many good times and bad.
Coming from SA, he may well feel at home surrounded by politicians and bureaucrats who enjoy the good life, and are adept at expense fiddling.
But I would argue that his arrival in France has come just a few days too late.
Of course it is vital to keep a close dialogue with the EU, which is our largest trading partner. Particularly as it is plunging into the uncertainty of Brexit.
But could he not have arrived at the weekend, and joined those other world leaders, and the buffoon Trump, in paying Remembrance Day tribute to the fallen heroes?
Few of us today can imagine the squalor, the misery, the terror, of trench warfare. It sounds like ancient history to many, but very many of us have had parents and grandparents who served in world wars. Many of whom did not return home.
Of course, there were complexities and divided loyalties in South Africa when the great powers of Europe decided to engage in such ferocious mutual slaughter.
This, however, takes nothing away from the courage of so many millions who were sent to die.
The two world wars saw South Africans of every race and colour being sent to distant battlefields. As did fallen heroes who had come from many other countries. The last century was a warlike one, acted out in so many places
As we saw Macron, Merkel, Putin and – yes, even Trump – show that the bravery and sacrifice of so many is still remembered and honoured, could our own State President not have also been present in Paris at the weekend?
He could easily have got there somehow, despite the implosion of SAA, and could then have gone on to his other engagements.
I know he works horribly hard, appears to be several times more active and effective than his ghastly predecessor, whose priorities may have been a little different to Cyril’s statesmanship.
But as a South African with ancestors who did serve in the wars, I would have liked to have seen Ramaphosa on Sunday flying the SA flag in Paris.
There is no doubt, after all, that he would have done a better job than Trump.
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The South African Reserve Bank placed VBS, a small mutual bank, under curatorship in March this year against a backdrop of a serious liquidity crisis. The initial findings of the curator revealed significant financial losses, which prompted a decision to institute a forensic investigation. This was completed by early October and handed over to the banking regulator, the Prudential Authority. The report revealed widespread looting and subsequent cover-ups. The report was handed over to the country’s law enforcement authorities for further investigation and possible prosecutions. In the words of Advocate Terry Motau who headed up the investigation:
I have, for the past five months, investigated the sorry affairs of the VBS Mutual Bank. My report will reveal that the perpetrators of the heist at VBS made away with almost R2 billion.
Last week the banking regulator asked a South African court to terminate the curatorship and for permission to wind up the affairs of the bank. The regulator argued that liquidation was necessary because VBS was hopelessly insolvent after being subject to massive fraud. This meant that there was no prospect of saving the bank. The South African Reserve Bank responded to questions on the issue from Jannie Rossouw, who is Head of School of Economic & Business Sciences, at the University of the Witwatersrand.
What drove the regulator’s decisions?
In the first instance the decision to place the bank under curatorship was taken because the bank regulator realised that swift action was needed given the liquidity crisis that had come to light. This was necessary both to protect depositors as well as to make sure that no further damage could be done to the bank. The welfare of the depositors and the speed of execution was important.
The decision to go to court and ask for VBS to be liquidated six months later followed evidence that came to light as a result of the forensic investigation. The report showed that the bank had been subject to massive fraud. It was incumbent on the regulator to take action in the light of this evidence. As argued in the application, the regulator believes that the damage done to the bank is irreparable. And that it can’t be saved.
Why the decision to go from curatorship to liquidation?
When a bank is put under curatorship, the curatorship provides tools and instruments to manage the bank’s liquidity and its operations to save the bank, to put it back on a sound footing and to protect depositor funds. The idea is that the bank can be nursed back to health.
So the aim of curatorship is ultimately to turn the bank around. An example of this being executed successfully in South Africa was African Bank which was put under curatorship. It continues to operate today.
But the law states that when the registrar of banks is of the view that the bank is insolvent, they are legally obliged to go to court to apply for liquidation. This does not mean that the bank cannot be saved. But it does mean that the registrar is of the view – based on all the available evidence – that the bank is insolvent and probably can’t be saved. That is, that the probability of the bank being saved is limited.
The decision to apply for liquidation was made on the basis that the Prudential Authority believes the final winding-up of VBS is in the best interests of all parties. It paves the way for two things to happen. Firstly, it will allow a liquidator to use the insolvency law and the Companies Act to effect recoveries – in other words to protect people who had deposited money with the bank. And, secondly, it will mean that the recommendations of the investigator into the affairs of VBS can be followed.
What does liquidation actually mean? What happens now?
Liquidation provides for the winding down of a bank under the terms set out in the Companies Act. The bank will still be managed to maximise depositor value, to collect on loans and to recover as much money as possible. It does, however, reduce the discretion on the creditor hierarchy. In other words a curator has more discretion about who gets paid out what amount. Under liquidation, that discretion is removed.
Nevertheless, the National Treasury has issued a guarantee that will ensure that 97% of retail depositors will be covered. That guarantee will remain should the court agree to the bank’s liquidation.
What are the key lessons learnt from VBS?
There are a number.
The first is that audit reports need to be treated with a degree of circumspection. In some cases they will require independent verification.
Another lesson is that the bank regulator needs stronger tools to force a bank to convert from a mutual bank licence to a full bank licence when they get to the point of being too big to fall under the mutual bank regulations.
Mutual Banks are very different to commercial banks. The three main differences are that they tend to be smaller, that some types of deposits in mutual banks qualify as an ownership stake in the mutual bank and lastly that they’re not regulated to the same standard as commercial banks. Because they don’t carry as many risks, the regulatory framework governing them is substantially lighter.
But the events of VBS have shown that supervising small banks requires more resources. This is true even though the failure of a smaller bank won’t necessarily lead to systemic risk – it won’t pose a threat to the entire banking and financial services sector. But the risks still need to be managed better.
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To some observers, South Africa’s recent investment summit led by the president Cyril Ramaphosa, seemed like much ado about nothing. Several of the projects announced had been incorporated into companies’ plans for some time. And, combined with the fact that the summit had a showbiz style about it, it’s tempting to see the event as little more than smoke and mirrors.
But the summit could be more than the sum of its parts. It could be an important step forward to reviving economic growth in South Africa.
One notable outcome was that, in one crucial respect, Ramaphosa nailed his colours firmly to the mast. After the confused and confusing sophistry of the era under Jacob Zuma’s presidency, Ramaphosa committed his government to a market economy, where obstacles to private investment would be removed, where possible.
This moment is reminiscent of 1980 in India. That year, Indira Gandhi committed the Indian Congress Party to business-friendly policies. Reforms were slow, picking up a little under Rajiv Gandhi a few years later. And the major structural economic reforms only took place in 1991 under India’s new Prime Minister P. V. Narasimha Rao and the new Finance Minister Manmohan Singh.
Yet, India’s growth spurt clearly began after Indira Gandhi’s signalling and Rajiv’s initial tinkering. It didn’t wait for Rao and Singh’s dramatic reforms a decade later.
This is consistent with contemporary analysis of economic growth. Recent thinking by renowned Harvard-based economist Ricardo Hausmann and colleagues suggests that what stimulates significant growth acceleration is often not major structural changes – it can be significant incremental shifts.
The economists found that major structural reforms seldom preceded significant growth accelerations. As his colleague Dani Rodrik put it recently:
in economies that suffer from multiple distortions, small changes can make big differences.
The small change made in India was a clear shift by the dominant political party towards business-friendly policies.
Could the same be true for South Africa? Has South Africa reached it’s own Indira Gandhi moment?
Signals at the summit
Amid a great deal of fanfare, an audience of 1300 business and government leaders, and one of the globe’s most successful entrepreneurs Chinese internet commerce magnate Jack Ma, Ramaphosa announced R209 billion worth of investment at the summit.
It was important for the president to meet expectations by announcing concrete outcomes. But what was possibly more important was that he used the opportunity to send out a number of signals.
To please his own constituencies in the African National Congress (ANC) and the unions, he referred to the end of the “investment strike”; some critics of business had said they were holding back their investments as a deliberate policy.
More significantly, most of his messaging was aimed at reassuring the business community. He talked about how their investments and property were safe and how their factories were protected from expropriation by an independent judiciary and the rule of law.
Land reform would continue, he said. But it would be “fair and equitable”. Transformation would continue:
while providing certainty to those who own land, those who need land, and to those who are considering investing in the economy.
Perhaps the most telling signal was the apparently off-the-cuff remark he made dismissing the concept of “white monopoly capital”. At the dinner which followed the conference he said:
We have become accustomed to … treating our entrepreneurs and business-people (badly) and called them all sorts of names. We’ve treated them like enemies and… (called them) white monopoly capital – that must end today.
The term “white monopoly capital” is an accurate approximation of the distribution of economic power under apartheid, and much of the imbalance in economic power remains. In the Zuma era, the term was popularised by the now defunct public relations firm Bell Pottinger under contract to the Gupta family and was used by some as a cover for looting government and its agencies.
Ramaphosa, who became a successful capitalist after he left Parliament in the mid-1990s, has now signalled that he wants to build trust between government and white owned businesses. This won’t be easy. There are still elements in the ANC that reject capitalism while others want to continue using the term “white monopoly capitalism” as a battering ram.
South Africa’s disadvantage is that the country’s credibility has been damaged. After 15 years of transparent social democratic policies – from 1994 to 2009 – the country lurched into confusion under Zuma’s presidency. The ANC government became opaque, volatile and unpredictable.
The consequence was a loss of credibility in the Zuma era. Ramaphosa’s biggest challenge therefore is to recover credibility.
Ramaphosa and his advisors will be asking what can we do to rebuild credibility fast?
The answer seems simple: those involved in state capture must go, looters must be punished, and constructive policies must be carefully prepared and implemented with authority and urgency. These include fixing the state owned enterprises as Finance Minister Tito Mboweni repeatedly pointed out in his recent budget speech , better regulation for the network industries (energy, telecommunications, water) and sorting out public transport systems. In addition, honest leaders need to be appointed to the criminal justice institutions.
These all have been promised since Ramaphosa’s first State of the Nation Address in February.
The trickier, and implicit question that investment decision-makers will be asking is, is Ramaphosa’s sway over government as strong as that of Indira Gandhi’s in India in 1980? Or is the president yet to demonstrate complete control over the ANC?
The answer, unfortunately, is probably that an election has to be reasonably convincingly won before he can win the credibility he so badly needs.
Our hardworking and hard-walking President is now in Germany, and I do hope they give him a few hours off for some much-deserved beer and sausages.
The Investment Conference on Friday gave him a platform to sell SA, and he did so very commendably.
However, sitting in a breakaway session of the conference, it was noteworthy to see two of our most reviled ministers on the platform. Both are believed to have been active state capturers, yet both we were referred to by the MC as “honourable”. Pass the sick bag, Mabel.
There has been much talk of the need for a Cabinet reshuffle, which will hopefully reduce the number of ministries, and send some of our more crooked politicians scuttling under the nearest rock.
One suggestion is that we get rid of the deputy ministers. How about we keep all those deputies who we can readily name? That should clear the decks quite comprehensively.
If ministries do get the chop, my prime candidates would be anything in the Presidency, apart from Cyril himself, the feeble Small Business bunch, and the Communications portfolio, mainly so we can see the back of the current incumbent.
Getting rid of the Deputy President position would also be a useful way of removing another member of the awful old guard.
Will it happen? The President holds a precarious position in the ANC, where the corrupt forces of evil still hold a lot of power. So maybe he will have to hold on to some of the shits, as he did when first he named his current Cabinet.
But whether or not it will happen, it damn well should.
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It is common cause that the performance of South Africa’s government, led by the African National Congress (ANC), has been worse than abysmal. Under former President Jacob Zuma, ANC functionaries pillaged numerous institutions of state. They enabled state owned institutions to be looted, mismanaged the provision of basic services and presided over an alarming downward spiral of the economy.
All in all, the ANC has completely forfeited its right to be reelected in 2019. It knows it, and is running very scared. But the odds are that it will still win, even though with its smallest majority yet.
What the party does have going for it is its president Cyril Ramaphosa. He is the ANC’s one big pull. And much to the chagrin of the Zuma faction, the party is going to have to build its election campaign around him – precisely because he is far more popular than the party. Indeed, South Africa can expect the 2019 election to bring the most presidential-style campaign yet.
The irony is that Ramaphosa will privately welcome a smaller rather than a larger ANC majority. A thumping reduction in the ANC’s vote will serve as a popular rebuff of the Zuma faction, and erode its base in the party. An ANC which knows that it may have lost its majority had it not been for Ramaphosa’s personal popularity will be an ANC in which he will at last be able to assert his authority.
A troubled party
Ramaphosa sits atop a party which has long been in a state of internal factional turmoil. He defeated his rival for the presidency, Nkosazana Dlamini-Zuma, at the ANC’s five yearly congress with an excruciatingly narrow vote. He lacks control over the party’s national executive (its highest decision-making body between conferences) where Zuma’s supporters remain strong. And, he is facing a robust fight-back campaign by Zuma’s acolytes in provinces around the country.
Zuma himself, like Banquo’s ghost, remains an ambiguous and dangerous presence. He professes innocence of all crimes as well as continuing loyalty to the party. But, behind the scenes he’s seemingly still pulling the strings of his puppets.
With the party in a state of continuing internal war, the scramble for positions on both its national and provincial electoral lists will be overt, in some places violent, and overall, very probably, embarrassing.
Nonetheless, come the election campaign, it is more than a little likely that its competing factions will forge something of a truce, and preach a new-found unity. The ANC may be divided over policies, positions and spoils, but one thing it is united about is the necessity of retaining power. It will prove ruthless in doing so. One of the few things it knows how to do well is to run an election campaign, and how to induce or scare its popular constituency into voting for it.
Even so, it is uncomfortably aware that its base is eroding. The loyalty of its traditional supporters is declining; it is failing to attract support among “born-frees” (those born after Mandela’s release in 1990); its narrative of having liberated the country from apartheid is wearing tired and thin; and the different commissions of inquiry are going to uncover more and more dirt as the campaign goes on.
So, what is the party going to be doing to win back the vote of the disillusioned?
ANC elections head Fikile Mbalula recently acknowledged that the party has allowed itself to become mired in “the sins of incumbency”, to have become distanced from its base, arrogant and unaccountable. Under Ramaphosa, therefore, it will be making fulsome promises of renewal. The ANC will claim that the establishment of the various commissions of inquiry signal a determined assault on corruption, and indicate that the party’s bad apples will be thrown out.
Meanwhile, in all humility, the ANC is promising to renew its bonds with the people. This will involve a country wide process of consultation with what Mbalula has referred to as “strategic sectors of society” in a bid to “broaden and deepen participation” the drawing up of a “People’s Manifesto”.
Amid all this, the party will be promising to build on Ramaphosa’s various reform initiatives to return the economy to growth.
The ANC’s major problem is that none of this is going to be particularly convincing. The gospel of the party’s commitment to virtue and renewal is going to be a hard sell to a corruption-weary electorate.
Its base divided and increasingly cynical, the ANC knows that it is going to have to look for support beyond its normal boundaries. It knows all too well that it is likely to lose important ground to the radical Economic Freedom Fighters. It knows that it may have a hard time in getting the voters out in KwaZulu-Natal, where support for Zuma remains strong. It knows that many of its traditional supporters may be tempted to record their disgust with the party by staying at home.
Given all this, the ANC knows that it will have to play to Ramaphosa as its one major asset. A Ramaphosa-centred strategy is likely to work because there is no credible alternative as a party of government to the ANC.
The main opposition Democratic Alliance will again go unchallenged in the Western Cape, and may do surprisingly well in provincial elections in provinces such as Gauteng and Eastern Cape, based upon its “better-than-the-ANC” record in local government. But at the same time it may well suffer at national level because its conservative constituency fear the prospect of the ANC losing its majority and being forced into a coalition with Julius Malema and the EFF. In short, some will hold their noses, and vote for Ramaphosa and the ANC.
Any of us who expects the biscuits to fill the cardboard carton will know the sadness, the grief, of realising you are getting less than you had expected.
The same goes for SA Summits.
Take the BRICS Summit….a three-day event that was crushed to just two days, with a poorly-attended investment conference on the first day.
One hears of the actual Summit that the Indians nearly didn’t come; Putin was late, but surely the fault lay with the hard-working but inept organisers, who are thankfully banned from any event involving breweries and piss-ups.
Then came the Job Summit – did you blink? You might have missed it.
An afternoon of pretty tedious speeches from very tedious people. Even Cyril was less animated than normal. A list of things was agreed to, but not posted online until the following day. Shows how serious they all were about jobs.
And then there is the Investment Summit (rebranded Investment Conference, which cannot be a positive move.)
Today, Thursday, is Day 1 and not a lot is happening. Cyril has gone awol to open a train factory in the West Rand, which may be able to turn trains out almost as fast as our beloved countrymen torch them
A gala dinner in the evening? Media not invited. A great opportunity to get coverage is being squandered by organisers, who appear deeply dysfunctional and unable to issue timely information. There is a website for the Conference, which must have cost a fortune. Looks pretty. Hard to navigate, and lacking in fine detail. Symbolic, really, of the whole thing.
The Friday may have some meat, with announcements due on some new investment. How much of this is really new, how much of it will actually happen….? It may be difficult to pick it apart. As they no doubt intended.
And then there are break-away sessions, with a choice of three different themes, running all at the same time.
They could have stretched this into another day, to give more people a chance to listen to more stuff. But no. Conference or con?
And then on Saturday, soon after dawn, the President will be leading a stroll through Soweto. One suspects it is more about the images than about anything of substance.
Bilaterals are then promised, which may lead to some real wheeling and dealing, substance, investment.
But it may be difficult to judge this squashed Summit, and there are fears it may miss as many opportunities as the BRICS one and the Jobs get-together.
Maybe it is time that when we organise high-level events, with valued guests, we should get the professionals to put it together.
Or maybe it remains the case that when you are trying to get the right people into the right place at the right time, over a few days, you are biting off a lot more than you can chew.
Except at the gala dinner, where I won’t be allowed to bite off anything.
Welcoming the media, it seems, is an investment too far.
Finance Minister Tito Mboweni has dangled the prospect of debt-strangled SAA being allowed to collapse.
He was speaking to journalists, Wednesday, just before delivering his mini-budget address.
When asked about parastatals, which continue to receive billions of rand in bailouts, he said there should be no sacred cows in seeking solutions.
He said state companies such as Sanral should approach the markets for their funding.
And on SAA, he suggested that closure should be an option.
He gave the example of Swissair – which was in trouble, was “closed down”, and this paved the way for the launch of another Swiss airline.
“We need to be open minded,” he said. “You need to progress in your thinking to the wi-fi generation. Otherwise you are stuck in the 60s.”
Mboweni also supported belt tightening in government, and when asked about a cut in the number of departments, he suggested 20-25 ministries would be better than the current line-up – with around 70 ministers and deputies.
“There is no economic, financial or political reason to have an executive of up to 70,” he said. “But this is the President’s problem.”
He also appeared lukewarm on the NHI – suggesting that the existing infrastructure is excellent, but state health provision may need private sector expertise to reach its potential.
He said he prefers the concept of development to that of service delivery – where people wait for help.
He emphasised that red tape must not delay action. He gave the example of Vaal pollution and said that the Military has been called in to help. In his budget speech he spoke of the military supplying “engineering and other expertise”
Meanwhile he described the Giyani water project as a “cesspit of corruption”, with spending exploding.
He appeared to have been unmoved by calls to introduce zero VAT on chicken, but he did approve Zero VAT rating on sanitary pads, bread flour and cake flour.
The mini-budget was a maiden appearance for the new Finance Minister, and he appeared cheerful, relaxed and gave an impressive performance.
He said he is using his honeymoon period to say some things which equate with his most recent experience in the private sector, but which may not be in line with current government thinking.
The President’s Investment conference, which will be held at the end of next week in Sandton, is expected to eclipse the recent, rather underwhelming, Jobs Summit.
Unlike that event, which saw most of the cabinet stiffly sitting in a row while others waffled on (and on), the government team looks poised to do some actual work next week.
Economic Affairs minister Ebrahim Patel told a rather poorly-attended media briefing, Thursday, that he expects a number of announcements of new investment plans next Friday, which seems to be staged as a showcase for SA, an exercise to show that – despite all the negatives – people are still prepared to start new operations in SA.
And there are negatives aplenty – the land seizure issue, inadequate labour skills and worker unrest, crime, corruption, the challenges of meeting ever-tighter BEE rules, little worth watching on SABC……
However, Patel was playing the good cop – admitting that tough questions will need to be answered.
Moving away from the endless waffle of the Jobs Summit, the Investment Conference will have a series of focused discussions on specific sectors where investment is being most sought – agroprocessing, advanced manufacturing, ICT, mining, infrastructure. And a few others.
Lots of visitors from big corporations, both local and global. Lots of face-to-face discussions.
Patel said a key focus will be to tackle obstacles to investment, so that these can be dealt with, where practicable.
He suggested a “single market-place” will be the theme, comparing it to Davos, where a lot of movers and shakers, politicians and businesspeople, are in the same place at the same time.
He also promised that this is not a one-off, but part of a continuing process.
So expect some headlines on progress towards Ramaphosa’s goal of securing $100bn in new investment.
And if it does get boring, delegates will have the comfort of knowing that in the same Sandton Convention Centre, the big wine tasting party Winex will be underway.
A great retreat to which they can escape, where we really do show the world that when we put our minds to it, SA can shine. With wine.
Make mine a magnum, please Gladys.
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It is a common temptation, in the months before an election, for politicians to promise the moon to those voters they fear might be attracted to the similarly lofty promises of a rival party. But it would be easier to send someone to the moon than to deliver on many of the more shameless promises made by desperate politicians. The latest attention-grabbing promise, through which South African politicians have made world headlines, is that the expropriation of land without compensation will assure greater prosperity through enhanced economic efficiency and improved food security through the diversity of farm ownership.
Although there are conditions under which a reasonable argument for “land reform” could be made, governments that make such promises of expropriation under electoral duress rarely understand, or are willing to implement, the policies needed to assure the fair and efficient allocation of property in the future. That is why most such politically expedient reforms have resulted in Zimbabwe-style poverty and widespread hunger.
Recent political pressure in South Africa for uncompensated land confiscation seems intended more to satisfy a factional lust for retribution – and the enrichment of cronies – than a desire to improve the general welfare or even to assure food security. Such demands invariably come unaccompanied by any recognition of what is necessary for such a policy to have a hope of succeeding.
In South Africa, the legal processes for the transfer of property ownership are inefficient, expensively slow, and often seen to be corrupt. The inefficiency of the normal property transfer process makes it less likely that efficient patterns of land ownership will emerge in the future. Current land ownership patterns are almost certainly less well allocated than they would have been were the government capable of instituting a more competently operated property transfer system. Experience gives us no reason to believe that an arbitrary expropriation of land and its redistribution to politically favoured individuals would benefit the broader population or even maintain current levels of food production. In the absence of genuine respect for private property rights and equal legal treatment of its owners, the opposite is more likely.
Property ownership is important not because of the specific physical or intellectual assets that are susceptible to seizure. Those items can be seized only once. The creative source or steward of those expropriated assets cannot be compelled to replicate past creativity or productivity – or even to apply the attentiveness of a good manager. Governments with a reputation for theft, even under the guise of a popular redistribution of wealth, always elicit a counterproductive response from those creative individuals who are perceptive enough to see themselves as the latest political goats to be milked. They take the creativity and skills with which they once served the people of their communities and either move to less politically visible endeavours or emigrate to new jurisdictions where their personhood is better respected.
In that sense, theEconomic Freedom of the World: 2018 Annual Reportis a global measure of respect. It is a measure of how well governments respect the humanity of their residents and how well they maintain policies compatible with that humanity and the need to be free and to flourish. It is a broad-based index that should be taken seriously as a guide to all those interested in good governance. Countries with high, or rising,Economic Freedom of the World(EFW) ratings are invariably those with the highest, or most rapidly improving, standards of living.
Since the economic successes of the Reagan and Thatcher years, and the subsequent collapse of the Soviet Union and other socialistic regimes, economic freedom has been increasing worldwide, reducing poverty and increasing the potential prosperity of those people blessed by their increased freedom. But since the turn-of-the-century, South Africa has failed to keep up with that trend and has, thereby, failed to reap the promised rewards of the 1994 transition.
In this year’s EFW report, South Africa ranks 110th out of 162 countries. This leaves South Africa in the third quartile of the rankings based on data from 2016, which are the latest data available. The EFW Panel Dataset, which is adjusted to improve year-to-year comparisons, shows South Africa losing economic freedom in absolute terms. Each of the five categories of economic freedom that comprise the EFW index declined since the last report. Although there were some improvements in minor components within the area of Regulation, the most significant changes were downward within the area of Legal System and Property Rights.
Despite a record of low and slowly declining scores for the legal system overall, the judiciary had long been seen with respect, and its relatively high EFW component scores reflected that. The ratings fluctuated over time, but in the last measured year the ratings for “judicial independence” and “impartial courts” declined by 18% and 26% respectively. And as if to set the stage for, and perhaps to predict, the headlines of 2018, the rating for “protection of property rights” also dropped by just over 20%. A parliament unconstrained by respect for either constitutional limits or an independent judiciary is an institutional force that bodes badly for economic freedom. The political attacks on private property rights, not only for land but also for the right fully to exercise ownership of a business, are a symptom of the institutional and moral decline that presages economic and cultural stagnation.
Even the (largely symbolic) calls for the “nationalisation” of the South African Reserve Bank should give pause, not because the private shareholders exercise any control (they do not), but because those shareholders ostensibly oversee and bring a modicum of transparency to the operations of a government agency. In the EFW category of “Sound Money,” South Africa ranks 102ndin the world. The inflation rate remains within its official target range of 3% to 6%, with consumer price inflation showing an annual rate of 5.1% through July 2018. The Producer Price Index showed a higher rate of 6.1% through the same period. By world standards, these inflation rates are high, though they are reasonably stable and predictable.
Within South Africa, the Reserve Bank is one of the better-run institutions. The calls to nationalise an agency that has always beende factonationalised suggest that the thin façade of central bank independence could suddenly be torn away as the ruling ANC responds to shifting political pressures. Fiat money has always served the ruling class as a pre-election anodyne and as a convenient, and at times blatant, means of redistributing wealth to government and supporting politically favoured businesses. The depressing effect of inflation on standards of living goes beyond the mere loss of purchasing power, disrupting the structure of production and affecting lives in a way that few can detect.
Of more pressing concern in daily life are matters of livelihood and personal safety. The rate of economic growth has trended downward in recent years, just as economic freedom has slowly declined. Crime has long been a problem in South Africa and has been reflected in low EFW scores for “reliability of police” and “business costs of crime.” Crime rises in any society that fails to protect and show respect for life – and for the property that is part of each life. A government that fails to protect economic freedom and private property will eventually lose its ability to maintain civil order. Ultimately it will lose the respect of the people and any claim to its own legitimacy.
Richard J Grant is Professor of Finance & Economics, Cumberland University & Publications Editor, Free Market Foundation
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The latest reshuffling of South Africa’s finance minister, following the resignation of Nhlanhla Nene and appointment of Tito Mboweni, may have negative origins but it brings with it some positive energy.
Nene resigned as finance minister after it emerged that he lied about the nature of his contact with the controversial Gupta family, the friends of former President Jacob Zuma who stand accused of championing massive misappropriation of public funds in a process branded as state capture.
In an initial response to a journalist’s question, Nene claimed that he had only met the Guptas in passing. But in his recent testimony to a commission investigating state capture he admitted that he’d met Gupta family members on numerous occasions, including a number of visits to their house and their offices.
The inconsistency tarnished his integrity and sparked massive public criticism. Within a week of making his admissions he resigned. South Africa’s President Cyril Ramaphosa immediately appointed former South African Reserve Bank governor Tito Mboweni as the new finance minister.
On the one hand Nene’s departure must be hailed as setting a new tone for South African politicians, particularly for the cabinet. By falling on his sword, he has taken responsibility for his actions – a rarity in South African politics. It’s tempting to cast his action in stone as the “Nene Rule” that sets a standard for politicians to resign when in the wrong.
On the other hand the appointment of Mboweni brings back someone with considerable skills and the political finesse needed to steer South Africa out of its current economic quagmire.
Mboweni needs to hit the ground running. In late October he must present the country’s medium-term budget policy framework. All eyes will be on how he steers the challenge of rebalancing the national budget. His political skills and ranking might come in handy.
Equal to the task
Mboweni takes over the finance portfolio at a difficult time. Tough decisions will be required in a hostile environment as a strong populist wave sweeps through the ruling party, the African National Congress (ANC).
It’s therefore a positive that he commands a more senior political ranking than Nene had within the ANC. Mboweni claimed the 11th position in the tallying of the votes for the ANC’s National Executive Committee (NEC) during the ruling party’s 2017 elective conference that made Ramaphosa the President. The NEC is made up of 80 members and is the ANC’s highest decision making body between conferences.
In addition to this, Mboweni has a strong financial background. He served as governor of the South African Reserve Bank from 1999 to 2009. Prior to that he served in Nelson Mandela’s first cabinet as minister of labour.
Both experiences should help equip him to meet the economic challenges facing the country. There’s no doubt that he’s knowledgeable about financial matters and is respected among investors.
His tenure at the Reserve Bank should ensure a smooth working relationship between the minister of finance, the national treasury and the central bank. As a previous governor, Mboweni understands this important relationship while valuing the autonomy and the independence of the various institutions and their responsibilities.
High expectations of Mboweni
Mboweni will need to be a quick study. He has only two weeks in which to familiarise himself with the details of the medium-term budget.
He can’t afford to disappoint. This year’s budget will be watched more intensely than usual by key stakeholders, including investors and credit rating agencies because it follows closely on an economic stimulus and recovery plan announced by Ramaphosa. Details are expected to be unveiled in the medium-term budget.
The medium-term budget is also expected to signal how South Africa is dealing with its fiscal challenges. This is where government faces its very hard choices.
The ultimate aim must be to increase economic growth and eradicate unemployment. But to achieve these objectives the government must revise its expenditure priorities.
Expenditure on civil service remuneration, social grants and interest on government debt currently equates to 70% of the government’s tax revenue. This is clearly untenable. If not addressed, South Africa will face a fiscal cliff – the point at which these three expenditure items account for all government revenue and make spending on anything virtually impossible.
At the same time, Mboweni will have to work closely with Pravin Gordhan, the Minister of Public Enterprises, on the restructuring of state-owned enterprises. The precarious financial position of a number of state-owned enterprises is placing a heavy burden on taxpayers. Removing this burden will release resources that can be used to stimulate the domestic economy. Mboweni must therefore help with tough decisions about unaffordable vanity projects.
And, finally, Mboweni must sort out the challenges facing the Public Investment Corporation which is responsible for managing civil servants’ pension funds, and is worth over R1,5 trillion.
South Africa is in serious economic difficulty. It also faces a trust deficit owing to the state capture project of the Zuma administration. The golden triangle of trust between the government, the public and the business community has been broken. No country can succeed without this. Mboweni can play an important role in restoring it.