Less gold at SA’s rainbow end

Posted on January 28, 2013


Produced for Zambia’s Bulletin & Record (December edition)

Once upon a time and not very long ago, South Africa, as the continent’s largest economy and with a first-world banking and financial sector, was regarded as the potential gateway to investment in the resource-rich and still little exploited market of sub-Saharan Africa. This is no longer the case — and has not been so since well before the latest outbursts of industrial unrest on South Africa’s mines and farms.

Income inequalities, massive unemployment, corruption and the potential for political and social instability saw investors looking north not just of the Limpopo, but also the Zambezi. According to several investment analysts in London, Zambia has, for some time, been “a better bet” than South Africa for companies looking to put money into Africa. However, as leading analyst Natznet Tesfay told a Frontline Club meeting in London in October Ghana has, in recent years, become the favoured entry point.

What investors are looking for is political an economic stability and, with instability and austerity looming large in much of the industrialised world, Africa looks increasingly attractive. The concern about South Africa is also not the existence of labour laws and other legal frameworks: it is the fear that, should an explosion occur on the labour front, the government would lack both the will and ability to control it.

As several commentators have cynically remarked, authoritarianism is not necessarily bad for business, but instability certainly is. Recent events on South African mines and farms have underlined the volatility of the environment and the apparent inability of government to halt the spread of unrest. This has vindicated the assessments of many investment advisers who recommended caution about South Africa.

It was a message that got through to South Africa and particularly to the country’s major trade union federation, Cosatu whose general secretary, Zwelinzima Vavi, has consistently warned that South Africa is sitting on a “ticking time bomb of poverty and unemployment”. However, Cosatu, along with the Communist Party (SACP) whose members dominate the federation’s leadership, remains wedded to the governing ANC and to its controversial and increasingly unpopular leader, President Jacob Zuma.

Amid bitter infighting within the ANC, Zuma is making his play for a second term as president of both the party and the country. To assist him in this quest, Cosatu announced that the country must ensure that it has a “Lula moment”, a great surge in economic growth and job creation, named after the former president of Brazil, Ignacio Lula da Silva.

Of course, when Cosatu first considered inviting Lula to South Africa to share the secrets of what many in the local labour movement still see as something of an economic miracle, the available economic indicators related to 2010, the last year of Lula’s second term presidency. The data are impressive: a 7.5 per cent overall growth rate, a significant decline in joblessness and a clear reduction in the wage and welfare gap.

So Cosatu invited Lula to address the Cosatu congress in September and to provide guidance to the government about how to achieve a “Lula moment”. However, Lula could not make it at that time and the visit was scheduled for November.

In the meantime, Cosatu argued widely that Lula had needed a second term as president of Brazil in order to work a miracle that, the federation says, created millions of jobs and turned around an ailing economy. The barely disguised message here is: President Jacob Zuma must be given a second term in order for the same thing to happen in South Africa.

However, even as it became obvious that Lula could not make it to the Cosatu congress, South Africa had what the local media referred to as its Marikana moment: the day — August 16 — that police shot dead 34 striking miners near Lonmin’s Marikana mine. That incident triggered a wave of strikes throughout the mining sector and was settled at Marikana after a 22 per cent pay rise.

But the strike wave spread throughout the platinum and gold sectors, severely shaking what investor confidence remained. And, in November, as Cosatu waited to welcome Lula, a spontaneous rebellion by farm workers in the Hex River Valley north-east of Cape Town erupted — and quickly spread through the region known as the Boland.

For the most part, these were not, like the mine workers, previously organised union members turning their backs on existing unions: fewer than 5 per cent of farm workers are members of trade unions. But there is widespread anger at the government-established minimum wage of R7.71 an hour or roughly R70 a day. And because many of these workers work only in the brief harvest season and are supplied through labour brokers, their pay is often substantially less.

Cosatu, having been caught flat-footed by the events at Marikana, quickly moved to make its presence felt in in the Boland, providing support for strikers, attempting to quell outburst of violence and offering to negotiate.

It was against this background that Lula arrived to provide advice on how to transform the local economy. He was decidedly upbeat, as was Cosatu, with the federation continuing to refer to the apparent miracle of Brazil’s “Lula moment”.

What was left unsaid was the fact that Brazil’s economy slowed down rather dramatically last year to just 2.7 per cent; that household debt is soaring and that most projections for the economy for this year are that it will grow by just 1.6 per cent. And much of the earlier economic surge — including the much vaunted 7.5 per cent growth in 2010, Lula’s last year of his second term — can be attributed to soaring commodity prices, driven by Chinese demand. But as stockpiles have grown and Chinese demand has slowed, so prices have fallen.

To cope, the Brazilian government has upped taxes and, as part of its equalisation drive, has increased minimum wages to levels well in excess of those in countries such as Vietnam. So Brazil’s image as a haven for FDI has dimmed and foreign investors have started looking elsewhere, to Peru, Colombia and even Mexico

Yet the myth of the Lula moment still persists. Very much so within much of the labour movement in South Africa. But the stress of Lula’s claimed achievements has less to do with economic growth and more with the fact that income inequality in Brazil did decline and millions of jobs were created during the Lula presidency.

However, as a number of economists have pointed out, this was achieved by large-scale public spending at the expense of investment in infrastructure such as roads and ports, something that is now causing further problems for a Brazilian economy. Much of this spending was also in the lead-up to the election of Lula’s hand-picked successor, Dilma Rousseff, who is now dealing with a faltering economy, although there is still the advantage of large oil finds that have still to be fully exploited.

What is now clear is that the commodity price wave that Lula was able to surf has now ebbed, so there seems little likelihood that Brazil will be able to repeat it 2010 performance, let alone have South Africa emulate it. Although Lula made no public mention of it, the political and social situation in South Africa must also have seemed to him much more volatile than in Brazil.

In the very week that he arrived, for example, tension was still rife in the farmlands of the Boland and Zuma’s image was taking another massive battering. The cloud of hundreds of corruption charges that the South African president was able to dodge in 2009, once again emerged when more than 300 pages of correspondence were leaked to the media.

The correspondence relates to the demand by the prosecuting authorities that Zuma face charges of corruption and how — including allegations of blackmail — this came to be controversially dropped. At the same time, while being grilled in parliament over a claimed R250 million upgrade to his private residential compound in rural KwaZulu-Natal, Zuma claimed he had paid for the work himself and had taken out a mortgage to do so.

Alert journalists checked and discovered that no mortgage exists for the elaborate complex of buildings that includes and underground bunker, heli-pad and high security perimeter. And when media investigations into the Nkandla expenditure started emerging, the government tried to apply a law dating from the apartheid era, the National Key Points Act. The Nkandla compound, they said, was a national key point and nothing could, therefore, be published about it.

Intelligence minister Siyabonga Cwele, who recently divorced his wife after she was sentenced to jail as a drug trafficker, also stepped in to argue that concession made about a “public interest defence” in a proposed state secrecy Bill should be dropped; that hefty prison terms should still apply for whistle blowers and for journalists who published “state secrets”.

One wit remarked: “Cwele seems to think we can have a Lula moment if only we can get rid of all those embarrassing media moments.” As matters stand, it seems that there are likely to be many more media moments while the Lula moment remain elusive.

Posted in: Reports abroad