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South Africa’s slow-motion momentum towards a financial train crash has begun to speed up. Recent weeks have seen strong warning signals from the rating agencies. In particular there is widespread concern that the ongoing bailout of Eskom is both insufficient – hundreds more billions of Rands will be required – and is taking place without conditionalities. This is emphasised by the fact that Eskom has just racked up another R21 billion loss (after repeatedly postponing its financial statement).

It is simply impossible for Eskom to right itself without large-scale redundancies, a purge of the innumerable insider business deals still going on, an end to cadre deployment and the substantial sale of assets. But since the government is clearly scared of all these solutions, it continues to pour money into the sieve, as Mboweni rightly put it. This is a disastrous failure of governance and it means that the money handed over to Eskom will essentially be wasted – in effect it will be used to keep paying inflated salaries to a large number of unnecessary workers and to finance all the sweetheart deals that make Eskom’s costs so high. In effect Ramaphosa has declared that the highest national priority is the maintenance of their high consumption levels.

The government and ANC are meanwhile enjoying heated arguments about trivial questions – about expropriation, about nationalising the central bank, about a proposed land reform which would threaten food security, about the Public Protector, Derek Hanekom and about such arcane items as who betrayed whom more than thirty years ago. President Ramaphosa has reportedly decided that his top priority is the reform of the ANC. This is rather like King Canute deciding that his priority was to command the tide to stop coming in. The ANC is irreformable, plagued by factionalism, almost entirely given over to public sector theft, and its internal elections settled by a mixture of bribery and assassination.

There are, quite visibly, criminals in the cabinet, criminals in Luthuli House and criminals on the ANC national executive. A key index is the enduring strength of the Zuma faction despite the fact that Zuma himself is utterly discredited and unpopular. Not to put too fine a point on it, his faction is strong because it rests on the greed and rapacity of wealthy crooks who have had many years to dig themselves in. Against such an elemental force Ramaphosa’s dithering attempts to “get everyone round the table” are almost entirely a waste of time.

This is, in fact, an almost exact replication of the way the National Party behaved in its last decade. No matter the urgency of practical events, one was always told that the time was not yet ripe because of the delicate balance between the Nats’ factions, the verligtes and verkramptes. Both domestic and foreign observers would point out that the country was burning, that a civil war threatened and that the economy was blighted by instability and sanctions. Sure, all true, they were told, but we can’t do anything which might give Treurnicht another debating point or which might disturb the delicate compromise between the Cape and Transvaal sections of the party. Yet as one looks back who gives a fig for Treurnicht, the Cape vs Transvaal broedertwis or the Nats’ internal party dynamics in general ? Substitute Magashule for Treurnicht, and Cosatu, the SACP and the Zuma faction for the old Cape and Transvaal and you have today’s line-up. And once again we are told that the top priority is not the national crisis but the internal dynamics of the ruling party.

What happened with the Nats resembles the way in which Hemingway described the process of bankruptcy: for a long time little or nothing happens and then everything happens very suddenly. In mid-1989 PW Botha was soldiering on forever. Eight months later apartheid had been abolished, the ANC, PAC and SACP were unbanned and universal suffrage was on the way. It is the logic of the avalanche: one moment nothing moves, the next second everything does. We are, quite clearly, heading for another such moment. It is likely that in the not too far distant future all sorts of currently unimaginable items will be on the agenda and that today’s pre-occupying concerns will seem like so much chaff in the wind.

There have been several advance tremors in the last week. One was the declaration by the National Treasury’s director-general, Dondo Mogajane, that what was really needed was a 10% salary cut for all public servants simply to cover the cost of SOE bailouts thus far. “National Treasury’s box is empty”, he said. “Growth is not coming through and tax revenues are not there. We are in trouble.” He then added that the 10% wage cut scenario was unlikely. “Realistically, it’s not something we can approve and it’s not really possible, but there are no holy cows and we have to make some tough decisions. We need to avoid a situation where everything collapses.” He went on to say that the government needed to be open to borrowing from multilateral institutions: “We should not be afraid to go to the Brics bank (the New Development Bank or NDB), the African Development Bank (the AfDB) and the World Bank and say: “Let us diversify our debt portfolio.””

There are a number of interesting points here. First, the Treasury has clearly begun to think about “a situation where everything collapses”. Secondly – and in line with a lot of other current government rhetoric – he insists that there must be tough action, no holy cows, but then immediately backs away from the tough action he had proposed (the 10% salary cut), declaring it to be a holy cow. Then, warming to his theme, he comes up with the government’s favourite solution: more debt. Because, of course, he’s not really talking about diversifying the national debt – that would mean redeeming some of it and borrowing elsewhere, and no one is even dreaming of redeeming any debt. Really what he means is let’s go off to these other institutions and borrow some more.

This is an interesting point. One would like to think that the Treasury DG knows a bit about international finance. But it’s not clear that he does. After all, what sort of loan do we need? Argentina, another middle-income developing country (though with a smaller population than South Africa) recently got an IMF loan of $57 billion. It’s unlikely that we need less but let’s settle on that figure. The first thing to notice is that the AfDB, in its entire history since 1984 has, in 2,885 separate operations, lent a grand total of $47.5 billion. So we can hardly get much from them. In addition, the AfDB normally lends at market rates and essentially lends only to fund infrastuctural projects. It also only lends to “credit-worthy African countries”. Similarly, the NDB has a loans budget of $3.4 billion a year and lends only to fund infrastructural projects. Yet what South Africa needs is a vast loan in order to bail out the state, not to build any new dams or roads.

Finally, Mr Mogajane gets to the World Bank. This is interesting because it is one of the hated Bretton Woods institutions which normally the ANC shuns. But one hopes that Mr Mogajane knows that the WB also only lends for project finance, again mainly for infrastructure. So it’s not really a runner at all. It’s true that Brics also has a Contingency Reserve Arrangement (CRA) which can also lend money – though only to help countries with balance of payment problems. So that’s not much use either. That is to say, what Mr Mogajane is really talking about – but dare not mention by name – is the IMF, the only bank which has sufficient funds to help and which lends not for specific projects but to bail out countries which have got into a mess.

No doubt behind the scenes the government has already run over this possibility and quailed. At which point, of course, the first thought in mind is “surely we could get money from the Chinese?”

This is doubtless the reason for Ramaphosa’s sycophantic siding with China over the Huawei controversy and the extravagant care South Africa takes not to upset the Chinese or Russians on the question of human rights.

However, this week the Chinese ambassador to South Africa, Mr Lin Songtian, gave a long interview to Reuters. In itself this was remarkable. Diplomats – and especially the Chinese – generally shun public speaking and prefer to make demarches behind closed doors. So, without doubt, Mr Songtian wanted to make a very public point.

He started with “President Cyril Ramaphosa is the last hope of this country” which could be translated as “we realise South Africa is in the most appalling mess and the situation is so bad that we are breaking our normal rule of not making public observations about your domestic politics”. Mr Songtian then went to great lengths to explain why South Africa was not attractive to Chinese investment. “To date there are no major infrastructure projects from China here. Why? Because we don’t only need the concept of a project.”

Policies of extending incentives, including tax breaks, to attract foreign capital also did not do enough for Chinese investors who, Mr Songtian said, wanted to see favourable conditions enshrined in an investment law approved by parliament. (Note that Rob Davies’ insistence on getting rid of investment protection laws has cost the country not just Western but Chinese investment as well.) What would bring in Chinese money? Well, it would help if the antiquated railway network was revived, the port of Durban was modernized and Eskom was cleaned up. (Translation: the ANC has destroyed your infrastructure and you can’t expect anyone to help finance such feckless behaviour.)

Previously the China Development Bank lent $2.5 billion to Eskom but Mr Songtian made it clear that this wouldn’t happen again. “Eskom is a debt trap. China gave them some loans before. And now they have become very cautious. Eskom is not an issue of money. It’s the issue of operation mechanisms, management capacity.” (Translation: you have failed entirely to reform Eskom. Ramaphosa has promised a lot but nothing is happening. You people are just not serious.) Mr Songtian then hinted that the IMF was the place to look for money, pointing out that China had helped the Republic of Congo towards an IMF bailout.

“China is always open to working with the IMF”, he said, adding “If it goes for electricity, roads, industrial parks and follows the concept of intensive development, temporary debt is OK and will be paid back when the country gets developed.” (Translation: there is nothing wrong with borrowing from the IMF and we are passing the buck to them.)

It is not difficult to imagine that there must have been some frantic pleas from the Treasury and the Presidency for a great big lump of money from China. It is much the same story as Ramaphosa’s ill-fated investment drive. He seemed to think that you could attract investment simply by sending off emissaries to ask for it. This sort of spoilt child behaviour is based on a sort of South African exceptionalism, the notion that we are special and different and have Madiba Magic etc. This is all very well on occasion for self-congratulatory speeches – it goes with new cities and bullet trains - but to expect it to cut any ice in the real world is simply delusional. In any case, Mr Songtian has now made things crystal clear – his language is amazingly blunt, especially for a diplomat - doubtless at the urging of Bejing.

All of which ought to have been a douche of cold water to make the ANC wake up and stop dreaming. But it’s clear this hasn’t happened. The first clue is the appointment of the interim chairman of Eskom, Mr Jabu Mabuza, to be CEO as well both of Eskom and Eskom Holdings. Eskom is both the biggest engineering outfit in the country and the biggest single financial operation. It is highly desirable that its CEO should have both engineering and financial qualifications but Mr Mabuza has neither. But like any other successful BEE capitalist he is assumed to be a renaissance man, able to turn his hand to almost anything. But that is part of the problem.

Apart from his double duties at Eskom he also has a considerable variety of day jobs, such as being chairman of the Casinos Association of SA, being executive chairman of Sphere Holdings (an investment management company) and so on. The truth is that his appointment smacks of desperation. The casualty rate among SOE executives is so high that there are few volunteers for such a role. What it doubtless means is that Pravin Gordhan will end up as the remote control boss of Eskom. This is not good: political interference has a lot to do with how we got here in the first place.

We only get into this preposterous situation because it is assumed that SOE CEOs have to be black. There are a considerable number of extremely able businessmen of other colours who could do the job much better. But of course the Ramaphosa administration would be scared of “ignoring transformation” and thus giving a debating point to Magashule. At the moment this imperative is so strong that the government is willing to risk economic collapse rather than face the facts.

A second and remarkable pointer is the government’s persistence with its NHI plan. Quite apart from its unworkability, the certainty it would bring of further large-scale corruption and, probably, its unconstitutionality, NHI cannot possibly cost less than R350 billion a year. If the government were to introduce a bill in parliament to spend that much extra, the Rand would collapse, junk status would follow and emigration would soar. But, again, the government would rather risk economic collapse than hand the Zuma faction a propaganda gift by withdrawing NHI.

In the end it all comes down to arithmetic. Add up our current debt and add the debts of the SOEs. Then add to that the large extra sums required to bail out the SOEs. Then add the huge sums required to bail out all the failing municipalities, the Road Accident Fund, the hole in SANRAL left by the collapse of e-tolling and the larger budget deficit this year. Long, long before all that is counted, the government will have run out of money and will be unable to borrow more. In addition, do not for one minute believe that all the hungry mouths in the ANC will stop demanding more.

Samwu wants its members paid by the state if the municipalities cannot pay – and after all, its members on the Tshwane buses are demanding 18% backdated for two years. 18% is four times inflation and at least eighteen times the rate of economic growth. The government is still pouring money into such ridiculous schemes as the 100 black industrialists’ programme. There will, as ever, be strong political pressure for public sector wage increases and increases in social grants. Let us not even bother about such fantasies as NHI or a state bank. The point is the same, after all. The government is quite certain to run out of money, at which point it will be unable to pay the interest on its debt and default.

What this all boils down to is that the ANC is testing itself to destruction. Again, the parallel with the Nats is uncanny. PW Botha played Canute for some time, testing his party almost to destruction, and not long after that the NP disappeared completely. The irony is that Ramaphosa’s failure to act derives from his fear of political opposition but in the end his timorousness may end in his own downfall. He has now been in power for eighteen months and achieved almost nothing. If he continues to drift and dither he will pay a fearsome political price. He pinned almost everything on his investment drive but in fact the huge capital flight now in progress means that he has achieved exactly the opposite.

Effectively what this means is that all roads lead to the IMF. Doubtless, as we near that point there will be lots of ANC (and EFF) speeches tearing into the IMF and all its works and swearing that South Africa will never ask for its help. But their meaning will be quite the opposite, that politicians fear the inevitable, are in denial, and somehow hope that ideological fervour alone will head off that choice. All this should be ignored. The only question that matters is, if you get into a terrible financial mess do you or do you not want help from the lender of last resort? And since the only alternative to the IMF is a breakdown into chaos, do you prefer chaos? There can only be one answer to that.

In fact an IMF bail-out will be a happy ending. It will bring down the curtain on a disastrous period of misgovernance and force proper structural reform to be undertaken at last. This won’t exactly be fun but an extra $50 billion or so will help tide things over. Provided that reform is firmly forced through the country should be set once again on a self-sustaining course and, almost certainly, the political landscape will have fundamentally changed.

Quite possibly there will be major constitutional revision and the period between 1994 and (say) 2020 will be written off as a failed republic, rather as the French had to write off first the Third and then the Fourth Republic. Taking the longer view we will no doubt then argue that a false start was always likely. Probably, among all that debris, only Mandela will be remembered with any affection or respect, though the ANC is unlikely to survive and certainly not in its present form.

All of which is not bad news. South Africa will remain a resilient country with enormous mineral wealth, a tourist Mecca and a large, potentially valuable diaspora. Of course, it may not remain one country: the longer our current politicians remain in denial, the more likely it is to break up. That is a true unknown. But the fundamentals will remain good and a second chance, a new start, is always a fine thing.

RW Johnson

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