For those who thought the ANC would need to imperil the economy before it could fully transition from a liberation movement to a political party, that day has arrived. But instead of transitioning, the ANC is paralysed amid a leadership tussle. Yet rather than simply choosing among leaders and ideologies, the party must also extract itself from a poverty trap wrapped within a web of patronage. Meanwhile, the global economy shifts further from industrial-led growth, highly dependent upon raw materials, toward hyper competitive, services-led growth.
Prior to Jacob Zuma ascending to the head of the party and becoming state president, the ANC indulged endless ideological debates. That the Soviet Union collapsed as communism couldn’t compete in an industrial era was routinely ignored. Nor did the ANC want to recognise that globalisation supported by rapid waves of technological disruptions made central planning less viable than ever.
The rise of China is possibly the most amazing man-made event of all time. Yet the ANC’s economic policies are nearly polar opposites of those followed by China and its many successful neighbours.
Prior to 1994, most poor South Africans weren’t allowed to vote. But another key difference was that low- and medium-income households weren’t highly indebted. SA’s usury regulations were substantially altered in 1992. After a slow start the proliferation of authorised money lenders gained much momentum.
SA’s commodity wealth has been pummelled by a shifting global economy and shifting regulations. Thus SA’s traditional growth catalyst has been emasculated. This makes domestic consumption, which accounts for about 60% of GDP, critical. But it has been similarly devastated by mixing excessive debt and modest skill development.
When ballots are cast in 2019 it will be against a backdrop of ten years with no growth in per capita income. A closer look will reveal that the highly skilled continue to gain. The crux of the crisis for the ANC is that government interventions to address issues like inequality can’t be made to work in a no growth economy.
This is particularly true in SA where the inequalities reflect harsh variations in skill levels and access to resources. When the economy is in a prolonged stall, taking from the more productive segments to benefit the less fortunate further undermines growth prospects. Job losses beget job losses. This has begun.
The only option left to grow SA’s economy is to sharply increase value-added exports. The good news is that South Africans can compete and win on the world stage; the blockages are self-imposed. The bad news is that the key changes required are political and it is quite difficult to develop grassroots support for necessary policy shifts.
The ANC’s major constituencies are: populists; unionists; communists; and cronies. They were united by their support for redistribution. Then four key things happened. First, Zuma was very successful, politically, at developing his patronage network. But he didn’t anticipated the other three key events: the sharp decline in the trajectory of commodity demand; the devastating effects of household over indebtedness; the Gupta email leaks.
The ANC has never had a workable economic vision. There is little difference in being anti-neoliberalism, anti-Washington consensus, or anti-White Monopoly Capital. That the ANC still can’t define Radical Economic Transformation is telling. After more than twenty years of governing, the party resembles a liberation movement of reactionaries hi-jacked by cronies.
What is more telling still is that the ANC has never coalesced around what should be its core objective: to rapidly increase the “sustainable” black middle class. This shortcoming opened the door for Zuma to build a huge patronage network. Such a patronage network requires considerable commodity wealth and creating many “unsustainable” jobs spurring loyalty to patrons.
If the progression to junk status doesn’t trigger a pivot toward competitiveness focused growth policies, SA’s debts will continue to compound while the economy stagnates. Defaults will follow. “Unsustainable” jobs would be lost across the private sector and then, probably as part of an IMF bailout, across the public sector and among state owned enterprises.
To grow the economy the ANC needs to shift policies from focusing on redistribution to focus on competing. To do this requires forging political support. This should be built around needing sustainable growth to expanding household incomes and asset accumulation. Shifting to such a policy platform is now necessary to grow the economy. However, it would highlight just how inept the ANC’s policy making has been. Opposition parties would pounce.
For instance, among the top interventions to advance households from subsistence existences to middle class status are access to low cost electricity and transport. Never mind the lessons from the collapse of the Soviet Union or the rise of Asia, SA voters know all too well how ineffectively low-income families have been served by government in these two critical areas.
The shining exception has been the success of the minibus industry due to innovative risk management, by the sector’s dominant lender, leading to affordable funding. It is not that these lenders are necessarily far smarter than SA’s public sector policy makers. Rather, one group consists of business people who respond to competitive pressures with creative solutions. The other combines communists and cronies who dilute delusions with delinquency.
The ANC must now agree on new leadership. If they choose to endorse the status quo, that is, continuation of Zuma’s patronage network, the anti-corruption wing of the party will be highly tempted to bolt. Such temptations will be reinforced by ongoing revelations of wrongdoing alongside compounding poverty, pointing to a coalition outcome in 2019.
But if Cyril Ramaphosa is chosen to lead the party, would it be possible for his team to “radically transform” its policies to unlock the country’s potential? Could it possibly win a majority with a pro-competitiveness campaign? Would it even consider trying? If not, there would be no mandate for sweeping policy reforms if the ANC prevails 2019.
Thus, even if the anti-corruption wing of the ANC wins in December and the ANC prevails in 2019, there will still be no growth drivers. Reducing corruption will merely slow the pace of economic erosion. This would still be a “going-for-broke” option.
Shawn Hagedorn is an independent strategy advisor
@shawnhagedorn
