President Ramaphosa supplies mainly smoke and mirrors, while the society and economy starve

22 April 2020

The SA Federation of Trade Unions (SAFTU) has consistently and repeatedly condemned a government ruling the world’s most unequal society, where more than 60% of our citizens barely survive below the simple measure of R50/per person/day poverty and where four out of every ten are unemployed.

In addition to this this existing state of extreme injustice, we have suffered more than two months of economic chaos and nearly a month of Covid-19 lockdown – with severe police repression and utter incompetence by a government incapable of supporting its poor and working people.

Yet President Cyril Ramaphosa well knows that these contradictions present a life-and-death situation. His April 21 speech is worth both praise where it is due, and condemnation for the illusory benefits promised, especially where these will be hijacked by the country’s corporate sharks and political elites.

This response is broken down into several sections, addressing the main concerns that SAFTU workers have with a state that has so often acted against their interests. We especially want to warn our members and society about two clear and present dangers:

·      “A risk-adjusted approach to the return of economic activity, balancing the continued need to limit the spread of the coronavirus with the need to get people back to work” – which judging by the mining industry fiasco now underway, will benefit irresponsible capitalists at the cost of workers’ lives; and

·      Commits to “speedy implementation of economic reform” and to “accelerate the structural reforms required to reduce the cost of doing business” – which is code wording for the neoliberal roll-back, attacks on workers, and higher cost-recovery regime for state and parastatal services.

1. New 3.33%/GDP fiscal commitment is too small and must be seen as only a start

We are pleased that, finally, President Ramaphosa is expanding the state’s extremely weak fiscal and financial commitment. As he pointed out, the R500 billion “social and economic support package” consisting of both new grants and loans is nearly 10% of the 2019 GDP currently at R5.1 trillion, which is itself a vast increase from prior commitments (estimated at less than 1% of GDP).

The R500 billion will take many by surprise, since the establishment strategy has been much stingier. For example, notwithstanding the obvious desperation and growing social unrest due to hunger, last week a major bank called for merely a R100 billion stimulus, while Moody’s was still demanding that Mboweni pursue such high budget cuts as to achieve a primary budget surplus! At first blush, Ramaphosa looks extremely generous, in comparison.

It was on February 14 that – replying to Ramaphosa’s State of the Nation Address – SAFTU called for a R500 billion fiscal stimulus, before we knew the extent of the economic crisis lying ahead. We suggested it be paid for by a wealth and solidarity tax, a halt to Illicit Financial Flows, higher corporate taxes and more progressive personal income tax. We called for a different monetary policy, genuine land reform, and robust industrial policy, as well as public works financing of infrastructure.

On March 15 we demanded urgent implementation of an inward-oriented re-industrialisation strategy – also to support the African continent by generating more locally-made basic-need commodities – in advance of the continental free trade deal. We called for many other healthcare and social policy reforms, financially supported by the “Quantitative Easing” central bank strategies used in many Northern economies. We insisted on tighter exchange controls, to protect the Rand from what was then beginning in earnest, a speculative run that dropped the currency from R14/$ on 1 January to the current R19/$. And on March 19, we called for a 5% cut in the main interest rate (to 1.25%), as a kind of CPR (cardiopulmonary resuscitation) to get the economy out of the crisis, and especially to get relief to all our countries’ now-desperate borrowers.

Although most of our demands have not been heeded, Ramaphosa has at least offered some important state relief. But we must look more closely, because the shiny outside of this vehicle disguises serious problems under the hood. For example, a massive R200 billion (40%) of the support is not actually state-supplied grants in the form of a budget allocation, but instead, loan guarantees, so these do not properly qualify as a fiscal stimulus – and Treasury’s record of monitoring how more than R500 billion in guaranteed credits to parastatals is simply abysmal, no one would dispute.

Officials in Treasury had earlier said they would fund the budget increases entirely from reallocations, so Ramaphosa’s turn to a much bigger budget commitment is welcome, even if the question of financing the larger deficit is unsatisfactory, a point we return to.

However, Ramaphosa announced that R130 billion had already been committed within the existing R1.95 trillion budget announced on February 26. (That budget included a R160 billion reduction in civil service wages compared to what had been agreed in 2018) The total new fiscal stimulus of R170 billion is therefore just 3.33% of GDP. That is a vastly inadequate amount compared to what is at stake in terms of social and economic survival.

2. Who wins and losses from budget reallocations?

It’s not yet clear where the R130 billion fiscal reprioritisation will come from, because austerity will hit elsewhere in the budget, usually where our people are weakest in defending their allocations. We expect to learn more details on Thursday.

But there are many vulnerable parts of our budget, such as water and sanitation infrastructure which Minister Lindiwe Sisulu has already revealed to be so inadequate that 19 000 new emergency water tanks have had to be produced and distributed; although fewer than 8 000 have actually been installed so far. These tanks compel many residents in poor areas – especially women and girls – to collect water at central sites that create dangers of Covid-19 transmission.

Yet Parliament’s Portfolio Committee on Human Settlements held a virtual hearing this week where it was revealed that the vital public works component of water and sanitation – i.e., building new permanent infrastructure – will be hit with a massive R1.1 billion cuts. This is something Treasury has been planning even though Ramaphosa has just announced, “R20 billion will be made available to municipalities for the provision of emergency water supply, increased sanitisation of public transport and facilities, and providing food and shelter for the homeless.”

We will be watching for these sorts of utterly irrational, destructive budget cuts by Treasury, which for years has been chopping vulnerable parts of our budget: especially health, housing, municipal subsidies and social grants (which have fallen steadily in real terms since the 1990s, especially since poor people’s inflation rate is higher than the rest of the economy’s). For a dozen years, Treasury has been guaranteeing Eskom’s debt while the National Energy Regulator has allowed the utility to increase tariffs especially affecting poor and working people, by more than 300% above the inflation rate, resulting in more cut-offs and worse service.

So, our trust in Treasury is very low and we must all watch closely to ensure the water and sanitation permanent-infrastructure budget cuts are not carried out or repeated. There are many areas of infrastructure which benefit the rich and big business, and there are vast sums wasted on outsourcing of construction and other activities that could be done 35-40% less expensively if they were insourced.
There should be major budget reallocations, such as the tens of billions of rands of tax benefits going to private health insurance companies, thereby slowing the introduction of the National Health Insurance. But water and sanitation infrastructure should not be part of these.

3. Still-inadequate income grants and food support

A temporary R300 and later R500/month income boost (from June-October) will go to nearly 13 million Child Support Grant recipients who are very poor (with a single parent earning less than R4000). This will more than double their spending power for children (currently R445 per month), which is very welcome.
However, given that the Upper Bound Poverty Line is R1300 per month per person, the improved child grant leaves the recipients still 25% below the poverty line. There are also 3.7 million elderly people and others who have disabilities who receive a R1820/month grant that will temporarily rise just R250 – far too little.

Likewise, the R350 per month that will be on offer to the unemployed millions is truly just tokenistic, at just 62% of government’s own measure of the R561 per month food line, and 27% of the overall poverty line. There are all manner of complications in assessing who can qualify for this, as well. With only 2% of the Unemployment Insurance Fund reaching those who qualify after being laid off in recent weeks, our faith in the administrative capacity of this state is extremely low.

Far better would have been a generous Universal Basic Income Grant, which would eliminate the administrative costs and means-testing errors (and corruption), and which could be clawed back through the tax system with a more progressive structure, as well as through Reserve Bank financing support (as is increasingly common elsewhere, e.g. in Britain).

As for food support, the state cruelly forced poor people into the Covid-19 lockdown, within overcrowded ghettoes and barren rural areas, without a proper survival system. The water and sanitation shortages were one indication of state failure, but the food system is just as broken.

We are relieved that Ramaphosa has admitted many problems in the Department of Social Development’s implementation of food aid. Although 250 000 food parcels are going to be distributed over the next two weeks, he seems to recognise how inadequate this is, given the corruption in his own party – with shocking reports of political patronage in food distribution – and the state’s incompetence at serving poor people.

But the private sector is also flawed as a vehicle for food sales. Having heard that social grants will be increased, the monopoly food retailers could well increase their prices and pocket the grant increases, given how weak state oversight is now. A good government would take charge of the food supply chain and give equal allocation of food, fruit and vegetable rations to every citizen, and then issue food stamps which people use to access these essentials.

This will be an opportunity to engage genuine grassroots farmers and progressive allies – e.g. the C19 People’s Coalition – to identify how to restructure food and agriculture during this crisis, in a manner that builds appropriate state support and community producer capacity, and that replaces the junk and rotten food we get in working-class grocery ghettoes with good and affordable nutrition. The model for improving food allocation and ensuring a proper balanced diet is that of the Cuban and Venezuelan governments.

The one grant that Ramaphosa announced, that does appear to be sufficiently generous, is to the public health sector. Indeed, the unspecified R20 billion in new funding to healthcare will hopefully be used to restore the capacity after Treasury’s R3.9 billion cut in the February 2020 budget. However, be aware that the Department of Health issued a recent scenario in which, in spite of a potential 5.8 million South Africans testing positive for Covid-19 by September, the additional resource needs from May-September (five months) were only R5.5 billion.

SAFTU support the call made by the Young Nurses Indaba Trade Union (YNITU) that the frontliners be given a Covid – 19 danger allowance, income tax break and other benefits to motivate them to keep battling against the marauding coronavirus.

4. Bank bailouts costing R200 billion – will the loans and guarantees be wisely used?

Unfortunately, R200 billion of the amount announced by Ramaphosa will come through unspecified lending and loan guarantees, largely through the private sector. This component is definitely not to be added to the fiscal stimulus, though it could help save jobs if the interest rate is to be subsidized, since market rates are so expensive.

Currently, the South African prime rate of 7.75% is among the very highest interest rates within the world’s fifty leading economies (where SA ranks with Turkey, Pakistan and Venezuela as most expensive to borrow).

But when it comes to the state providing loan guarantees, our first concern here is that, like Eskom, SAA, Denel and other badly-run parastatal agencies which have benefited from the granting of R500 billion in loan guarantees, the Treasury was asleep as vast corruption crises emerged.

Will such corruption affect the new R200 billion in loan guarantees that taxpayers will be expected to pay for if the companies go bankrupt? Our faith in Treasury’s ability to monitor corruption is very low, as a result of its own procurement chief (Kenneth Brown) admitting in late 2016 that 35-40% of state payments made to outsourced activities (in turn about 40% of the budget) was overcharged due to corruption. But nothing has been done since that revelation.

Relatedly, our second concern is that South African companies will use their renewed access to credit, to continue their record of Illicit Financial Flows (IFFs) and other corrupt activities. The IFFs from South Africa estimated by the Treasury’s Financial Intelligence Centre in October 2019 amount to between $10 billion and $25 billion annually (i.e., R190 to R475 billion). There appears to be no attempts by Treasury to halt this looting.

Indeed, PwC recorded the South African capitalist class as third most prone to such economic crime (behind only China and India) in its February 2020 poll.

If Ramaphosa was serious about identifying a patriotic bourgeoise deserving of these loan guarantees, he would follow other countries such as Denmark: no company registered in tax havens (as many in South Africa are, through Mauritius), or that pays out new subsidies and loans in the form of dividends or share buy-backs, will be considered eligible for state support.

On this point of bank bailouts, recall that we have been down this road before. The world financial crisis of 2008-09 could most immediately be traced to irresponsible banking in the U.S. But the Federal Reserve’s Quantitative Easing, low interest rates and explicit bailouts of banks, followed by similar measures in London, Brussels and Tokyo, did not solve capitalism’s underlying problems.

Instead, the pro-bank policies followed by central banks and treasuries from 2008-14 simply offloaded the financial market crisis into a series of fiscal crises. In the case of South Africa, this was one reason the vast public debt rose, as well as foreign debt (which soared from $60 billon in 2007 to $185 billion in late 2019).

Poor people across the world have been compelled to pay for this generosity through cuts in public spending, including non-payment of South Africa’s public servant wage increases and cuts in public health budget in 2020. These have left us more vulnerable to the virus than we would have been as a society, thus making a brutal lockdowns we are having inevitable. The additional R4.5 billion in funding that Ramaphosa promised to the security apparatus is, in this context, a profound tragedy of state priorities.

5. Corrupt financing sources must be avoided, so as to declare default against same lenders

It is truly shocking that the world’s most notorious bankers will be lending South Africa vast sums to cover the financing of the stimulus, instead of using the SA Reserve Bank which has both huge reserves and nearly unlimited capacity to print money for fiscal stimulus.

Should billions of dollars be borrowed from international financiers, when those same bankers owe South Africans for eroding our state, society and economy due to their funding of official racism prior to 1994 and of post-apartheid corruption? Ramaphosa mentions four: the International Monetary Fund (IMF) and World Bank, the closely-related African Development Bank, and the supposedly different BRICS New Development Bank. Each should be charged with imposing Odious Debt on a society that had no say in past lending, for which billions of dollars are still due to be repaid – and instead should be audited and then declared as a lender liability.

·      The IMF was a prolific apartheid lender just after system-delegitimising crises such as the Sharpeville massacre in 1960, the Soweto uprising in 1976 and the gold price crash in 1981. Its role was to prop up the apartheid regime financially, even though the UN had long declared Pretoria’s policies a “crime against humanity.” During the transition to democracy in late 1993, another IMF loan was responsible for that era’s extreme neoliberalism that made it impossible to default on apartheid’s odious debt and to implement the Reconstruction and Development Programme. Conditions on a $850 million loan included a variety of Washington Consensus policies that wrecked the new democracy’s chances to share our wealth. The IMF’s role in recent weeks in relation to Venezuela’s request for $5 billion in funding – which was refused on the orders of the Trump regime – and its continuing commitment to neoliberalism, mean it cannot be reformed, and should be avoided at all costs.

·      The World Bank’s $3.75 billion loan to Eskom in 2010, to build the Medupi coal-fired power plant, was the Bank’s largest ever, but its then-president Robert Zoellick knew fully well that the boilers Hitachi was constructing followed directly from a bribe to the ruling party through its Chancellor House fundraising arm – for which Hitachi paid a $19 million fine (to the U.S. government in 2015) after Foreign Corrupt Practices Act prosecution. The Bank should not be rewarded for this corrupt and climate-catastrophic loan, and the debt should be declared Odious, for lender liability instead. Medupi was such a notoriously corrupt project, that when he was U.S. deputy finance minister in 2017, the current World Bank President (David Malpass) testified to the U.S. Congress that South Africa was his ideal case to show how the Bank itself was profoundly corrupt.

·      The African Development Bank made similar loans to Eskom for Medupi and Kusile and should also face a creditor “haircut” (as should the China Development Bank and other bilateral and commercial lenders).

·      The BRICS New Development Bank (NDB) followed in the same spirit, by offering Eskom CEO Brian Molefe and Transnet CEO Siyabonga Gama massive loans in 2016 (for transmission expansion) and 2018 (for Durban port expansion), respectively. Both had to be halted due to corruption, as even the NDB has admitted. Then in 2019 the NDB lent to Eskom for Medupi in spite of massive corruption that had subsequently been revealed to extend far beyond the initial Hitachi bribe, and to the Lesotho Highlands Water Project in spite of the persistent role of a key Lesotho official (Masuphe Sole) who had spent nine years in jail after being caught with Swiss bank accounts stuffed by the prior set of corrupt multinational corporations building earlier Lesotho dams.

The financing of not just the R170 billion in fiscal stimulus, but the use of tax breaks and payment relaxations as proposed, should be rethought. Worker pensions should definitely be used under certain conditions to avoid them being looted too, and paid a fair return (since the Johannesburg Stock Exchange and various other private sector investments have proven to be riddled with volatility and corruption). The companies that are benefiting from Ramaphosa’s largesse need social audits, because many have not only engaged in illicit and licit outflows of funds to overseas tax havens (especially London and Amsterdam). They have also contributed to the R1.5 trillion in idle corporate cash sloshing around, instead of reinvesting profits in plant, equipment and employees. Government has so far including through this package refused to tax this R1,5 trillion through the introduction of a solidarity and wealth tax.

There are plenty of sources of financing available, if exchange controls could be immediately tightened to prevent the offshoring of South African capital. The most important that Ramaphosadoesn’t mention, is the Reserve Bank itself, which can engage in monthly purchases of around R20 billion per month according to former Treasury official Andrew Donaldson. Indeed, there are vast sums that the Reserve Bank can create, to pump funds into every South African households, according to the tenets of Modern Monetary Theory which many governments are now using during this emergency. John Maynard Keynes himself had suggested massive state ‘pump-priming’ to get economies going in times of economic depression.

The sorry state of the economic policy debate in South Africa today is reflected in the fact that Ramaphosa dares not mention these Reserve Bank interventions, much less the long-overdue taxation increases on the rich and corporations (which in 1995 paid a 55.5% tax rate, compared to 28% today – even prior to loopholes).

6. The social tensions will continue rising: a socialist programme is more necessary than ever

South African society is in pain, with many of our most desperate members of the precariat and proletariat moving from despair to revolt.

In this context of unprecedented suffering, the 3.33% fiscal commitment is a great improvement over the 0.1% that Treasury initially offered. Nevertheless, according to the Overseas Development Institute, this is less than a quarter of the fiscal commitment made by a conservative government in Britain with social deprivation problems that are a tiny fraction of South Africa’s.

We still call for at least the level that the Boris Johnson regime has offered the UK, namely 16.3% of GDP as a fiscal stimulus (new commitments) to rebuild our economy and society: at least R830 billion.

And we still call for a much deeper cut in the interest rate, which at 5.25% (the Reserve Bank repurchase rate) needs to be cut by our original request of 5% - i.e., another 4% - to make a dent in the enormous interest burden that the society, state and business cover. President Ramaphosa’s claim that the 2% interest rate cut will boost the economy by R80 billion appears far too generous, given the collapsed state of so many firms which can’t repay lenders already. Edcon, the Land Bank and SAA are just the latest to default, plunging tens of thousands of workers into what may be long-term unemployment, and many more firms and parastatals will follow, with a cascade of bankruptcies likely to threaten our banking system.

But we also know from the Rand’s crash, especially after the slight SARB loosening, that our unpatriotic bourgeoisie now needs very tight exchange controls to reign in their Illicit Financial Flows – as well as the Licit Financial Flows going to multinational corporations and banks which need to be paid in local not increasingly scarce foreign currency. Above all, we need to avoid being put even further into global financial circuits, which squeeze us and eventually impose the kinds of neoliberal constraints for which the credit rating agencies are notorious.

These are the big-picture problems with the Ramaphosa government’s handling of Covid-19’s socio-economic catastrophe. The micro-scale problems are worthy of much more discussion, especially with committed social activists.

That’s why we must, in conclusion, strongly condemn this statement by President Ramaphosa: “Our economic strategy going forward will require a new social compact among all role players – business, labour, community and government – to restructure the economy and achieve inclusive growth.”

Ramaphosa makes this promise: “We will forge a compact for radical economic transformation that ensures that advances the economic position of women, youth and persons with disabilities, and that makes our cities, towns, villages and rural areas vibrant centres of economic activity. Our new economy must be founded on fairness, empowerment, justice and equality.”

We condemn this not because it is undesirable or impossible, but because we know from bitter experience that the ANC government is not serious about consulting much less compacting with progressives in civil society. The government is only consulting the yes Sir of society.

Both SAFTU and critical social movements have been shut out of consultations on the major state policies since the time of the Growth, Employment and Redistribution strategy in 1996, when a neoliberal programme was simply imposed from above. Even today, the National Economic Development and Labour Council continues to exclude South Africa’s second largest union federation – SAFTU – including the country’s largest union (the metalworkers, NUMSA), as well as critical forces within civil society. The voices of poor communities who are representing our most desperate citizens continue to be suppressed.

In contrast, the ongoing neoliberal agenda – the “structural reform” that the state has long established working closely with big business, especially white-owned companies which long ago relocated their head offices and financial functions to London – is completely contrary to the interests of the masses. The lack of consultation with most progressives and the failure of any social contract since the mid-1990s to include core labour and social movement constituents, will be a guarantee of this strategy’s failure in the days, weeks and months to come.

In short, the most important question society must consider, now and at all times, is who benefits from these measures? And who pays?

SAFTU demands:

-      Allow all who can to work from home, with special leave without loss of pay for others, except workers providing health services, food and other necessities, who must have safe working conditions, protective gear, anti-transmission training and regular testing.

-      Build a single, public national health care service for all.

-      Mass employment and training of health assistants and community healthcare workers to contain the spread and ensure treatment and services at point of need.

-      Support the immediate shutting down of schools, pre-schools, universities and colleges to limit the spread; provide special childcare for essential services workers.

-      Roll out free testing at temporary stations in all communities; quality medical services and medication for all.

-      Free soap, water and sanitisers in every public space, workplace and poor community.  

-      Stop and reverse all water and electricity cut-offs and supply water to all households.

-      Basic income grant and free basic food supplies for precarious workers, the unemployed and others forced to stay home and in need.

-      Stop all retrenchments.

-      Nationalise all private health-care sectors and pharmaceutical companies.

-      No profiteering from the pandemic.

-      Suspend payments of rent, rates, water and electricity tariffs.

-      Emergency loans to small businesses in need.

-      No evictions.

-      Set up import-substituting industries to ensure continuous supply of all essential needs for which the country currently depends on imports.

-      Permanent, secure and decent-paying jobs and training for all workers including those in community health care, home-based care, food production, distribution and retail.

-      Massive public works programme to overcome backlogs in housing, schooling infrastructure, hospitals and clinics, piped water supply and safe public transport.

-      Reorganise the economy on the basis of public ownership of all key resources (banks, mines, big businesses) and a democratic plan to prioritise health, education, housing, work, water, sustainable food and energy production.

-      No restrictions on workers’ democratic rights to strike and organise.

-      Fight racism, tribal division and narrow nationalist chauvinism.

-      Fight against gender based violence and protect our children

-      A more human approach by the SAPS and the SANDF as it enforce the lockdown regulations

Issued by ZwelinzimaVavi, General Secretary, SAFTU, 22 April 2020