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November 2017
History will probably look back at 2017 and refer to it as the year in which South Africa was caught in a perfect political and economic storm. Apart from the two stepchildren of government policy, i.e. agriculture and mining, very few sectors recorded economic growth.
Due to record crops in maize, soybeans and sunflower, as well as a modest upswing in the global commodity cycle, it is safe to say that these two sectors prevented the country from more than a technical recession.
Politically the fragmentation of the ruling ANC into at least two factions caused political paralysis in decision-making and confusion in policy development. South Africa became a victim of the worst of political infighting, suffering very detrimental political decisions, such as the cabinet reshuffle in which Minister Pravin Gordhan lost his job as Minister of Finance, with his brave battle against state capture and corruption recorded as his only sin.
The perfect storm was a storm of low economic growth coupled with policy uncertainty linked to a volatile currency and factionalism in the governing party.
This new normal is often referred to as a VUCA world. The VUCA concept fits South Africa like a glove at the moment. The first letter of this abbreviation stands for volatility and our currency, the rand, is a very good example with its almost unpredictable swings. The second letter stands for uncertainty and the ANC’s leadership contestation and subsequent policy paralysis fit nicely into this slot.
In VUCA the third letter represents complexity and managing a country with an unemployment rate of 27,7% and youth unemployment reaching 50% illustrates the complexity of policy formation and the subsequent financing thereof. Land reform also fits this bill.
The last letter in the VUCA word is ambiguity. Ambiguity is the degree to which information, situations and events can be interpreted in multiple ways. Ambiguity increases doubt, slows decision-making, and results in missed opportunities (and threats).
In analysing the political economy of South Africa towards the end of 2017, it is useful to look at developments as a virtuous cycle and a vicious cycle, because not everything is all bad or only good.
The virtuous cycle represents all those actions and decisions that bring South Africans closer to each other in forming a South African political culture. In this ‘good cycle’ that searches for the middle; there are also negative issues at work, but they are dominated by the positives.
In the vicious cycle, however, the negatives like crime, corruption and maladministration dominate the good intentions of the change efforts. These two cycles engage very dynamically and find expression in the reports of the Auditor General, The Public Protector, several court cases and policy decisions.
The recent report of the World Economic Forum (WEF) released at the end of September 2017 on the competitive nature of 137 countries in 2017/2018, needs a closer look. As part of the perfect storm mentioned earlier, South Africa dropped 14 places among 137 countries from 47th most competitive economy to the 61st most competitive nation.
These 14 places that we have lost is the most significant drop since the start of this annual survey in 2004. What caused this drop so suddenly in 2017?
Looking at the different pillar measures, it becomes clear that we have lost our competitiveness because of financial institutions and the integrity of our corporate governance. It used to be among the best in the world, but dropped from 11/138 to 44/137 in 2017/2018.
Another reason for the drop in competitiveness was that of institutions of state. Previously we scored 40/138 and now it dropped to 67/137. Both numbers show a global decline in confidence in financial arrangement and governance (KPMG and the Guptas may be a case in point) as well as a declining confidence in state institutions due to issues such as institutionalised corruption and state capture allegations.
In addition, the WEF Global Competitive Report publishes a list of issues making it difficult to do business in a country. For years the normal culprits in South Africa were things such as restrictive labour relations, inefficient government bureaucracy, inadequate infrastructure, policy instability and inadequately educated workforce, topping the list.
The 2017/2018 list brings new issues to the fore and the top five now are: Corruption, crime and theft, government instability/coups, tax rates and insufficient government bureaucracy.
It is in the context illustrated above that the ANC is preparing for a leadership election in December 2017. The intensity of the leadership contest, as well as the uncertainty about President Jacob Zuma’s exit strategy, causes huge political uncertainty.
Figure 1 is an outline of the two roles of the ANC in politics. Firstly, it is a political party (Green) selecting leaders to govern and secondly it constitutes a government (Blue).
From this figure it is clear that the ANC has not succeeded in closing the gap between electing its leadership for the political party (December 2017) and forming a government after an election (May 2019).
This lack of synchronisation between party leadership and governing leadership (president and cabinet) has created the notion of ‘two centres of power’ within the ANC. It refers to one leadership team in Luthuli House and a different team sitting in the Union Buildings. This scenario caused the ‘recall’ of President Thabo Mbeki in 2008, a scenario that may play itself out again in 2018 with regards to President Zuma.
At its 54th National Conference, arranged for 16 to 21 December 2017, the ANC will have to do three important things. Firstly, it will have to amend its constitution, then it will have to amend and approve its policy framework and lastly elect the leadership for the next five years.
President Zuma indicated that he is not re-electable as president of the ANC and his second term as State President will also come to an end in May 2019. Figure 2 shows the different possible candidates for the ANC election in December 2017.
Uncertainty about who will succeed President Zuma has added to the perfect political and economic storm in South Africa – especially due to the corruption charges and state capture allegations linked to the Zuma presidency.
At this stage two candidates are looking like frontrunners, i.e. the Deputy President, Mr Cyril Ramaphosa, and the ex-wife of President Zuma, Dr Nkosazana Dlamini-Zuma.
ANC tradition would favour the sitting deputy president to take over from President Zuma in December 2017, but the deep running factions in the ANC makes this prediction extremely difficult. This uncertainty adds to the view that South African politics is currently in a holding pattern due to uncertainty and this situation will continue at least until late December 2017 and may only be resolved in 2018.
Publication: November 2017
Section: Relevant
