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After the votes cast on 22 April are counted, there seems no doubt that the new president will be the populist Jacob Zuma, the former Zulu herd boy who had faced charges of corruption (dropped earlier this month) and rape (of which he was acquitted in 2006) and who is nonetheless the object of extraordinary devotion from his followers. There is unease and not a little anger about the charges and the way they were handled, as well as the future president’s signature song ‘Lethu Mshini Wami’ (‘Bring me my machine-gun’). But this country seems better equipped to face worldwide meltdown than most.
The South African economy, which has enjoyed unprecedented growth in the 15 years since the ANC took power in the country’s first democratic elections in 1994, is forecast by JPMorgan to grow at 2.3 per cent next year. It’s a slowdown on the 4 per cent rate enjoyed in recent years; but it’s a rate that the First World would kill for. The OECD forecasts that the global economy will contract this year for the first time since the second world war, by 2.3 per cent; that includes negative rates of 3.7 per cent in the UK, 4 per cent in the US and 6.6 per cent in Japan.
When the international banking crisis began, South Africa was in a surprisingly good place. First, its banking system was highly regulated. This means that banks were not offering ridiculously high levels of credit, although there was aggressive marketing to the new black middle class alongside the creation of six million new ‘Mzansi’ accounts for lower income groups who previously lacked access to banking services.
Second, exchange controls ensured that local banks were not exposed to US subprime mortgages and were therefore largely free of the toxic debt that has engulfed some banks in the US and Europe. This is not to say that credit wasn’t overextended in the good years; there will be some bad consumer debt, but it is unlikely to be at the levels experienced in the UK, according to André Roux, head of fixed income at Investec Asset Management in Cape Town.
Manufacturing output is down, as are mining volumes; electricity usage is lower, and there will be several quarters of negative growth, he says. But he expects some global recovery towards the end of the year, which will benefit South Africa too. And the hosting of the 2010 World Cup is already a substantial boost to the economy: accelerated infrastructure spending on stadiums and roads will help deliver a good fourth quarter.
The economy has grown in leaps and bounds since the ANC’s 1994 triumph. Foreign investors were quickly reassured that (despite some of its members’ training behind the Berlin Wall) the new government was committed to a strong capitalist system under the expert stewardship of finance minister Trevor Manuel, who has stayed in place through several leadership changes.
But opinion is sharply divided as to whether this growth has benefited the population as a whole. According to Sampie Terreblanche, emeritus professor of economics at Stellenbosch University, the policies of the ANC government have been too elitist. Before the 1994 election, the global corporate sector pressured the ANC to buy into what he calls the ‘British-American’ model of capitalism.
‘To superimpose a liberal capitalist model on post-apartheid South Africa was a huge mistake. The poorer half of the population has been neglected for 15 years. The whites have never had it so good — 70 per cent were already rich in 1994 and they are now two to three times richer. There is a new black middle class: some of them so rich that we call them the black diamonds. The top 20 per cent of the population — four million whites and six million lower-middle and middle-class black people — have made extraordinary progress. [But] there was the promise by the ANC that by 2014, poverty and unemployment would be cut by half.’
He says 45 per cent of the population are still in poverty, and 26 per cent or more of the labour force is unemployed and looking for work. This rises to 40 per cent, or around 10 million people, if you simply count those people of working age who are not in work. Social grants go to 12 million elderly people and children: this is one part of the system that works reasonably well.
What would he do? ‘The easiest thing would be to increase tax and create a better poverty net for all the people who need a decent existence. Ten million [more] people ought to get a social grant and the rich ought to pay for it. The contrast between the luxury and ease on one side and the poverty and misery on the other side is so sharp.’ It’s more unequal than Mexico and Brazil, he adds. ‘In the apartheid days, South Africa was always in the limelight. I get the impression now that the rest of the world thinks South Africa is a democracy and that we’re on the road to recovery. That is not the case.’
In 1990, the year of Nelson Mandela’s release, Terreblanche points out, South Africa was ranked 85th in the United Nations human development index — a measure of key indicators including child mortality, clean water, education and life expectancy. Today it has fallen to 121st place. Life expectancy has dropped from almost 60 in 1990 to below 50 because so many people die from Aids — at a rate of 1,000 a day.
Nevertheless, South Africa is in better shape than other economies, and the outlook for continued inward investment is relatively rosy, dependent of course on the impact of worldwide recession. Market reaction to the expected change of leadership has been muted, according to André Roux. ‘Foreign investors will give the new government a chance to find its feet.’
There is a general expectation that the new government will maintain similar economic policies, he says, and because South Africa is a mature economy, future investment will very likely take the form of equity stakes, such as the purchase by Barclays of Absa Bank, rather than greenfield investments.
But what of the unease about the new president and his apparent disregard for the law? Independent analyst J.P. Landman points out that foreign investors do not seem to care: 193 billion rand (£12.3 billion) was invested in South Africa in 2007 — and after Zuma defeated the incumbent Thabo Mbeki for the ANC leadership at the end of that year, 195 billion rand was invested in 2008.
Philip Dexter, spokesman for the new COPE party, disagrees. He feels the external perception of South Africa h as taken a serious knock and that Zuma should have stood aside until the corruption case against him was settled. He points out that the Washington Post defines four types of state — democratic, rogue democracies like Zimbabwe, rogue states like North Korea, and failed states — and categorises South Africa as ‘on the brink of being regarded as a rogue democracy’.
In 1994, Dexter says, ‘South Africa was regarded as a highly successful country with a model constitution. In 15 years we have lost our standing internationally.’ Jacob Zuma’s government will now have their chance to prove that judgment wrong.
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