South Africa: Political and Economic Update

September 26, 2017

 

The Pulse is a special background brief by Shared Interest’s Executive Director for key investors and other stakeholders on recent developments in South and Southern Africa that impact the organization’s work. 

 

This issue of The Pulse is based information gleaned during a trip to South Africa from August 9 to 16, 2017.

 

 

 

       

 

 

Business Unusual

 

The week highlighted South Africa’ deep-rooted and continuing tradition of struggle.  Poetically positioned, it began with South African Women’s Day, commemorating the 1956 march by 20,000 South African women of all colors to protest the pass laws, and ended with the fifth anniversary of the Marikana Massacre, when police shot and killed 34 mineworkers during a strike for wage increases in 2012.  Both dates – reminders of continuing campaigns for gender, racial and economic  justice  – bookended one of the ANC’s most difficult periods since its election as the ruling party in 1994, and focused attention on South Africa’s unfinished economic and social agenda and its challenges.

 

South African Women’s Day– A Long Way to Go

 

On South African Women’s Day (August 9) the country took note of its women’s achievements and continuing challenges.  The South African Institute of Race Relations’ August Fast Facts Data detailed that more women than men – across all racial groupings – live in homes they own that are have fully paid off for.  For black women, 65.4 percent own fully paid-off homes, which is only true for 46.9 percent of black men.   Education is another achievement, with women (51% of the population) constituting 51.3% of twelfth-grade graduates and 58% of university students.  Women, who still suffer a higher HIV/AIDS incidence rate than men, particularly during the teen-age and early adulthood years, will benefit from the new policy of providing public school students over 12 years of age and older with condoms.

 

On the other hand, only 51.7 percent of women participate in the labor market, compared with 69.5 percent of men, and only 21.4 percent of top management positions are held by women.  Further, women are more likely than men to be victims of violent crimes -- 54 percent of adult women, and 39 percent of children.  In economic terms, KPMG calculates that gender-based violence costs South Africa’s economy between R28.4 to R42.4 billion a year – excluding the costs and consequences borne by the victims.  The Centre for the Study of Violence and Reconciliation’s 2016 Gender- Based Violence in South Africa:  A Brief Review notes that economic dependency undermines women’s ability to leave abusive relationships.   

 

Women continue to resist discrimination and violence – at times with some support.  One instance occurred when Deputy Higher Education and Training Minister Mduduzi Manana stepped down after being charged with assaulting two women the weekend after Women’s Day.  Days later, he apologized publicly to the nation and announced that he would seek professional help.  Nonetheless, thousands of the country’s reported rape cases still go unprosecuted, despite affirmations, such as that of President Zuma in Kimberly on Women’s Day, that there are many threats to the lives of women and girls, and “that nobody is above the law.”

 

A Crisis of Confidence

 

The day before Women’s Day, National Assembly Speaker Baleka Mbete presided over the vote of no confidence in South Africa’s President, Jacob Zuma, having significantly announced that it would be held by secret ballot. This move enabled members of the ruling party, the African National Congress (ANC), to vote their consciences without risking the wrath of party leaders.  At least not until after the results were tallied.  This was a difficult decision for many, who weighed deep concerns about corruption and “state capture” against fears that a  

no-confidence vote would precipitate the  president’s resignation and constitutionally required dissolution of the cabinet – and could cost the  party its position of national leadership.  The ANC’s secretary-general, Gwede Mantasche, warned that a no-confidence vote would tear the party apart.  Despite growing opposition within the ANC, the President survived the parliamentary vote of no confidence by a final vote was 198 to 177, with nine abstentions.

 

But although President Zuma emerged victorious (this was his eighth and closest no-confidence test since his election in 2009), the fact that 26 members of his own party voted against him (the first time ANC members had voted with the opposition in a bid to remove the President) signaled a dramatic erosion of internal support and division within the party.  The outcome raised concerns about the party’s capacity (1) to unify itself behind a common candidate or agenda at its upcoming December elective conference (at which Jacob Zuma will be required to relinquish the party chairmanship to a successor), and (2) to renew its preponderant position at the polls in the 2019 national presidential elections.   This is particularly problematic in the context of the party’s slipping support, which sank to 55 percent in last year’s National Assembly elections from 62 percent in the 2014 general elections.

 

The die are not yet cast for the December contest.  While Deputy President Cyril Ramaphosa emerged from the ANC’s June policy conference with slight edge in the succession race, this is making him a target, along with fears that he would not protect Zuma from 783 corruption charges stemming from the multi-billion dollar arms deal of the 1990s.  Meanwhile, other candidates continue to raise their profiles, including Dr. Nkosazana Dlamini Zuma, the President’s ex-wife and former chairperson of the African Union Commission, as well as Speaker Baleka Mbete, Jeff Radebe (Minister of the Presidency), Mathews Phosa (former ANC treasurer general), Zweli Mkhize (ANC treasurer general) and Lindiwe Sisulu (Minister of Human Settlements).

 

The ANC’s Alliance members -- the Congress of South African Trade Unions (COSATU) and the South African Communist Party (SACP) -- have both called for the President to resign and refused to allow him to address their respective conferences.  Some are even questioning whether the ANC will be able to bridge its divisions in time for its December electoral Conference – and raise the possibility that disputes over delegate accreditation could delay the convening of the December conference.

 

Meanwhile some disaffected ANC members are actively organizing with civil society movements, including grassroots women and groups rallying against corruption and “state capture.”  Mcebisi Jonas, the Deputy Finance Minister who was sacked by the President in March, along with Finance Minister Pravin Gordhan, gave an interview with The Sunday Independent (August 13, 2017, p. 4).  He observed:  “South Africa must unite to defend democracy and hold its leadership accountable…We made a serious mistake after 1994.  We demobilized our communities.  We mobilized society as a whole.  That was possibly the most dangerous, historic mistake that we have made as a country.”

 

Opposition Divided

 

However, all is not harmonious within the opposition, despite increasing support for the Democratic Alliance (DA) from 16.66 percent of the vote in 2009, to 22 percent in 2011, 22.23 percent in 2014, and 24.5 percent in 2016.  After the no-confidence vote failed, DA leader Mmusi Maimane introduced a motion calling for the dissolution of Parliament in an effort to precipitate an early national election.  (This was a questionable move, since the Independent Electoral Commission (IEC) is constitutionally mandated to constitute Parliament).  Moreover, he apparently did not consult extensively with other opposition caucus members in advance, including the Economic Freedom Fighters (EFF) which failed to back the measure.  The gambit has surfaced charges of “opportunism” and undercurrents of smaller parties feeling side-lined by the DA, as the opposition parties struggle to map a unifying strategy.

 

Economic Predicaments and Potential

 

In this political context, South Africa’s economy is manifesting its own challenges.  Having entered “recession” territory during the first quarter of 2017, following two quarters of negative growth that reflected reduced consumer retail spending, the country continues to battle a 27.7 percent unemployment rate.  (This has been especially pronounced in construction, services and agriculture.)   Youth unemployment has risen to 56 percent (up from 54.3 percent previous quarter) with only 12 percent of people between ages of 15 and 24 working, and one-third neither at work nor in school.   Year-on-year, unemployment for 2017’s second quarter rose 3.6 percent over that of 2016.

 

Moreover, Moodys had signaled concern last month, when the Reserve Bank reduced interest rates for the first time in five years, that although the move was likely to fuel growth, it might also reflect increasing political pressure on the bank.  In an attempt to refocus the country’s Reserve Bank mandate on a more developmental agenda, Public Prosecutor Busisizwe Mkhwebane submitted a proposal for a “remedial action.”  However, to the relief of financial markets, this was set aside by Gauteng Province’s North High Court on August 15.   The Reserve Bank, in turn, welcomed the confirmation that it would uphold its mandate to protect the rand and its ability to maintain political independence.

 

While the rating agency did not further adjust its June reduction of South Africa’s sovereign debt to junk status, stating that conditions had not changed sufficiently to warrant review, the country awaits the October medium-term budget policy statement to set more promising and predictable guidelines for South Africa’s economy.  It will be a test for Finance Minister Malusi Gigaba, who will be called on to demonstrate fiscal discipline and restraint, within the context of the country’s massive outstanding development agenda.

 

National Development Plan: Back to Basics

 

As national political dynamics dominate the press and airwaves, a growing number of voices are calling for sharper focus on the issues and initiatives that are key to people’s daily lives.  August 15 marked the fifth anniversary of Parliament’s adoption of South Africa’s National Development Plan (NDP).  The plan was designed as a roadmap to address poverty and inequality, largely by growing the economy and creating jobs by 2030.  It envisions reducing the percentage of people living in poverty from 39 percent in 2012 to 0 in 2030, and shrinking unemployment to six percent.

 

Critics decry the recession, rising unemployment, credit rating downgrade, corruption, and increase in racial incidents.  They underscore trends such as economic slow-down, which reduced the economy’s growth from 3.3 percent in 2011 to an annual average of 1.6 percent for the last five years.  Economists project that the gross national product would need to grow by 3.9 percent on average through 2030 to achieve the plan’s worst-case scenarios.

 

Nonetheless, according to a data made available by Statistics South Africa in 2014, between 2006 and 2011, income poverty declined to 20.2 percent for extreme poverty, and 45.5 percent for moderate poverty.  Basic services have also improved, with 724,430 households connected to the electricity grid (since 2014 alone) – 58 percent of the 1.25 million connections goal for 2019.  An additional 52,778 families have been connected to non-grid power – or 50 percent of the 2019 target.  More than one million families received access to garbage collection services between 2013 and 2016 – making good progress toward the 1.3 million household goal.  Decent sanitation services were supplied to 1.12 million families (45 percent of the goal), while 305,000 families received clean and reliable water services – only 12 percent of the 2.3 million target.  Finally, 331,000 new housing units were built between 2014 and 2016.

 

Overall, life expectancy has lengthened to 63.3 years in 2015 (six years longer than in 2010), while infant mortality declined slightly between 2010 and 2014 from 158 to 154 deaths per 100,000 births.  The number of social grant recipients has grown to 17 million, while 1.7 million children now receive early childhood development services.  

 

Land reform issues have proven extremely challenging.  Nonetheless, the government has achieved approximately 1/3 its goal of redistributing 30 percent of agricultural land to previously disadvantaged people, having transferred 10.6 percent.  As Shared Interest knows only too well, the challenges of making a sustainable living on the land only begin with land allocation.  Further assistance, such as the extension of credit (and often the guarantees lenders require) is essential.  Black Business Council President Danisa Baloyi stated this week that “one of the key challenges facing emerging farmers is their lack of collateral and security.  It means they often cannot access production finance and hence cannot use their resource base to its fullest capability.” (The New Age Inside, August 16, 2016, p.13)

 

To take stock of the government’s development initiatives, the National Assembly Speaker set up a panel on unintended consequences of measures to address poverty, inequality and land reform.  With one in five South African households officially “food insecure,” poverty reduction and agricultural production are twin priorities in the context of climate change, which is rendering Southern Africa one of the fastest heating regions on the planet.

 

On the “untapped potential” side of the forecast, South Africa has large stockpiles of undeployed capital, according to the Centre for Competition Regulation and Economic Development.  Between 2005 and 2017, the top 50 Johannesburg Stock Exchange (JSE) companies’ reserves and accumulated profits have more than quintupled from R242 billion to R1.4 trillion.  (This excludes some of the major companies also listed on other international stock exchanges.)  With a reduction in political and economic uncertainty, this capital could be invested to address national needs – including those in emerging sectors and enterprises.   South African’s banks have not significantly increased their lending percentage for income-generating purposes (as opposed to consumption), although the banks lent more than R41 billion to black-owned small and growing businesses between 2012 and 2015 – a sign of progress.  Banking Association of South Africa MD Cas Coovadia described a “significant amount of money targeted towards black industrialists,” but called for enhanced coordination between government and private measures to support emerging black-owned enterprises.

 

Marikana:  Spotlight on National Priorities

 

The day after the NDP turned five, August 16, ended my visit on a sobering note.  It was the fifth anniversary of the Marikana Massacre, when 34 miners were shot by police, just days after 10 other people were killed.  The event refocused South Africa on its unfinished business.  At Lonmin, the platinum company, some things have changed, but not enough.  While Lonmin Mine – the target of the 2012 Marikana strike – has since provided low-cost housing for its miners at Marikana and raised salaries as agreed, living conditions remain much as they were before the tragedy.  Roads are still unpaved, water is not dependable, and there is a severe shortage of toilets and recreational facilities.  Community members who converged on the site where most of the miners were murdered commemorated the event, and recalled what had been promised.  The Marikana Commission of Inquiry had recommended that the company not only provide better housing, but also better living conditions – particularly to workers living in informal settlements.  South Africa’s Bench Marks Foundation has met with the company in South Africa and in Europe, and reports that despite “cosmetic changes,” it sees few significant concrete improvements.

 

The mining sector is experiencing its own challenges, including rising input costs and commodity prices in the context of South Africa’s recession, and the rand’s strengthening against the US dollar, which have reduced demand for the country’s metals.  Mining companies are leery of pending policy and regulations, which cost them $51 billion in market capitalization on the JSE when revisions to the Mining Charter were first presented on June 15.  Lonmin is threatening to retrench an additional 20,000 workers.  This has led the 200,000-member Association of Mineworkers and Construction Union (AMCU) to consider a national strike -- recalling the fifth anniversary of the Marikana Massacre – and underscoring concerns about health and safety, and off-shore beneficiation costing South African jobs.  The sector has lost 70,000 since 2012.

 

At the same time, the company is stoking union rivalries by announcing it will cease to recognize Solidarity (skilled employees) and the National Union of Mineworkers (NUM) – AMCU’s rival – whose membership has fallen below a given threshold.  Last week the NUM marched to AngoGold Ashanti’s Johannesburg headquarters to protest anticipated job reductions.  AngloGold Ashanti has announced that it will cut 8,500 jobs, while Bokoni platinum anticipates eliminating 2,651.  And yet StatisticsSA announced on August 10 that mining production increased by 0.6 percent in 2017’s second quarter– suggesting momentum to begin to reverse recession and accelerate economic growth.  Mining and minerals constitute about 20 percent of South Africa’s GDP.

 

Such pressures and possibilities are likely to amplify demands for South Africa’s leaders to look beyond issues of narrowly defined politics and power, and to address the economic and social priorities that are key to the daily lives of its majority communities.

 

 

 

 

 

 

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