This week the president of the republic will address us during the state of the nation speech in parliament. In all likelihood his speech will be interrupted by a noisy and semi-rational red beret brigade accusing the president of thievery, illegitimacy, of undermining the constitution and breaching his oath of office. This will all be the side-show to the real action, the unseen watchful eye of the ratings agencies and international investor community, who will decide for themselves about the state of our nation.
Just over two decades into our democratic era, South Africa is facing waves of internal change and headwinds of global uncertainty. The tough years of the latter Mbeki-era, a time of two to three percent economic growth and polite mug slinging between government and the private sector, is now looking more and more like the good old days. Under the current President the economy has slumped to under one percent growth and, while the private sector has put on a brave face, the fracturing of formal business formations into ideological camps, has revealed a deep-seated underlying collapse of consensus about the economy.
As an export economy, reliant on commodity markets and consumption in Europe and elsewhere, South Africa is vulnerable. The current Trump-effect, which may or may not spark a range of external risks in the form of a US-China trade war, extended immigration curbs and a likely tax holiday for US companies, does not bode well for foreign direct investment in South Africa. If US inflation were to tick up or liquidity growth in the financial markets go on the boil, the Federal Reserve is likely to step in to dampen the animal spirits on Wall Street and the dollar will soar at the rand's expense.
Bring in the question of EU stability and possible break-up, and you have a nasty global environment for South Africa - a bit like a swarm of macroeconomic tsetse flies who carry with them the disease of investor jitters and emerging market vulnerability.
But the story for South Africa is as much about domestic risks as it is about the global system. The African National Congress' socially progressive programme of redistribution has effectively provided a safety net for the poorest of the poor, but it has also ballooned the public purse and creative unproductive transfers to over 17 million. While it is argued that this pseudo basic income is circulated back into the economy in the form of consumption, the long term structural implications are an unemployed consumer class at the bottom of an otherwise hollow pyramid, where retailers laugh all the way to the bank, enriched by a state-led ponzi scheme inflating demand in their sector.
A systems analysis of the external and internal factors of SA's emerging market vulnerability reveals that South Africa's currency stability is likely to come under pressure in light of these global forces. The ratings agencies will be watching the internal policy environment to see whether South Africa can weather the storm. They will be concerned about the widening current account deficit, rising food inflation (7.4%-9.2%) for the upper LSMs, accelerated growth in import inflation and the medium-term consequences for social stability and political realignment in the country.
Although South Africa has a high level of foreign currency reserves (47.36 billion USD in late 2016), and our banking system is well regulated and our reserve bank has demonstrated perfect independence, the political and policy pressure on the ANC will be worrying.
The Nenegate debacle and murky nuclear deal was a taste of the policy line the Zuma faction would imagine themselves taking as they ramp up "radical economic transformation". Although S&P stated in 2016, "Our experience with governments led by the African National Congress (ANC) since 1994 is that the party maintains broad political and institutional stability and policy continuity that has produced sustainable public finances."
A well known maxim goes: "the behaviour of a system is a function of its structure" - South Africa is undeniably on the receiving end of the system in which we play, as a small kid on a large city block, among players whose interests more fundamentally shape the rules of the game than do our own.
The shifting ground within the ANC and the backlash from losses in the local elections is likely to translate into an abandonment of the above fiscal conservatism. The self-proclaimed ideologues and activists for black economic emancipation and radical transformation, the likes of Mzwanele Manyi around President Zuma, will be pushing for an irresponsible assault on vested interests and "white monopoly capital".
The fact of the matter is that South Africa is a country dependant on the global system for demand for our products and investment to unlock future growth and job creation. There is a well known maxim in systems thinking which states: "the behaviour of a system is a function of its structure" - South Africa is undeniably on the receiving end of the system in which we play, as a small kid on a large city block, among players whose interests more fundamentally shape the rules of the game than do our own. Given the system, perhaps it's time to abandon the dream of state-led transformation in South Africa.
What if the president should come out at the SONA and declare; "South Africa is open for business and inclusive growth. We are ready to build new businesses, new livelihoods on the back of the entrenched capacities we already have in our juggernaut economy in Africa. We want to be the springboard to unlock the potential of Africa, we want to be the head office and the crossroads and the office space and the call centre, of the African economy of 2050. Give us your investment and we will give you stability, efficiency and a friendly ROI. Only, we insist that you train us, employ us, partner with us and give us a fair share of the wealth that we create in our sunshine economy."
Instead of trying to be the referee, and the player, and the goalkeeper, and the minister of sport all at once, government would do well to get off the playing field and let South Africans engage with the opportunities which it helps them create.
It's time to abandon the dream of state-led transformation.Suggest a correction