An interesting headline appeared in the news the other day: ‘SA seeking IMF aid crosses a red line for the ANC’. A remarkable set of words. Probably an accurate one, too.
That the African National Congress – a ‘disciplined force of the left’ and arch-opponent of ‘imperialism’ – should now be approaching an institution that embodies so much of what it despises is something to take note of.
To do so has long been seen as an act of capitulation, perhaps the ultimate one.
Matthew Parks, parliamentary officer for the ANC’s allied union federation, the Congress of South African Trade Unions, commented: ‘One of the things the ANC had in its DNA, you don’t want to go to the IMF, you will undermine your sovereignty.’
‘The president pleaded with us,’ he added. ‘We accepted it, given the extraordinary challenges.’
A red line crossed, metaphorically at least, in more ways than one.
But there is also an air of inevitability about this. The ANC and the government it leads is facing a collapsing fiscal position, and this was so before the Covid-19 pandemic made landfall. The Budget Review, published in February, speaks for itself: ‘Debt and debt-service costs will continue to rise over the medium term. Gross loan debt is estimated to increase from R3.18 trillion (61.6 per cent of GDP) in 2019/20 to R4.38 trillion (71.6 per cent of GDP) in 2022/23. Net loan debt is estimated to increase from R2.94 trillion (57 per cent of GDP) in 2019/20 to R4.15 trillion (67.8 per cent of GDP) in 2022/23. Contingent liabilities – mainly guarantees to state-owned companies – are projected to reach R979.9 billion on 31 March 2020.’
Closer to a debt trap
This pushes the country ever closer to a debt trap: South Africa being in a position where payments on its escalating debt come to occupy an ever-increasing and increasingly unaffordable portion of spending. Those with long memories might recall that avoiding this situation was a major priority in the 1990s; indeed, it was argued that there was something wrong with spending more on servicing debt than providing housing or healthcare.
Now there is the battering from the pandemic. South Africa’s fiscal position for the foreseeable future will look truly dire. The infusion of funds from the IMF – at the concessional terms being offered in the face of the pandemic – provides some respite, but will not be decisive in the greater scheme of things. More will be needed going forward. And more than just loans.
South Africa’s problem is not a decontextualized ‘lack of resources’. It is a dual failure to get economic growth up to at least comparable emerging market norms – and thus to create wealth from which revenue can be drawn – and to keep its spending under control.
These are in turn, very significantly functions of policy and management. Tantalisingly within the power of government to control, the choices that have in fact been made have constituted a significant burden and hindrance to South Africa’s economic prospects.
Let it not be forgotten that, according to Stats SA, South Africa achieved positive growth in only three of the eight quarters between the beginning of 2018 and the end of 2019. A key reason for this was that South Africa willfully squandered the opportunity presented by the end of Jacob Zuma’s tenure and (possibly) the pathologies that were so closely associated with it.
Degradation of property rights
Foremost here was that President Cyril Ramaphosa’s government wasted no time in making the degradation of property rights its flagship priority: Expropriation without Compensation (EWC). It’s hard to think of another issue to which it devoted an equivalent amount of political capital.
And since there is little as dissuasive to investors – local and foreign – as a threat to the security of their assets, this had a chilling impact on their willingness to sink money into South Africa. Economist Azar Jammine put it well in an interview with the Financial Mail last year: ‘without a doubt’, this was the chief reason the country did not see a ‘Ramaphoria dividend’.
President Ramaphosa’s investment envoys would also be confronted with these concerns, and seemed at something of a loss as to what to say.
We at the Institute of Race Relations heard time and again from businesspeople that EWC placed a major damper on any plans they might have. It made the country ‘uninvestable’.
Expanding fiscal hole
And that is why, as South Africa seeks credit to plug its expanding fiscal hole, EWC has to be taken off the table as a policy option. The IRR is campaigning for this to be a part of a loan agreement, in the interests of South Africa’s future and of finding a solution to our current malaise. As long as EWC remains, investment and growth will be compromised.
Indeed, under these conditions, loans that might have a short-term palliative impact might ultimately prove to be a poisoned chalice, as they add a further repayment burden (denominated in dollars?) that a flatlined economy will not be able to bear. South Africa is already perilously close to this future, and cannot afford to continue heading towards it.
Dispensing with EWC – a policy that offers nothing to address the challenges of land reform, but has already imposed steep costs on South Africa’s battered economy – would signal that the country is serious about going for the growth it so desperately needs.
Seen from this angle, it is the country and not just the ANC that is facing a red line. It must be crossed with due regard for reality and a recognition of the missteps that has brought it to this point.