Jackrabbit at the gates

Frans Cronje | Jun 09, 2019
When ideology crashes into economics, the economics always wins and the ANC will soon find that they have nowhere to run and nowhere to hide.

I feel like a jackrabbit caught outside in a Texas hailstorm. I cannot hide. I cannot run. And I cannot make it stop. This was Lyndon Johnson’s lament as he realised the inevitability of further American entanglement in the Vietnam conflict and the likely consequences thereof. 

Senior officials of the African National Congress (ANC) and the government it leads are about to learn how he felt. To use an Americanism, the ANC has managed to assemble all the ingredients of a social, economic, and political shitstorm. The first drops of the coming deluge came in the economic growth data released this week, which showed that the economy had contracted by 3.2% in the first quarter of the year. Hours later, the ANC announced that it was open to printing money in order to relieve economic pressures and especially those faced by state-owned entities. 

The finance minister and the head of the ANC’s economic policy committee denied that such a decision had been taken. The communist party, which now commands much of the Cabinet, then released a comment that contradicted them. Sources with knowledge of the events, however, confirmed to the Daily Friend that the National Executive Committee (NEC) of the ANC had resolved to investigate what it called a policy of ‘quantity easing’ (although one source said that most delegates would have little idea what this was – but that as loyal cadres it was not their job to know or to care). 

In any event, the finance minister himself is thought to be most reluctant about his job – he arrived late for his parliamentary swearing in last week, and is unlikely to complete his term – while his recently appointed deputy is the Marx-quoting former leader of the Young Communist League whose bizarre economic views have sent ripples of disquiet through financial markets. 

Should he succeed the minister, then the communist party will have complete control of South Africa’s economic policy. The head of the ANC’s economic policy committee is also set to step down and, while he has held sound views on many issues, he has also supported some very dangerous ideas, such as a move towards prescribed assets. Amidst all of this, the governor of the central bank was reported to have said ‘the barbarians are at the gates’ with regard to monetary policy, while rumours circulate that his respected deputy is also set to step down. 

Cyril Ramaphosa then released a statement in his ANC capacity saying: ‘It is our desire for the SA Reserve Bank to be publicly owned. However, we realise that this will come at a cost, which given our current and fiscal situation is simply not prudent.’  

Blinded by sycophantism, the mainstream analyst community interpreted this as Mr Ramaphosa ‘putting his foot down’ on Reserve Bank independence when he in fact said the opposite; that his party wants to nationalise the bank but the timing is important. 

Stack the dominoes up one behind the other and the likelihood is that the balance of power in the ruling party and the government is set to press ahead with the leftist drift of policy – inspired by its continuing pursuit of National Democratic Revolution (NDR) – and that what we are seeing on the central bank front is simply a facet of that ideology at work. It is now more important than ever to understand that ideology and its implications.  

An essential start is to read the book People’s War by my colleague Anthea Jeffery, which we launched at events in Johannesburg and Pretoria last week – and will do so in Cape Town on 13 June. (Find the book at Exclusive Books or buy it direct from us at a discounted rate if you are a Friend of the IRR). 

Briefly: the ideology of NDR holds that the State must dispossess the better off and direct all economic activity whilst leading the country towards socialism, failing which the downtrodden and the unemployed can never be liberated from poverty. It is an ideology that plays out daily in race-based empowerment edicts, proposed expropriation policy, the threat of prescribed assets, further tax hikes, stricter labour laws, undermining the rights of communities to control their own schools and security, and threats to freedom of speech and to the Constitutional order. Now add the erosion of central bank independence to that list.  

As a consequence, the economy will slowly slide towards recession and the government will run out of money, at which point it will face four choices. The first is to steal the money it needs via prescribed assets and the expropriation of wealth and property, which will trigger a spectacular economic implosion. The second is to manufacture the money via printing it – as is under consideration by the NEC – which will trigger massive inflation and a currency collapse. The third is to borrow the money it needs either from Russia, China or the International Monetary Fund, and, in each case, surrender a measure of policy sovereignty to the financier. The fourth is to abandon its destructive NDR ideology in order to make possible the structural reforms needed to grow the economy.  

But the assembled leadership of the party and the government seems quite incapable of this type of reformist thinking – and the last pragmatists are leaving the ship while Mr Ramaphosa dithers. 

But when ideology crashes into economics, the economics always wins and the ANC will soon find that they have nowhere to run and nowhere to hide as growth tanks, the job market stagnates further, living standards sink, and the exchange rate runs away. 

If South Africa is fortunate, the pain and suffering will be short lived and culminate in the electoral defeat of the ANC in 2024. 

 

Frans Cronje is CEO of the IRR.

 

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