End of the “rainbow nation” fairy tale

Posted on November 6, 2012


The last remnants of the South African fairy tale were put to rest in London’s influential Frontline Club in October. A packed audience comprising mainly media workers and more than a handful of public relations and investment advisers clearly concluded that the rainbow nation was no more than a myth.

Yet, once upon a time, and not very long ago, when concerned investment groups started casting about to find somewhere outside of the industrialised world to increase the size of their cash piles, they looked to South Africa. Not solely as an investment destination, but as the entry point to a continent with vast natural resources and a huge and largely untapped market.

Concerned about recession as household and national debts in Europe and the United States soared, the money merchants needed new pastures. And, after 1994, many of them saw South Africa as the probable answer. However, even then, few bought into the widespread perception that a fairy tale was unfolding on the continent’s southern tip.

Aided by often shrewd advisers, the investors remained cautious, generally aware that perceptions of a rainbow nation miracle having occurred south of the Limpopo were the result more of media hype and naive hope than reactions to reality. So even as the country’s new government quickly dropped talk of greater state control and moved toward creating a “business friendly” environment against the background of a much-hailed new, liberal, constitution the caution remained.

And this seems to have had less to do with concerns about trade union strength and labour laws than with an awareness that massive unemployment and continuing social deprivation for millions of people constituted an explosive mix. Not generally mentioned was the additional worry was that, should a major explosion occur, the government might lack both the ability and political will to contain it.

As several labour movement commentators have cynically remarked, authoritarianism is not necessarily bad for business, but instability certainly is. And with instability and austerity looming large in much of the industrialised world, Africa beckoned more and more strongly.

In this context, Africa forecasting specialist Natznet Tesfay told the Frontline meeting, South Africa was, until quite recently, the clearly favoured investment destination. But this was no longer the case, not because of “the absence of legislation but the lack of political will to implement it”.

In other words, as Cosatu in particular has argued for years, investors are not generally put off by the existing legal framework in South Africa; the labour laws in particular, the unions maintain, are broadly in line with those of many other countries. But the existence of the “time bomb” so often referred to by Cosatu general secretary Zwelinzima Vavi — the explosive mix of poverty and unemployment and an inability to deal it — is what concerns potential investors.

Evidence of this concern can be seen in the fact that there has been relatively little greenfields investment in South Africa, little in the way of significant start-ups and expansion. Instead, cash from abroad has flowed into the Johannesburg Securities Exchange (JSE), helping the balance of payments, but storing up potential problems for the future.

There were, of course, some apparent exceptions such as the much vaunted R30 billion purchase in 2005 of a controlling interest in Absa by Brish-based Barclays Bank. However, as the labour movement pointed out at the time, it was likely that Barclays would recoup its investment in under a decade, so adding to potential problems for South Africa as dividends flowed abroad and Absa remained in foreign hands.

Much the same applies with the recent purchase by Walmart of a controlling stake in Massmart. For the most part, however, investors tended to spend years engaged in little more than financial toe-dipping through the JSE. But, as the new millennium got underway and fears of looming recession grew, it did seem that South Africa was about to become the channel for an investment drive into the continent.

But by the time the global economic crisis became a reality in 2008, shrewder investors had already looked further afield. Noting South Africa’s continued high levels of unemployment, the amount of official corruption and what the police refer to as “unrest incidents”, they foresaw too much potential instability. According to Tesfay, countries such as Ghana were seen as much better bets.

That West African state had seen relatively seamless transitions of political power ever since 2000 and, from 2008, President John Evans Atta Mills, using a combination of economic stimulus and austerity held out a future of stability and prosperity. He was especially able to do so after the discovery of vast oil reserves in 2007, a factor that also influenced investors.

So, before the televised bloodletting at Marikana, South Africa was already falling into the background as a potential entry point for continental investment. But Marikana has certainly put the country back onto the public agenda.

This was the reason for the Frontline Club discussion and on the recent Trade Union Congress march against austerity in London, trade unionists interviewed all expressed concern and puzzlement at what was happening in South Africa. Two of the radical socialist groups on the march, while calling for a local general strike, also announced that they had invited “South African miners” to address meetings in Britain.

That South Africa is at least in danger of becoming an authoritarian state seems to be the almost unanimous conclusion. However, only one of the four South African panelists at the Frontline discussion — London-based BBC producer Audrey Brown — maintained that the country had already reached that position.

Former ANC MP and anti-corruption campaigner, Andrew Feinstein disagreed. As did I and author and academic Jonny Steinberg although we all felt that authoritarianism was certainly a possibility. But, as Feinstein pointed out, the country still has an independent judiciary, a free press and investigative journalists.

And for all the latest difficulties, the country also has a tradition of democratic trade unionism that may again be surfacing.  So the possibility still exists, not of a fairy tale, but of the steady, if sometimes messy, construction of a more democratic and just social order.

Posted in: Commentary