- Mar 6, 2004
Read more: https://www.politicsweb.co.za/opinion/our-coming-train-crashSouth Africa’s slow-motion momentum towards a financial train crash has begun to speed up. Recent weeks have seen strong warning signals from the rating agencies. In particular there is widespread concern that the ongoing bailout of Eskom is both insufficient – hundreds more billions of Rands will be required – and is taking place without conditionalities. This is emphasised by the fact that Eskom has just racked up another R21 billion loss (after repeatedly postponing its financial statement).
It is simply impossible for Eskom to right itself without large-scale redundancies, a purge of the innumerable insider business deals still going on, an end to cadre deployment and the substantial sale of assets. But since the government is clearly scared of all these solutions, it continues to pour money into the sieve, as Tito Mboweni rightly put it.
This is a disastrous failure of governance and it means that the money handed over to Eskom will essentially be wasted – in effect it will be used to keep paying inflated salaries to a large number of unnecessary workers and to finance all the sweetheart deals that make Eskom’s costs so high. In effect Ramaphosa has declared that the highest national priority is the maintenance of their high consumption levels.
The government and ANC are meanwhile enjoying heated arguments about trivial questions – about expropriation, about nationalising the central bank, about a proposed land reform which would threaten food security, about the Public Protector, Derek Hanekom and about such arcane items as who betrayed whom more than thirty years ago. President Ramaphosa has reportedly decided that his top priority is the reform of the ANC. This is rather like King Canute deciding that his priority was to command the tide to stop coming in.
The ANC is irreformable, plagued by factionalism, almost entirely given over to public sector theft, and its internal elections settled by a mixture of bribery and assassination. There are, quite visibly, criminals in the cabinet, criminals in Luthuli House and criminals on the ANC national executive. A key index is the enduring strength of the Zuma faction despite the fact that Zuma himself is utterly discredited and unpopular. Not to put too fine a point on it, his faction is strong because it rests on the greed and rapacity of wealthy crooks who have had many years to dig themselves in. Against such an elemental force Ramaphosa’s dithering attempts to “get everyone round the table” are almost entirely a waste of time.
This is, in fact, an almost exact replication of the way the National Party behaved in its last decade. No matter the urgency of practical events, one was always told that the time was not yet ripe because of the delicate balance between the Nats’ factions, the verligtes and verkramptes. Both domestic and foreign observers would point out that the country was burning, that a civil war threatened and that the economy was blighted by instability and sanctions.
Sure, all true, they were told, but we can’t do anything which might give Treurnicht another debating point or which might disturb the delicate compromise between the Cape and Transvaal sections of the party.
Yet as one looks back who gives a fig for Treurnicht, the Cape vs Transvaal broedertwis or the Nats’ internal party dynamics in general?
Substitute Magashule for Treurnicht, and Cosatu, the SACP and the Zuma faction for the old Cape and Transvaal and you have today’s line-up. And once again we are told that the top priority is not the national crisis but the internal dynamics of the ruling party.
What happened with the Nats resembles the way in which Scott Fitzgerald described the process of bankruptcy: for a long time little or nothing happens and then everything happens very suddenly. In mid-1989 PW Botha was soldiering on forever. Eight months later apartheid had been abolished, the ANC, PAC and SACP were unbanned and universal suffrage was on the way. It is the logic of the avalanche: one moment nothing moves, the next second everything does. We are, quite clearly, heading for another such moment. It is likely that in the not too far distant future all sorts of currently unimaginable items will be on the agenda and that today’s pre-occupying concerns will seem like so much chaff in the wind.
There have been several advance tremors in the last week. One was the declaration by the National Treasury’s director-general, Dondo Mogajane, that what was really needed was a 10% salary cut for all public servants simply to cover the cost of SOE bailouts thus far. “National Treasury’s box is empty”, he said. “Growth is not coming through and tax revenues are not there. We are in trouble.” He then added that the 10% wage cut scenario was unlikely. “Realistically, it’s not something we can approve and it’s not really possible, but there are no holy cows and we have to make some tough decisions. We need to avoid a situation where everything collapses.” He went on to say that the government needed to be open to borrowing from multilateral institutions: “We should not be afraid to go to the Brics bank (the New Development Bank or NDB), the African Development Bank (the AfDB) and the World Bank and say: “Let us diversify our debt portfolio.””
There are a number of interesting points here. First, the Treasury has clearly begun to think about “a situation where everything collapses”. Secondly – and in line with a lot of other current government rhetoric – he insists that there must be tough action, no holy cows, but then immediately backs away from the tough action he had proposed (the 10% salary cut), declaring it to be a holy cow. Then, warming to his theme, he comes up with the government’s favourite solution: more debt. Because, of course, he’s not really talking about diversifying the national debt – that would mean redeeming some of it and borrowing elsewhere, and no one is even dreaming of redeeming any debt. Really what he means is let’s go off to these other institutions and borrow some more.
This is an interesting point. One would like to think that the Treasury DG knows a bit about international finance. But it’s not clear that he does. After all, what sort of loan do we need? Argentina, another middle-income developing country (though with a smaller population than South Africa) recently got an IMF loan of $57 billion. It’s unlikely that we need less but let’s settle on that figure. The first thing to notice is that the AfDB, in its entire history since 1984 has, in 2,885 separate operations, lent a grand total of $47.5 billion. So we can hardly get much from them. In addition, the AfDB normally lends at market rates and essentially lends only to fund infrastuctural projects. It also only lends to “credit-worthy African countries”. Similarly, the NDB has a loans budget of $3.4 billion a year and lends only to fund infrastructural projects. Yet what South Africa needs is a vast loan in order to bail out the state, not to build any new dams or roads.
Finally, Mr Mogajane gets to the World Bank. This is interesting because it is one of the hated Bretton Woods institutions which normally the ANC shuns. But one hopes that Mr Mogajane knows that the WB also only lends for project finance, again mainly for infrastructure. So it’s not really a runner at all. It’s true that Brics also has a Contingency Reserve Arrangement (CRA) which can also lend money – though only to help countries with balance of payment problems. So that’s not much use either. That is to say, what Mr Mogajane is really talking about – but dare not mention by name – is the IMF, the only bank which has sufficient funds to help and which lends not for specific projects but to bail out countries which have got into a mess.