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'Zuma's radical economic transformation is state looting'

Apr 04 2017 13:08
*Dumile Sibindana

President Jacob Zuma has proven himself to be a reckless tyrant who is willing to do anything and everything possible to further his own interests at the expense of the national interest, writes Dumile Sibindana.     

The more you look at President Jacob Zuma’s recent decision to reshuffle his Cabinet, the more you realise that as state president, he perhaps has never truly had the interests of the country at heart.

The removal of Pravin Gordhan and Mcebisi Jonas as the finance minister and deputy finance minister is unfathomable and preposterous to say the least, coming at a time when South Africa’s economy continues to lag significantly below average projected global GDP output of 3.4% for 2017.

This decision comes at a time when we as a country face serious other challenges, such as an exceptionally massive unemployment rate, particularly among the youth, and growing inequality and growing discontent among the poor black majority.

Yet despite the challenges facing our country and subpar governance by the ruling party, National Treasury has done a stellar job in securing our investment grade credit rating. This despite several incidents that have transpired in the political arena which threatened our ratings by global ratings agencies. Gordhan and his team have worked tirelessly since taking over as finance minister from Des Van Rooyen - yet another politically motivated appointment made by Zuma.

Remembering Nenegate

Many of us still remember that fateful day in December 2015 when tens of billions of rand were wiped out on the JSE as markets reacted to the removal of Nhlanhla Nene as finance minister and the appointment of Van Rooyen to perhaps the most crucial position in government.

This decision was later criticised by various factions, among them the Save SA campaign, bank executives and various other organisations who pressured the president to reconsider his decision. When he came to his senses and folded under the pressure to appoint a more capable minister, calm was restored.

However, with his latest move the president has seemingly forgotten the error in judgement he made - forgotten that firing or appointing a finance minister isn’t a decision that can or should be taken lightly.

Flawed view on global economic system

Having listened to several statements given by the newly-appointed Finance Minister Malusi Gigaba, I’m convinced that his understanding of the global economic system is not only flawed, but his appointment is a direct ploy to further the interests of those who have captured our state.

Gigaba insinuates that over the years National Treasury has bowed to the will of the ratings agencies, institutional and foreign investors, big business (the largest domestic companies) for too long. He proposes a new dispensation under his leadership, where all the fundaments of the global financial system are ignored.

What he fails to understand is that we live in a globally connected world, where capital is internationally mobile. As an emerging market, South Africa needs foreign direct investment, particularly greenfield investments due to our incapability of creating sufficient jobs for our people.

Threat of capital flight

The decision to fire Gordhan poses serious threats of capital flight, as multinational companies and local firms re-evaluate their business operations in South Africa. Furthermore, and perhaps more concerning, is the inevitable risk it poses of an imminent credit ratings downgrade from other credit ratings agencies now that South Africa is globally viewed as a more politically risky environment since the removal of Gordhan as minister of finance.

The sudden decision by Standard & Poor’s to downgrade our foreign currency grade to sub-investment grade or “junk” status illustrates the gravity of the situation our country faces. This decision all but confirms looming downgrades from Fitch and Moody’s.

Getting downgraded by the global ratings agencies is possibly the worst thing that can happen to our country. All indications at this stage are that a credit downgrade is looming, and when this is confirmed in the next few months or even weeks the poor will pay the heaviest price.

The impact of a downgrade

The cost of capital will increase forcing firms to scale down their operations to remain afloat, interest on government debt financed in the international capital markets will rise, private individuals will pay more on their existing debt leaving them with less disposable income. Additionally, we may see several job cuts throughout the economy triggered by lower business confidence and economic activity.

The reality of the matter is that by firing Gordhan the government has shot itself in the foot. Due to the very nature of capitalism, foreign companies investing in South Africa don’t really care whether they create jobs in South Africa or contribute to the development of our country. Fundamentally, they only care about the bottom line: profits, expanding their operations, gaining market share and so on. Therefore, it would be foolish for the newly constituted Treasury to think that its flawed ideology on the economic system, under Gigaba will steer our economy on a path to sustainable economic growth.

Eerily sailing close to the wind

Currently South Africa has a growing budget deficit that is largely a consequence of the slow GDP growth we’ve experienced in recent years, a working age population that is largely excluded from the labour market and thereby restricting SARS’s ability to raise income tax collections from a wider tax pool. Currently South Africa’s debt to GDP ratio hovers around 50% and projections estimate that in the next 3-5 years will increase appreciably- in lieu of our GDP growth trajectory. We are eerily sailing close to the wind. We can ill afford a situation where we fall into the ‘debt trap’ - a perpetual cycle of debt where debt continues to grow at a faster pace than interest payments.

Radical economic transformation

Gigaba’s statement of exercising fiscal discipline and accelerating radical economic transformation is duplicitous. The reality of the matter is that Treasury can’t exercise fiscal discipline while expanding esoteric programmes targeted at ‘radical economic transformation’. Radical economic transformation is nothing more than a masqueraded state looting ideology that will benefit those connected to members of the ruling party. The new procurement bill will pave a way for obscene levels of corruption continuing in government procurement processes. Then there’s the matter of the controversial nuclear deal, which is back on table now that Gordhan no longer stands in the way. It will be interesting to see how the R1 trillion+ funding will be raised to finance the project.

The president has proven himself to be a reckless tyrant who is willing to do any and everything possible to further his own interests at the expense of the national interest. The time has come for all South Africans, from all walks of life to mobilise and ask themselves whether sacrificing the country at the hands of those who are intent on furthering their own ends is worth it in the long run for our country. Unfortunately, judging by the current path our country is following its future is far removed from the promises which were made when we became a democracy.

Pity our liberators will be long gone in the next few decades when the youth of this country pays the price for the failures of our current government - heaven help us.

*Dumile Sibindana is acting Senior Regional Analyst for Political Economy Southern Africa (PESA)      

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