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.

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Terence Corrigan
Terence Corrigan is the Project Manager at the Institute, where he specialises in work on property rights, as well as land and mining policy. A native of KwaZulu-Natal, he is a graduate of the University of KwaZulu-Natal (Pietermaritzburg). He has held various positions at the IRR, South African Institute of International Affairs, SBP (formerly the Small Business Project) and the Gauteng Legislature – as well as having taught English in Taiwan. He is a regular commentator in the South African media and his interests include African governance, land and agrarian issues, political culture and political thought, corporate governance, enterprise and business policy.

7 COMMENTS

  1. The ongoing adherence of the ANC to bankrupt ideological principles such as EWC, RET and the NDR in the face of concomitantly and obviously negative outcomes for all South Africans is quite unbelievable. Foreign investors must wonder if there’s something in our water that compels the government to act in such irrational ways for so long.

  2. Whenever was logic and reason part of socialist and racial thinking? When did ideologues carry out policies and actions that destroyed their countries?

    Always and everywhere.

    Why is there a direct link between private property rights and a growing economy?

    Because it works

  3. The old African problem …. prosperous countries are handed to the liberation movements on a plate …. and what do they do ??? Within a few years every possible SOE is propped full of useless cadres, and the wholesale plunder ensues. Not for their “previously downtrodden” people …. but for their own greedy ends. Law and order is rigged to crumble too, to be tied into 1000’s of investigations of corruption and theft.
    Then when things are starting to implode, out comes the African begging hand, will those well versed sad eyes, “please sir, please help me, please lend me some money”. And the stupid West, riddled with guilt due to its hard earned wealth “lends” Africa more money …. for it to steal. And what about repayment and interest ? Are you joking ?? That won’t happen, as the money is stolen.
    Wake up West …. you don’t have to feel guilty … you have earned your wealth. Africa has to be taught the hard way to earn its wealth … or to starve.

  4. It’s a sad story that Western powers applied sanctions to sub-Saharan countries into submission to the “liberation movements” under the disguise of “Self Determination” . What was the logic behind that ? Except if there are a few fat cats who could benefit from it . Africa could have been a very wealthy continent bursting with opportunities for investment. A food basket for a starving world. But now is a basket case. This has a direct impact on the state of SOEs in South Africa; another country run down by unworkable Socialism . Regarding the nuclear power solution : I am not in favour of it a) what will the cost be ? b) What type of Nuclear powerstation ? One that is sanctioned by the International Atomic Council or is it to be built by Russia ; a similar one as Chernobyl (which was unsafe and unlicensed ?) c) What about the waste ?
    d) How will it be decommissioned ?
    e) Who will be doing the Environmental Impact Assessment ? Will it be an objective assessment ?

  5. Excellent exposition, Terence. Unfortunately it seems to me that too many people seems to think that EWC is merely an economic inconvenience that will be rectified quickly once sanity prevails. It’s not – it is the highway to zimbabwification of the economy. The effect will not be a mere reduction in economic growth and wealth, it will inevitably be the ruination of the country and the people.

  6. I just read in an article by a News24 writer, that despite an increase in mealie crops countrywide, the area under cultivation in the Free State has DECREASED. This makes me wonder if the threat of EWC isn’t already showing in the reluctance of some farmers to invest effort and money into growing more crops than ‘necessary’ to keep living – i.e. large scale ‘subsistence’ farming!

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