Address by Ambassador Tony Leon at the Brenthurst Library, Johannesburg, Monday, September 2 2013
"Bold Leadership Needed to Face our Crises at Home and Abroad: Reflections of an Accidental Ambassador"
The Party which I led for many years in South Africa is involved with a controversial publicity campaign, entitled "Know Your DA." There is some contention about who has been included and excluded from it. However, with reference to the historic library where we meet tonight, I can say this: were it not for the late Mr. Harry Oppenheimer then it is doubtful if there would be an opposition movement in South Africa at all. As I record in my book, on which I am to reflect this evening, The Accidental Ambassador-
"Mary, her late father Harry Oppenheimer and her mother Bridget had been generous and loyal supporters of the Democratic Party in the very difficult times when I first led it, at a stage where few other donors were prepared to raise their heads above the parapet or reach into their pockets to fund the South African opposition."
Of course Nicky Oppenheimer should also be on that list, and this family's involvement with the liberal opposition stretches right back to the formation of the Progressive Party in 1959. Helen Suzman often observed that without the generous and selfless support of Harry Oppenheimer and his family, the party would never have survived in those immensely challenging, and essential early years.
I was privileged to enjoy the wise counsel and the friendship of the later Mr. Oppenheimer when I took over the Party leadership in 1994, and this continued until his death in 2000. I once asked Mr. Oppenheimer about aspects of his own distinguished parliamentary career in the 1950's. I have never forgotten one of his observations, which is another reason why I am pleased to be in his library in Johannesburg this evening. He told me:
"The difference between Johannesburg and Cape Town is that in Johannesburg there is nothing to see, and in Cape Town there is no one to talk to!"
But there is a further connection between my recent work as a diplomat in Argentina, and this family. I write in the book of the events around a fairly recent visit of Mary Slack to Buenos Aires and the land she has acquired around the coastal plain in Mar Del Plata, and some of the challenges facing those, like her, who want to import racing broodmares into one of the most import-averse and protectionist countries on earth.
But there is another story, not in the book, which was told to me by Mrs Bridget Oppenheimer, shortly before I departed on my three year foreign mission back in 2009. It concerned the first visit of the Oppenheimers to Argentina, and it goes something along these lines:
Mr Oppenheimer was a friend of Joe Martinez de Hoz- . He told an amusing story about visiting the de Hoz campo near Mar del Plata and being taken on a ride in a carriage by Joe- except Joe fell off and Harry and Bridget were left alone on a wildly charging carriage which was terribly dangerous!Julian Ogilvie Thomson , also aboard the carriage, managed to get the reins of the 4 or 8 horses and bring the whole thing to a satisfactory end but it was apparently a close shave.
Of more lasting impact was when Mr Oppenheimer was taken down to Cerro Vanguardia, in the Patagonian area of Santa Cruz, when it was just a prospect. Patrick Esnouf recounts:
"We lunched in the rather desolate homestead, walked over the surface gold veins and HFO was indeed rather excited by the idea of building a mine in Patagonia. But he wasn't even then under any illusion about how tough a place to do business Argentina was. Anglo was certainly the only major miner engaged in Argentina at the time- the rest gave it a wide berth! We had a local partner Perez Companc- that was considered the only possible way one could operate in Argentina. He never saw the finished construction. Nicky went to site a little later but even then it was just still a prospect."
Of course the Cerro Vanguardia mine is today fully productive and operational and is now housed in the stable of Anglo Gold Ashanti, and some of my own ambassadorship was spent in assisting them with some of their regulatory problems in Argentina, which brings this part of the story a full circle.
But I think that what is most missed in South Africa today is the business statesmanship which the late Harry Oppenheimer exemplified. I do not want to romanticise the past in our country, and I certainly know there were many aspects of our previous economic regime -replete with migrant labour, exploitative practices and racial distortions which bedevil the present. But the absence today of the sort of enlightened and visionary economic and political leadership which Harry Oppenheimer gave to this country, finds no equivalent in the boardrooms of corporate South Africa. That's one of the problems we face in our mining industry, and it is salutary to remember that at the time of Mr Oppenheimer's death thirteen years ago, South Africa produced the most gold in the world, whereas today we have slipped to 6th position behind Peru.
Another issue which the recent decline in the exchange rate of our currency reveals is not new. In fact the story in the name of Anglo American founded by Sir Ernest Oppenheimer, nearly one hundred years ago, in 1917, underpins it. The original GBP 1m capital raised for the company was sourced from JP Morgan &Co, and other American and UK sources, hence the name "Anglo American". But this is part of a wider and cautionary story embedded in our history: the need to attract foreign capital. The historian RW Johnson viewing the crisis created by the Rubicon speech of then President PW Botha in 1985 wrote:
"The crisis of 1985(with capital flight and a currency collapse offset by high inflation) illustrated what became an iron law of South African political economy, the need for foreign capital. Ever since the discovery of gold and diamonds in 1867, and particularly since the discovery of gold and the need for large capital infusions to finance the deep-level mining, the South African had lived off a steady inflow of foreign investment...there was never any prospect of South Africa having the high savings ratio which later typified successful developing countries in Asia; which in turn meant that the investment necessary to keep the economy turning could not be all domestically derived."[i]
Indeed, had Mr Oppenheimer been with us this evening, as a keen observer of South African history, he would have agreed with the observation that some key and critical moments of our national story - Jan Smuts' eviction from power in 1924 as a consequence unprofitable gold mines which led to the 1922 Rand revolt, the depression of the 1930's and the formation of fusion government and the consequent ‘poor white problem' which led to the National Party government in 1948, derived from a key lesson:
"The country cannot long withstand a cessation of foreign investment without creating a major reaction and usually the collapse of a sitting government." [ii]
Any reading of the more recent era of the democratic negotiations which led to the election of President Nelson Mandela in 1994 also must take into account that, in 1990, President FW De Klerk realised that the foreign investment strike against his government compelled him to undertake the dramatic course which he did, and which within four years led to his ouster from power.
The economic crisis which South Africa faces tonight is also characterised, in a much changed country and a different world, by this essential truth. Our currency today is worth (in dollar terms) around five times less than it was in the 1980's. Yet, we are burdened with a widening current account and budget deficits, contained but rising inflation, and, most dramatically by what I call "the 16:13:6 ratios". We have 16m monthly recipients of government welfare payments, an employed workforce of around 13m people and only around 6m personal income tax payers.
Yet on the foreign investment front our position is parlous: we recorded a decrease of 24% in FDI flows into this country between 2011 and 2012, according to the United Nations Conference on Trade and Development (UNCTAD) down to $4.6bn in 2012 form $6bn the year before. The short term investment flows, vital to funding our welfare budgets and current account are also notoriously fickle and extremely volatile, exemplified by the decline in our currency and the souring of investor sentiment toward developing economies.
While I do not think or predict that our current government will fall in next year's election, it does confront an array of crises on the employment, growth, labour and social fronts, each of which worsens as foreign confidence declines. The fact that South African based mining companies' trade at significant discounts, compared to their non-South African peers and that major resource companies increasingly hold fewer assets and designate fewer greenfield projects in this country underlines this trend.
As a citizen it is my profoundest hope that we will find within ourselves, and especially in our leadership, the courage to make the tough choices we need to overcome this crisis. But I know, not because of any blinding insight but based simply on a reading of history, that our current course is unsustainable. Government in South Africa today is the single biggest employer. But this simply is not, in the absence of sky-high inflation or a profound shift in investor confidence, capable of producing the necessary jobs and rising income levels which this country needs. It is a cul-de-sac, not a road to inclusive growth.
My adventures in Argentina and observations about it contained in The Accidental Ambassador provide a cautionary tale of economic mismanagement on a grand scale and government attempts, ever more desperate, to defy the laws of economic gravity. The end of the tale is much more sombre than and not as promising as its beginnings. You also could not be, as Michal and I were for over three years, a South African resident of Argentina, without noticing some parallels between the countries, some of which were not at all reassuring.
For the early part of the 20th century, in fact right through to the eve of the Second World War, Argentina was one of the ten richest countries in the world. Its economy, at four times the size, dwarfed its neighbour, the much larger Brazil, and the phrase "as rich as an Argentine " echoed across the grand residences of Europe where many of the many wealthy Argentines spent much of the year, living at home and abroad in conditions of ostentatious grandeur.
However, in an eerie parallel with our own country, Argentina's wealth was founded on incredible natural resources but these were unsustainably and inequitably held. The bulk of the country's people were excluded from the tiny circle (perhaps 300 families) which owned the land and most of the nation's patrimony. Much of the economic power was held offshore by British interests. The only element missing from this familiar cocktail was the racial element, and that is explicable by Argentina's infamous 19th century campaigns which essentially ‘rid' the country of both the bulk of its indigenous peoples and the afro-descending slave population. The urban and rural poor lived off the charity of the church and the rich and were, for the most part, denied fundamental rights. On the eve of the ascent to power of Colonel Juan Domingo Peron in 1945-6, his working -class supporters who thronged the streets of Buenos Aires were dismissed by a conservative congressman as" a zoological horde''. But the Colonel's strong-willed wife, Eva Duarte Peron, described them with real affection and an appreciation of their voting power as the descamisados or shirtless ones. In the next nine years, the Perons (although Evita died at the age of 33 in 1952) set about implementing their vision of social justice in Argentina. They did some significant good in providing rights and entitlements to the urban working class, but also in the process bankrupted the country and brought in their wake an authoritarian undertow which closed down or restricted most of the country's democratic checks and balances, from the judiciary to the media. But it was Peron's alienation of two of the most powerful pillars in that society -the army and the church-which led to his ouster.
As my book records, for the next twenty years, Argentina lurched under mostly military rule toward authoritarianism. And unlike, in neighbouring Chile, for example, the military did not bother to implement any thorough going system of economic reform. The return of Peron after eighteen years in exile in 1973 was both short lived and disastrous: he died within a year of his re-election and his Peronist movement had split into two warring and brutal factions, whose clashes and street terror led to the imposition of one of the most brutal military regimes ever witnessed in Latin America, historically home to the Caudillo or strongman. In a state-sponsored killing spree the regime murdered, in just six years between 1976 and 1983, anywhere between 9 000 (the official figure) and 30 000 (the unofficial estimate) Argentines in torture centres and via "death flights " as I elaborate with some grisly detail in my book.
But with a few exceptions, the democratic era, more or less in place in the country since 1983 has not in the succeeding thirty years seen the building of sustainable and inclusive economic growth, nor the deepening of democratic institutions. On the contrary, in 2001 Argentina essentially went bankrupt and recorded the then largest sovereign economic collapse in history. Since then, the head winds of the resource boom and the global era of ultra-cheap cheap money, coupled with an aggressive devaluation, helped the country recover. But this was both illusory and temporary. Today the Argentine economy is in free fall, its GDP size now a quarter of neighbouring Brazil and smaller than South Africa's. Ever more aggressive dollar-retention measures, extreme protectionism and runaway inflation (fuelled by the former and by massive government stimulation of the economy and populist giveaways and subsidies to supporters of the ruling party) have created a hazardous place for investment. The decision by the President Cristina Fernandez de Kirchner, in 2011, to effectively expropriate without compensation ( shades of Julius Malema except form a position of power and in Spanish) the foreign shareholding of the largest local oil company, Yacimeintos Petroliferos Fiscales (YPF) convinced an already sceptical investor community that this was no place to do business.
There was both capital flight and many investor departures. The government's previous decision to essentially renege on its debt obligations to foreign bond holders had excluded the country from international credit markets. Now, it was also behaving like an international economic outlaw, replete with fiddled national statistics and extreme foreign exchange measures and the tearing up ,or simply ignoring, of its bilateral and international treaty obligations.
You will understand from this brief but gloomy, but I think essentially fair, summary that selling South Africa's safe haven status as an investment destination was, in comparison , quite easy. And with some energetic salesmanship we managed to attract a lot of business from there to here during my tenure. It is still true today that South Africa is better economically managed than Argentina, and you might say, "well that's not saying that much" but it is no less true for that fact or comparison.
However, through our own actions we are also undermining our "competitive sell" - our comparative advantages - in attracting much needed foreign investment; and , we cannot simply blame the global financial crisis for our problems. Because every action we take or do not take has an opposite reaction in the hyper-competitive investment world: we intend, for example, to restrict foreign land ownership, a populist gesture which will not create any more land for local transfer but will deter the FDI flows from South America into our agri.-sector which desperately needs the revitalisation offered by Brazilian and Argentine advanced technologies and transfers.
We cripple our best prospects for FDI-attraction by subjecting foreign entities to extremely burdensome BEE requirements. There is no argument against including the historically excluded into the heights and across the whole of our economy. It is both morally urgent and historically justified. But BEE has become a blunt instrument of racial bean- counting. It is, as mandated, a simple exercise in rent-seeking or unearned wealth transfers.
It invites those who recognise the investment attractions of Africa to go outside of South Africa to find it. Perhaps our most exemplary attraction to foreign investors which I sold in South America were the trade incentives and market access advantage which we enjoy (and which Argentina and Brazil, for example do not) in Europe and North America, in part because of the investment treatment which we give their companies. Now that we are junking our bilateral investment treaties with our major European partners we are undercutting a vital edge which this county has enjoyed.
Argentina's most instructive lessons for South Africa today are, in my judgment, twofold:
1. Clinging to failed policies is disastrous: when the tide turns against you, only an honest and fairly ruthless self-examination and a willingness to "stop digging" further under your own national foundations can change the economic weather and the investment climate in your own country. Giving "the finger "to the world or attempting to defy the unsentimental, remorseless logic of international markets (as PW Botha infamously did in 1985) is the road to long-term ruin.
2. Conducting politics on the basis of "Vote for a Better Yesterday" might win votes and even elections, but it beggars the prospects for the future. Both South Africa and Argentina have histories of exclusion, racism and deep authoritarianism and there have been some remarkable leaders in both places. But refracting politics through the lens of the past is, by definition, backward -looking and offers no prospectus for the future. President Juan D. Peron once said, "Argentines might belong to different parties, but in the end we all Peronists."
In South Africa, likewise today, there might be a vigorous political debate over fitness for office and corruption and the rule of law, for example, but there is little attempt from any party to offer a futuristic and vigorous alternative to the model of redistributive economic justice which has been erected across the economy, with some of the baleful consequences I have outlined here.
Of course being an ambassador abroad was not simply a three year course in comparative history, trade promotion and public diplomacy. I had to promote our foreign policy. One of the attractions in accepting the posting to Buenos Aires was that I judged, correctly as events proved, that there would be little controversy in our bilateral relations and I would not be obliged to advance or defend positions and policies which conflicted with my own political convictions. But the one area where my appointing government and I parted company, and which led in part to my earlier return from Argentina, was over our policy and pronouncements in the Middle East, particularly in relation to the so-called "Arab Spring."
The expectation, so often disappointing in result, that South Africa would give voice and effect to the practise of ethical diplomacy and providing an antidote to the diplomatic school of realism so prevalent in the world, was not simply the consequence of Nelson Mandela having bequeathed a hostage to fortune in his famous Foreign Policy article back in 1993. He then declared that "human rights would be the light that guides our foreign policy." The anticipation was informed by the very nature of the struggle, and the forces it opposed, of the governing ANC when it engaged in the battle against apartheid. This is well described by Professor Peter Vale:
Apartheid's single greatest legacy could be that the world will rally people to struggle against the injustice and poverty brought about by the inhumanity that people do to one another.[iii]
But , as we used to say during my time in legal practice, "hard cases make bad law". Nothing perhaps exposed the dashed expectations and glaring contradictions and the somersaults of our foreign policy than the"Arab Spring", which started to burn in December 2010, and soon spread across much of North Africa and the Middle East; long-repressed citizens under the heel of various fiefdoms and tyrannies began to demand and demonstrate for basic democratic and economic rights, just as their compatriots in South Africa had done some two or even three decades before.
We are witnessing the continuance of this trend tonight in Syria. On the one hand, the government of South Africa condemns, quite correctly, the use of chemical weapons there. But, it simultaneously demands the imprimatur of a United Nations Security Council resolution to interdict their use. It knows full well that Russia will continue to temporise with the tyrants of Damascus and veto such a resolution. Thus we demand an action which we know will not occur -and thus enter into the big and international league of ‘having your cake and eating it.'
In my view, and I believe there are many South Africans who share this vision, South Africa's best hopes for itself at home and abroad is to rediscover and reanimate the founding principles which led us away from the pit of racial division and conflict and into the foothills of an inclusive democracy. We need to keep walking this path until the summit is within our view and grasp.
Footnotes:
[i] [i] RW Johnson: South Africa: The First Man, The Last Nation. Jonathan Ball. 2004 at p.196
[ii] ibid.
[iii] Peter Vale: Keeping a Sharp Eye: A Century of Cartoons on South Africa's International Relations. Otterley Press. Johannesburg.2011 at p126.
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