Reconstruction in South Africa: Reflections on the 2021 State of the Nation Address and Budget

This month’s State of the Nation Address (SONA) by President Cyril Ramaphosa and Wednesday’s budget statement by Tito Mboweni (Minister of Finance) have together highlighted the urgent need for reconstruction in South Africa. This week, students on my undergraduate module ‘South African Politics: from Apartheid to Democracy’ are looking at reconstruction in post-apartheid South Africa and therefore I decided to post some thoughts on what lessons we might draw from these recent announcements.

The latest government strategy is the Economic Reconstruction and Recovery Plan (ERRP), which was published in October 2020. This plan fits comfortably within a much longer trend in policymaking that I identified in an article published in Capital & Class in 2017. An approach based on creating an investor-friendly environment to try and generate economic growth, has been at the core of the ANC government’s macroeconomic strategy, ever since it launched its Growth, Employment and Redistribution (GEAR) plan in 1996.

It is strikingly clear, however, that such an approach has failed to deliver human development for the majority of South Africans. Before the Covid-19 pandemic hit South Africa, it was already facing serious development challenges. The legacies of apartheid have remained visible in the period since the first multi-racial election was held in April 1994. A key explanation for this is the bargain struck in the early 1990s by the African National Congress (ANC) during the negotiated transition. Patrick Bond’s analysis of the series of compromises reached during this period remains instructive for understanding the contemporary situation. Bond argues that “ANC leaders were not ‘constrained’ in the 1990s by a desire for economic stability but entered into a pact with Afrikaner nationalists and big business”.

As a result, the structural legacies of apartheid endure. The Covid-19 pandemic has deepened the pre-existing dual economy. For the final quarter of 2020, South Africa’s unemployment rate is reported as 42.6 per cent (using the expanded definition that includes people who are discouraged from seeking work). To put this into context, concerns were recently expressed in the media that the UK’s unemployment rate has risen to 5 per cent for the first time in nearly five years. South Africa also has staggering levels of wealth inequality when compared to other countries. A recent report by Aroop Chatterjee, Léo Czajka and Amory Gethin on inequality, concluded that in South Africa “the top 10 per cent own more than 85 per cent of wealth, and the top 0.1 per cent at least 25 per cent”. The report also notes that there has been no discernible decrease in inequality since the end of apartheid.

At the heart of the SONA speech was a reinforcement of the centrality of the ERRP in addressing South Africa’s economic challenges. Ramaphosa is not oblivious to the challenges facing the country and he acknowledged the need to overcome poverty, hunger, joblessness and inequality. He went on to outline the four central elements of the government’s recovery plan:

A huge rollout of infrastructure projects focused on areas such as water and improvements to the road network.
A focus on local production based on a commitment to buy local and a boost to exports .
A government stimulus package to create jobs combined with measures to make it easier for the private sector to do business.
Measures to address the capacity problems in the domestic energy sector and in particular a restructuring of Eskom, which is the state-owned electricity provider.

President Cyril Ramaphosa delivers the SONA, 11 February 2021 [Photo GCIS, Creative Commons License CC BY-ND 2.0]

This ‘new’ development strategy draws on discussion papers that were produced by the Treasury before the impact of the pandemic in August and October 2019. In turn, these built on the analysis at the heart of the National Development Plan, which was launched in 2012. The message outlined by Ramaphosa appears to be a renewed focus on implementation, rather than a radically different strategy. The aim is to create the conditions in South Africa that are conducive to the needs of capital, which it is argued will generate higher levels of economic growth that will in turn begin to resolve the economic divide. In July 2020, South Africa made a successful request to the IMF for emergency financing worth US$ 4.3 billion. In the letter of intent to the IMF the Minister of Finance and Governor of the Reserve Bank made it clear that South Africa will focus on fiscal consolidation to ensure its debt is stabilised. This was evident in the budget, which saw a real-terms cut in social grants. At the same time, it was announced that the corporate tax rate will be reduced from 28 per cent to 27 per cent in April 2022.

So, what alternative measures could be adopted to help close the inequality gap and create jobs that are compatible with the challenge of climate change?

In response to the pandemic, the government introduced a temporary Social Relief of Distress Grant for those not already in receipt of any other social grant. Recipients receive R350 per month and this scheme has recently been extended until the end of April 2021. The decision to provide this grant, which it should be noted is below the level of the national food poverty line of R585 per month, has re-opened a debate in South Africa about a Basic Income Grant (BIG). This was something that a coalition of social movements campaigned for in the early 2000s. There are compelling arguments in favour of introducing a BIG to provide economic security for all. It was rebuked by government in the past on the grounds that it would create dependency and reduce the incentives to work. However, as Dawson and Fouksman have argued, it makes no sense to “keep expecting the poor to receive money through work only, when work is unavailable, or unstable and badly paid”.

However, the introduction of a BIG in isolation from other radical measures would only help to reduce the more extreme levels of poverty in South Africa. Inequality will persist without a significant redistribution of wealth and changes to land ownership. Chatterjee, Czajka and Gethin’s work on wealth – not income – inequality leads them to conclude there is a need for a wealth tax. They propose a progressive tax on the top 1 per cent of South Africans, which they estimate would raise R143 billion. To put this figure into context, in the budget this week, total government revenue for 2020-21 is estimated at R1,363 billion. South Africa also needs to move away from its reliance on extractive industries to begin a just transition towards a low carbon economy. Proposals published by the Million Climate Jobs Campaign and Alternative Information and Development Centre provide an interesting roadmap for how this might be achieved.

During the SONA, Ramaphosa made frequent reference to the recovery plan being based on a social compact. Within the National Economic Development and Labour Council (NEDLAC), social partners (business, labour and community) were reported to have agreed upon a Social Compact on Economic Recovery in September 2020. NEDLAC is a corporatist bargaining forum that is often bypassed in the policymaking process. However, the government have claimed that on this occasion the Social Compact has directly informed the ERRP. The problem is that with such high levels of unemployment coupled with those who are in casualised or informal work, established trade unions are not representative of the interests of the poor majority in South Africa. Despite the Social Compact, the Minister of Finance still felt the need to tell ‘social partners’, on more than one occasion during his budget speech, that he was not delivering an austerity budget. In an attempt to raise the wider issues at play, the South African Federation of Trade Unions (SAFTU), which is a group of unions that has broken away from the ANC-aligned Congress of South African Trade Unions (COSATU), organised a general strike on budget day. SAFTU was formed in 2017 but remains outside of discussions within NEDLAC.

A society with such stark levels of poverty, inequality and unemployment is not a ‘good society’. It breeds crime, resentment and fear. Ultimately, it remains an ongoing tragedy that the aspiration of freedom, which was at the heart of the liberation struggle against apartheid, remains out of reach for millions of South Africans due to entrenched economic divisions.

UK-Africa Relations Seminar Series Part 4

Last month the ESRC series on UK-Africa relations held its fourth meeting at Chatham House in London. In line with my reports on previous meetings, this blog entry provides a brief summary of the discussions and some of the thoughts that I had on what was said (and in some cases not said!) during the day.

In contrast to previous seminars in the series, and with the UK general election imminent, this event was more exclusively focused on UK policy and in particular the ‘prosperity agenda’ advanced by the Conservative-Liberal Democrat coalition government. An early speech in 2010 by then Foreign Secretary, William Hague, set out this focus arguing that there should be a “virtuous circle between foreign policy and [UK] prosperity”.

Our day at Chatham House began with a presentation by James Duddridge, the UK government’s Minister for Africa. He outlined how the prosperity agenda emphasises the shared interests present in UK-Africa relations. He argued for the need to move the focus of UK policy beyond aid and to see Africa as an increasingly important location of trade and investment opportunities. In line with the idea of a ‘golden thread’ of development, outlined in an opinion piece by David Cameron in 2012, he also noted the symbiotic relationship between peace, good governance and prosperity in Africa. Marco Jowell, a former Foreign and Commonwealth Office analyst, confirmed the essence of this ‘new’ approach by arguing that under the Coalition there has been more of an emphasis on UK interests and UK business in the government’s Africa policy.

The three panels that followed this keynote address then considered the following issues:

The UK’s ‘propserity agenda’ within the context of rising economic growth in Africa.
The potential challenges to the prosperity agenda.
The prospects for continuity or change in UK policy after the general election on 7 May.

Reflecting on the discussions I want to highlight three key issues. First, is the question of whose prosperity is advanced through the UK government’s prosperity agenda for Africa? Much of the debate during the day revealed just how central economic growth remains to orthodox understandings of development. For centuries, Africa has been a destination for UK trade and investment but how do we ensure that it benefits the majority of African populations? Inequality across Africa remains a huge issue and the assumption that the prosperity approach will induce ‘trickle-down’ has been shown in the past to be mistaken to say the least. The impact of economic growth will remain limited and exclusive unless African states are allowed the policy space to structurally transform their economies via effective industrial policies.

Second, we need to beware of the dangers of seeing Africa as a coherent entity. As one of the participants (Mthuli Ncube) noted, most of the recent growth in Africa has taken place in the tropics and not the North or South of the continent. So is it even helpful to talk of the UK having such a thing as an ‘Africa policy’? Moreover, the rhetoric around the economic boom in Africa needs careful consideration; not least because recent falls in the price of oil pose an immediate challenge to the growth experienced in many countries.

Third, how important is the UK compared to other external actors in Africa? Many of the speakers noted the rise of Chinese involvement in Africa, and in particular their role in many of the numerous infrastructure projects across the continent. Robin Gwynn, a former British diplomat specialising in Africa, suggested that if the UK is to retain influence then both the tone and the substance of its policy is important. As many African governments start to look East for inspiration, they are increasingly arguing that the state needs to play a stronger role in national development. In contrast, the UK’s prosperity agenda appears to retain the misguided neoliberal faith in the market as the route to development. As China’s influence grows in Africa it is therefore likely that retaining a focus on prosperity will further diminish the UK’s influence in the future.

The next meeting which will discuss ‘Trade in UK-Africa relations’ is being held at my own institution, Oxford Brookes University, on Wednesday 1 July 2015. For further information on the series as a whole go to the website and follow the twitter feed: @UKAfricaSeminar.

World Trade: Ten Years On From Cancún

It was ten years ago today that talks at the Ministerial Conference of the World Trade Organization (WTO), held in Cancún, Mexico ended in deadlock. Member states could not agree a consensus mainly due to a lack of movement by the developed world on agricultural subsidies and their insistence on the inclusion of new trade issues. At the time, many development campaigners and a number of negotiators from the developing world celebrated the fact that the world’s leading trade powers had failed in their attempt to push for agreement on the so-called ‘Singapore Issues’.

Did this represent the increased activism of developing states in global trade? What has happened during the decade since Cancún?

A week after the Conference in September 2003 Robert Zoellick, then US trade representative, wrote in a piece for the Financial Times that,

“the key division at Cancún was between the can-do and the won’t-do. For over two years, the US has pushed to open markets globally, in our hemisphere, and with sub-regions or individual countries. As WTO members ponder the future, the US will not wait: we will move towards free trade with can-do countries”.

With hindsight it appears that such comments were not simply diplomatic rhetoric. What we have witnessed since 2003 is a shift in the approach of the established trade powers. They have moved towards a focus on bilateral and regional trade agreements with developing countries and emerging markets, in particular, rather than multilateral negotiations within the WTO.

The European Union (EU), in particular, has embarked on numerous bilateral trade negotiations in recent years. As of August this year the European Commission reported that it has 29 trade agreements in place and is currently negotiating with Japan, the US, Canada, Malaysia, Vietnam, Thailand, Morocco, India, Mercosur (regional grouping in Latin America), Moldova, Armenia, Georgia, Ukraine, Costa Rica, El Salvador, Guatemala – to name but a few!

Particularly contentious for many development NGOs has been the negotiation of Economic Partnership Agreements (EPAs) with African, Caribbean and Pacific (ACP) states, which has allowed the EU to include at the bilateral level many of the issues that developing countries had resisted at Cancún. The power asymmetry between the EU and the ACP sub-regions involved in the EPA negotiations has enabled them to determine the key aspects of the negotiating agenda. The EU has pursued a ‘deep integration’ approach to its trade negotiations aiming to secure FTAs that go beyond simply the liberalisation of trade in goods.

This has meant the re-introduction of the ‘Singapore Issues’ onto the negotiating table. They refer to the inclusion of investment, competition policy, government procurement and trade facilitation measures. Their introduction (except trade facilitation) would mean that European firms would have to be treated in the same way as any domestic provider. This would pose significant limits to the range of development strategies available given that regulatory policy, previously the preserve of national politics, would become part of the FTA. In particular it would prevent the adoption of an active industrial policy. The introduction of these behind-the-border issues would also create a harmonisation of the business environment in line with the liberal model adopted in Europe, which would be of benefit to European business sectors looking to invest in partner countries.

In essence, what the last decade has revealed is that the focal point of the trade liberalisation agenda has shifted away from the WTO to bilateral trade negotiations. For those of us who seek to resist the neoliberal free trade agenda we must be careful what we wish for!

* A much more detailed (and considered!) elaboration of some of the arguments presented here can be found in Stephen R. Hurt (2013) ‘African agency in world trade undermined? The case of bilateral relations with the European Union’ in William Brown and Sophie Harman (eds), African Agency in International Politics, Abingdon: Routledge, pp. 49-64.

Declinism and South Africa

Over recent months, international media coverage has portrayed South Africa as a ‘broken’ country. Only this week we have seen on our TV screens evidence of serious police brutality, which reminded me of many of the images from the 1980s that had such an impact on me as an impressionable teenager. Similarly, in August 2012 we watched in horror as striking platinum miners in Marikana were shot dead by police. Such events have generated a ‘declinist’ reading of the situation in South Africa, most aptly demonstrated by The Economist on the front cover of its non-UK edition in October 2012.

What is striking here (no pun intended) is that such views contrast quite sharply with the orthodox narrative used to depict developments in the rest of the African continent in recent years, which points to rapid rates of economic growth in a number of countries (in particular Angola and Nigeria) that in 2011 were dubbed ‘African Lions’ in the very same publication. It seems that South Africa is being singled out as an isolated case in a continent that is otherwise making economic advances. This perception provides the flip-side to earlier suggestions that Africa was the ‘hopeless continent’ when again South Africa was described as the exception to the rule.

Inside the 20th October 2012 issue the two articles ‘Cry, the beloved country’ and ‘Over the rainbow’ paint a worrying picture of the situation in South Africa as it approaches the end of two decades since the first multi-racial election. The assessment of what has gone wrong since 1994 suggests that the major causal factor has been the incompetence of the African National Congress (ANC), which has led the government throughout the post-apartheid period. Former President, Thabo Mbeki, and current incumbent Jacob Zuma, are charged with leading a party that has fostered corruption and has failed to attract the foreign investment needed to address rising inequality and the grinding poverty that is the daily existence of the majority of the population. The main opposition party, the Democratic Alliance (DA), are claimed to have the ‘right ideas’ and striking miners are seen as a serious dent to South Africa’s reputation as a potential investment opportunity.

Whilst such analysis correctly identifies the key tensions in South African society – inequality, unemployment and poverty – and notes some of the undoubted failings of the ANC, it fails to identify the ideological alignment of the ANC government to neoliberalism and the place of South Africa within global capitalism as key parts of the ‘problem’. In this sense I was reminded of an article by John S. Saul entitled ‘Cry for the Beloved Country: The Post-Apartheid Denouement’ published back in 2001 in the Monthly Review.

Here Saul emphasises, as many have done, how the negotiated transition to democracy was designed as a way to organise the handover of political power to the ANC, whilst at the same time maintaining the continuity of capitalist economic relations and an acceptance of the dominant neoliberal orthodoxy. Saul’s conclusion that the transition has failed to address the underlying social relations within South Africa, despite being made over ten years ago, looks ever more pertinent as each year passes. The central premise of both the ANC’s economic strategy, and the analysis presented in The Economist, is the need to attract foreign investment to South Africa through a policy framework designed to create a set of business-friendly conditions. What is not questioned, however, are the potential consequences of such an unrestrained engagement with the global economy. It is this ideological side to the ANC’s hegemony within South Africa that is often ignored by those who focus on the more coercive measures adopted by the state to quash displays of discontent amongst South Africa’s justifiably impatient majority.

Whilst it is certainly true that South Africa needs a more effective government than the one it currently has, it also requires a significant shift to the left in ideological terms if it is to address such divisive socio-economic inequalities. It is becoming increasingly apparent that despite the removal of Mbeki, this is not possible within the confines of the ANC. The DA who argue in favour of the need for ‘an economy that is characterized primarily by the free choices of individuals’, offer little in the way of a genuine alternative, except for a potentially more efficient and less corrupt neoliberal state. The need for change runs much deeper than the mainstream declinist critics of the ANC government suggest.