SA: reasons for optimism

Violent strikes. Hostility towards private enterprise. Corruption and ineptitude. Our country seems to be on a slippery slope. Yet the SAIRR’s Frans Cronje is bullish about South Africa.

SA: reasons for optimism
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Over the past year or so, the SA Institute of Race Relations has confronted greater pessimism about the future of our country than at any time since 1994. At briefing after briefing, our presenters are asked if South Africa is becoming another Zimbabwe. Due partly perhaps to our contrarian nature, we at the SAIRR are actually more optimistic today than at any time since democracy began.

Until 2007 we were distinctly concerned about the direction SA was taking – and many in business, politics and the media failed to understand our reasoning. Today it is these parties who are worried while we are encouraged, and once again few people appreciate why.

Half the story
Between 1994 and 2007, organised business, organised labour and the president’s office formed a powerful nexus to create the façade of a stable, well-managed country. However, any analyst who did a bit of probing could not help but be alarmed. Poverty increased between 1994 and 2001. The number of unemployed more than doubled over the same period. The levels of most crimes peaked between 2001 and 2003.

Infant mortality rates increased for the first time since the mid-1980s. Life expectancy for black South Africans declined. And access to education for blacks slowed after booming in the 1980s and 1990s, making it obvious that the system was not improving quickly enough to meet the demand for future skills. Yet, when we tried to highlight some of these problems, our concerns were dismissed as racist fantasies. And business showed little interest in rocking the boat.

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By the early 2000s it was obvious that the troika of business, labour and the presidency had set SA on an unsustainable trajectory. The end came in 2007 when Thabo Mbeki was axed. One leg of the three-legged pot fell off and the pot itself, which had seemed so stable, fell over. Yet all was not lost. With the change in political leadership, SA became a more open society – contrary to most opinion at the time.

Gone was the government’s denial of the social and economic ills facing the country. Cabinet ministers began speaking of government failures. Business found its voice, although mostly within the confines of the boardroom. The media and much of civil society woke up to the fact that SA faced serious problems. More recently, the government has begun to appreciate that its policy mix must change if it is to secure political dominance.

In addition, the government is running out of money. South Africa’s budget deficit has, under Jacob Zuma’s administration, reached (and at times exceeded) levels recorded in the 1970s and 1980s when the apartheid government came under the political and economic strain that forced it to reform. Likewise the deficit on the current account has reached worrying levels.

Pressure for change is also coming from ANC supporters. The party’s share of the potential vote fell from 55% in 1994 to 38% in the 2009 election. Protests against the state have increased; there has been a tenfold increase in service delivery protests since 2004.

Success to blame
Paradoxically, the SAIRR believes that these protests arise not from the failure of the government’s service delivery efforts but from their success. Huge gains have been made in providing free or subsidised water, electricity and housing, and there is little doubt that basic living conditions of the poor, as corroborated by Living Standard Measure data, have been drastically improved. For every shack constructed in SA since 1994, twelve formal houses have been built.

Far from securing political stability, however, these successes have placed increasing pressure on the ANC, for two reasons. Firstly, if it were true that delivery had failed, then the ANC could fix its delivery capacity, which should see the unhappiness evaporate. However, if we are right and the ANC has delivered as well as it could, then it has no delivery ace up its sleeve to curb the instability.

This leads to the second reason, which is that increasing people’s living standards raises expectations of more improvements. These can be met only through job creation and income growth. When they are not, instability results. This is why dictatorships intentionally depress living standards.

South Africa’s fundamental problem is that the ANC-led government has increased the living standards of poor people but has no means, whether through education or labour market access, to continue this process. It is therefore in an unsustainable position if it wishes to retain political dominance. Many leaders in government, the media and civil society now admit to this.

The problems that SA confronts have thus become the very thing that will drive policy change. It is for this reason we are cautiously optimistic about the future. Of course, we do not know how the government will address its position. Its reaction may well compound the problems before they get better. Our Unit for Risk Analysis has therefore produced two scenarios for where SA will find itself in 2024:

A long dark night
In the first scenario, an obstinate government presses ahead with its failed interventionist policies despite all evidence that these do more harm than good. Believing that the private sector has refused to transform, it tries to force it to do so.
There are four markers that would indicate we are drifting into this scenario:

  • Employment equity and empowerment regulations are tightened.
  • Labour market regulations become more onerous.
  • Constraining legislation is proposed for the media, civil society and the judiciary.
  • Government introduces grandiose state-led social and economic projects.
  • This scenario is likely to result in the following:
  • Protest action takes off exponentially.
  • South Africa’s savings and investment lag behind those of comparable emerging markets.
  • Long-term average GDP growth levels are below 3,5%.
  • Unemployment remains at about 25% or drops even lower.
  • The budget and current account deficits reach unsustainable levels.
  • A weakening rand, higher wage settlements and increased administered prices push inflation above its 3% to 6% target band.
  • The ANC’s electoral majority slips below 60% in 2019, and the party loses the 2024 election. 

A New Dawn
In this scenario, the increasing demands on the ANC serve as a catalyst for policy reform. Reformists in the party, building on the National Development Plan, introduce a series of initially unpopular changes that ultimately secure the party’s future in power. Four signs would show that this scenario is unfolding:

  • Labour markets begin to be deregulated.
  • Employment equity and empowerment requirements for investors are watered down.
  • Large state-led industrial and social policies, such as a state-owned miner or steelmaker and the National Health Insurance scheme, are abandoned.
  • Conservative fiscal policies such as inflation targeting are maintained.
  • Such a scenario should put SA within reach of achieving the following:
  • Investment and savings rates pick up.
  • GDP grows in excess of 5% of GDP (subject to favourable global circumstances).
  • At this level of GDP growth, unemployment declines sharply.
  • As a result, protest levels and dependency on welfare decline.
  • Increased GDP growth and investment generate the revenues to contain the budget and current account deficits.
  • Increased revenues mean that the government can meet demands for social support, which will remain significant regardless.

Not a forecast
Neither scenario is a forecast, and we suggest that both are seen as equally probable. While many would regard the first as more likely – based on events in 2012 – we believe this would be a mistake. The reason is that the world changes rapidly and often unexpectedly. In the 1980s, when most analysts were predicting violent revolution in SA, we foretold a negotiated settlement – using a similar research methodology to that used for the scenarios above. We were proved right.

Despite current efforts to strengthen BEE and labour regulations, grandiose new state-led projects, and efforts to undermine access to information, there is hard evidence in favour of our second scenario. Its blueprint exists in the National Development Plan, the ANC has identified the need to limit cadre deployment, and there has been a compromise on banning labour brokers.

Further, and of enormous significance, many small clothing factories in KwaZulu-Natal are operating outside of minimum wage laws and the government is turning a blind eye. A small example like this is telling, as it indicates a government compromising on some of its policies. It is only a matter of time before more compromises are seen.

Jaap Marais, formerly of the Herstigte Nasionale Party, cautioned John Vorster in 1968 that allowing Maoris to tour with the All Blacks was the beginning of the slippery slope that would lead to “a black man marrying your daughter and sitting next to you in parliament”. Marais was right; Vorster was unintentionally putting in place the conditions that led to democracy.

Based on our research, we are more positive about the future of SA than we were 10 years ago. We believe a window of opportunity has been opened to change the country for the better. The ANC is in an impossible position and will have to change to avoid the electorate changing it in the 2024 election. Managed skilfully, this process could deliver a more
prosperous and stable society. 

This is an edited version of a paper by Dr Frans Cronje for the SAIRR, entitled Two Scenarios for the Future of South Africa. For the full article, visit the SAIRR website.

Contact Frans Cronje at the SAIRR on 011 482 7221.
The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.