Red Alert: Possible reasons why Reuel Khoza is angry: The crisis of neo-liberalism and the financial sector in South Africa
Most of our cadres in the Alliance and government have been justifiably irritated by the reckless comments made by the Chairman of Nedbank, Mr Reuel Khoza recently. Khoza's comments have built on the current media-backed liberal offensive aimed at discrediting the current leadership of the ANC and government, with a particular target being President Zuma. Indeed the irritation within our ranks is further justified by the fact that the current offensive is similar to the pre-Polokwane offensive which was aimed at discrediting President Zuma ahead of the ANC's 52nd National Conference in 2007.
Much as the reasons for this irritation on the part of our Alliance cadreship are perfectly understandable, but there are deeper reasons for Khoza's recent outbursts. Perhaps the observation by the ANC Secretary-General and National Chairperson of the SACP, Cde Gwede Mantashe cuts closer to the true reasons for Khoza's outbursts. Cde Mantashe points to the fact that perhaps Khoza is frustrated by his (and Nedbank's) failure to find a (foreign) buyer for the bank.
The fact of the matter is that South African banking industry, despite slick public relations stunt indicating otherwise, is facing the eye of a (brewing) storm; also perhaps the underlying reason why Nedbank is not currently a saleable proposition. The South African banking industry is developing towards a huge crisis, likely to lead to a serious bubble, not dissimilar to that of the rest of the global banking and financial sector, unless drastic action is taken to prevent this.
Since the onset of the current global capitalist crisis, in which finance was at its centre, the South African banking industry has been sinking deeper into its own financial problems. Despite claims by Stephen Koseff, Chairman of the Board of the Banking Association of South Africa in 2010, that "South Africa was largely insulated against the effects of the global financial crisis due in part to the introduction of the National Credit Act (2007), Basel II (2008), a conservative regulatory framework as well as conservative lending practices", a closer examination of debt exposure of South African banks tells a very different story.
South African employers have intensified the casualisation of the working class, including through the dramatic increase in labour brokerage, to circumvent our progressive labour dispensation, similarly South African banks have sought to circumvent the National Credit Act (NCA, 2007) by expanding reckless spending.
There was a significant increase in lending by South African banks around 2003-2006, largely in anticipation and ahead of the passage of the stringent regulations of the NCA, coupled with the increased pressure by the SACP-led financial sector campaign for developmental but responsible lending.
Part of the methods for expansion of lending by the banks was the consolidation of an alliance between banks and the retail sector, also marking an increased entry of the major banks into micro-credit. Whilst the passage of the NCA in 2007, including the establishment of the National Credit Regulator, temporarily stabilized the extension of credit by the banks, the percentage of household debt to disposable income grew from about 50% in 2001 to a whopping 80% around 2007.
This means that 80% of disposable income went to servicing debt. Perhaps the situation is more serious than this, as our own financial sector campaign showed us that usually the indebtedness to formal financial institutions by the working class is also accompanied by further indebtedness to ‘omashonisa', whose debt statistics are unknown!
However, with the onset of the global capitalist crisis and the crisis of the global finance capital around 2008, the pattern of lending by South African banks has since changed radically and dramatically. During this period, there has been a huge increase in the number of unsecured credit transactions, a phenomenon exactly similar to that which led to the bursting of the housing bubble in the United States, triggering the current global capitalist crisis.
Unsecured credit transactions, according to the National Credit Regulator (NCR), "include all transactions in respect of which the lender does not have any security" to recover debt in case of change for the worse in the financial circumstances of the debtor.
For example, according to the NCR between September 2010 and September 2011, unsecured credit transactions in South Africa, the bulk of which are carried by banks, rose by a whopping 58,49%! In monetary terms unsecured credit transactions grew, during the same period, from R920 million to just over R1, 3 billion. Unsecured credit granted and payable within a period of 6 months or less grew by 171%.
These shorter paying periods are normally for the poor and the working class, signaling that the very same class whose job security is at stake, is the most exposed to debt, thus potentially placing South Africa's banking industry under enormous pressure, unless drastic action is taken to curb this exposure. For instance every South African who owns a cell phone knows the extent to which he/she daily receives SMS offers of unsolicited credit.
The depth of the problem of the ‘financialisation' of South African capitalism is further illustrated by the fact that even insurance products, like hospital and funeral cover, are becoming more about how much cash you can get back if you get hospitalized or your family in case of death, than about social security.
The statistics by the NCR on the Credit Bureaux underlines the above story. For example between December 2008 and September 2011, debtors in good standing declined from 58,4% to 53,8%, whilst that of bad debtors with impaired records grew from 41,6% to 46,2% during the same period.
The story told by the above figures explains why Khoza is so angry. No foreign bank is likely to venture into buying in instances of such huge debt exposure. Banks globally have been the biggest beneficiaries of neo-liberal policies that fostered a casino economy, where money profits are generated from money through financial speculation and an aversion into investment into the productive sectors of the economy. Therefore the crisis of neo-liberalism means a crisis for the financial sector, being simultaneously the generator and victim of the current global capitalist crisis. It is for this reason for instance that countries like Greece and Portugal are now literally owned by the German and French banks, which in themselves, are further exposed by the this vicious cycle of trying to save neo-liberalism through further financialisation! No wonder Khoza is so angry!
There is perhaps another reason why Khoza is so angry. It is the fact that since the advent of the 2009 administration led by President Zuma, there is a deliberate policy shift and signal away from neo-liberal policies towards an active industrial policy, premised on intended increased investment into boosting manufacturing and investment into infrastructure. This is of course no good news to a financial sector that has accumulated massive profits through the financing of debt-for-consumption and financial speculation than investing in the productive economy.
It is therefore not surprising that significant sections of the manufacturing sector have welcomed many of the policy shifts by government than by the financial sector. So is Khoza's anger directed at President Zuma and government for daring to strive to pursue policies aimed at prioritizing a new growth path premised on investment into the productive economy and infrastructure.
Perhaps the answer to Khoza's outburst is not so much to be irritated against him per se, but for the workers and the poor of our country to intensify the struggle for the transformation of the financial sector. The working class must use its mass power to buttress government's efforts towards intensifying job-creating investments in the productive economy and into infrastructure. The task must be to intensify the struggle for the financial sector to move away from neo-liberal financial speculation but to invest into the productive economy, small and medium enterprises and infrastructure. It is also incumbent upon organised workers to take up in earnest the struggle for its provident, pension and insurance funds to be invested in the productive economy.
The challenge for finance capital in our country is not to pontificate but to tell us how it sees its own contribution to the country's overall developmental objectives. For instance Khoza should answer a simple question: is the predatory behavior of finance capital in the interest of job creation and investment into our productive economy?
Khoza's outburst and anger is perhaps the personification of the crisis of neo-liberalism in our own country!
Asikhulume!
This article by SACP General Secretary Blade Nzimande, first appeared in the Party's online journal Umsebenzi Online.
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