Sep 10 2008

Why I’m so negative on the rand – Part II

Published by at 4:15 pm under Opinion,South Africa

First published on my old blog on 3/12/2007. 

I wonder, is South Africa about to throw the baby (good economic policies) out with the bathwater (Thabo Mbeki)?

Would it be possible for Trevor Manuel to stay on as minister of finance if Jacob Zuma became president? That’s the big question….the one no-one in South Africa has asked to date. It’s a vital question, nonetheless. Especially for the rand. 

Let’s begin at the beginning…

In the years before 27 April 1994 South Africa’s economists, business people, lobby groups and political leaders worked tirelessly to convince the political leaders of the still-to-be-born “new, democratic SA” that the economic policies as spelt out in a row of ANC and Cosatu policy documents would not “work for the people” in the long run, and that the government of a democratic SA should rather opt for the market-oriented, mainstream policies which were in vogue in the corridors of the IMF and all over the world at the time. 

In essence, the ANC/Cosatu/SACP policies wanted to “redistribute wealth for economic growth”, while the policies preferred by business were aimed at “creating wealth for redistribution”. It might not sound like it, but there are worlds between these two approaches. The latter basically said you have to grow first, before you can think of redistributing. Or, you can only redistribute, when you’ve got something to redistribute. 

Looked at from a different angle, it was a choice between policies which gave the state a major role and policies which gave private initiative the major role (and the state the secondary role). 

Cosatu and its affiliates wanted nothing to do with the “growth first, redistribution second” option. They wanted to hand out the wealth that there was and believed this would put SA on a sustained higher growth path. This, in turn, was the horror scenario for SA’s business people, who feared nationalisation, political interference in interest rate management (monetary policy) and disregard for private property rights. 

Sometime before or after 1994, the ANC leadership decided to go with the “growth first, redistribution second” option and started making noises in that direction in public. (How this happened and exactly when, is unclear…several books have since been written on the topic, all with different theories about how and when it happened – if at all.) 

From my vantage point in parliament I saw it differently: The ANC leadership didn’t break with the Cosatu-option. Instead, the ANC government thought it could go for the business-friendly option, without completely breaking with the Cosatu-option. In other words, the ANC leadership thought it was not necessary to go for the one or the other, but that they could sail in-between, keeping all options open and so keeping all sides happy. In short, they thought they could concoct an eclectic policy mix on the fly, so to speak, and no-one would notice. 

But, of course, that was not enough for the “amorphous” markets (as he once said). The markets wanted a clear, unambiguous signal. In parliament (where I was reporting from at the time) it was all but clear that the new government had, in fact, broken from the Cosatu-option. In fact, in parliament Cosatu was very much part of the decision-making process and its officials very confident (read: cocky, boardering on arrogant). 

Two years into the new democracy (early in 1996) the financial markets couldn’t stand this “let’s-please-all” approach of the new government any longer and the rand started to “suffer under the uncertainty”, as market players put it at the time. After a few months of “uncertainty”, the government listened to the distress calls from the market and released a long policy document which broke clearly and finally with the Cosatu-option and opted for the “market-friendly approach”. 

Cosatu was furious. The next day I got a phone call from a very angry senior Cosatu official (parliamentary representative at the time) blaming me for writing such utter nonsense – government had not turned its back on the Cosatu policies. 

But, that it had, was there for all to see. From what the Cosatu official told me on the phone I could gather that they’ve been taken by surprise – that they were not in on this document at all. 

In the following weeks the markets relaxed and the rand stabilised. The policy document did what it was supposed to do. 

But, behind closed doors Trevor Manuel and Co. had to weather the Cosatu storm. What exactly happened in the next days and weeks between the Trevor Manuel/Maria Ramos/Gill Marcus team on the one side and the Cosatu/SACP team on the other side, I never could find out. But, one thing I was sure of: It wasn’t pretty. And those cocky Cosatu officials certainly didn’t succumb after just a single 10 minute meeting. But, they lost their battle and pretty much left the economic policy-making stage – also in parliament Cosatu became less vocal and visible. 

Now we are in 2007….about one decade later. A decade in which the SA economy did very well under the policies selected by the new government. The huge apartheid debt have been (sufficiently) repaid, the national budget is in balance (can you believe that!) and new jobs are created at a steady pace. The economy is on a roll. 

Now, suddenly the ugly face of Cosatu (and its policies) re-appeared. Suddenly the whole “fight” about the policies best suited to the SA situation is back with us. And, suddenly the rand is under threat again. 

Because, Jacob Zuma is likely to be the next president. And Zuma and Cosatu are “gat-gabbas”. At least, that is what Cosatu thinks. (So, even if Zuma only used Cosatu to get in, the very least that should be expected, is a repeat of the 1996-showdown over policy directions.) 

Very likely, Cosatu will demand that Trevor Manuel step down as minister of finance. 

This morning it was reported on News24 that the Mbeki cabinet will launch a national campaign to prevent Zuma from being voted ANC president later in December. This was a bad sign for me. It told me, enough serving cabinet ministers fear the Zuma axe, to get a vote for a national campaign against Zuma through. I’ll bet my bottom dollar Trevor was one of those who voted for this national campaign. 

So, 16 years into the new democracy we are back where we were in 1990 – 1993. Sixteen years in, we’re back at the basic choice between a state-driven economy and a private initiative-driven economy.

Only difference, this time around no-one seems to realize the seriousness of the moment. And no-one knows what Zuma thinks when it comes to matters economic. Only thing one could say: How can one be in bed with Cosatu, without knowing and liking what the trade union wants for the economy? 

PS. Who is to blame for the re-appearance of the policy direction battle is a topic for another day. A hint: His name starts with M and ends with i. And the essence of my next story: How M….i’s inability to redistribute the wealth created by Trevor’s policies, resulted in this real threat that “the baby might be thrown out with the bathwater”.

Afterthought: Poor Trevor. Under Mbeki he is not loved…under Zuma he probably won’t survive. That’s a classic “caught between the devil and the deep blue sea”. Who is the devil, I’m not sure.

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