With another two years to run, the political partnership between President Thabo Mbeki and Finance Minister Trevor Manuel ranks as one of Africa’s most successful combinations, providing the very model of a cordial and effective modus vivendi. Such is its importance that the partnership’s ending in 2009 will fundamentally change South African politics.
Although one of the most popular members of the African National Congress (ANC) national executive – no mean feat given his determination to stick with orthodox economic policies – Manuel’s name is rarely mentioned as a frontrunner to succeed Mbeki, who is due to retire in 2009. But such is Manuel’s contribution to economic policy that many would back his inclusion on the ticket as deputy president.
Much will depend on the internecine ideological battles being fought out within the ANC’s affiliated trades unions and its continuing relations with the South African Communist Party: these influential groups make up post-apartheid South Africa’s “tri-partite alliance” – but have been the Mbeki/Manuel economic strategy’s most vocal critics.
An early testing ground for the ANC elite will be elections for party president and senior leadership in December. With Mbeki’s exit from the Presidency likely to coincide with mounting pressure on economic policy, populist politicians are queuing up to claim they can do better at spreading prosperity around the country.
Major constituents of the ANC tend to use language that leaves many investors uneasy, but which reflects grassroots demands for more radical socio-economic change. According to the Congress of South African Trade Unions’ (Cosatu) general secretary Zwelinzima Vavi, Cosatu is seeking an “active role to influence policies and leadership”. Vavi says Cosatu remains “very uneasy” about Manuel’s economic policies, arguing: “If we say that the working class is the primary motive force of the revolution, then we must allow it to lead that revolution.”
Talk of an ANC leadership election that focuses on the ruling party’s character as a “progressive, working-class biased, multi-class liberation movement that unites all our people”, to use Vavi’s formula, inevitably turns to the party’s deputy president Jacob Zuma. Mbeki’s former vice president has established himself as a totem of the left; having emerged from a high-profile rape trial, Zuma stands ready to return to formal political life.
Claim and counter-claim are already flying around. Mainstream ANC leaders are complaining that in some parts of Zuma’s KwaZulu-Natal stronghold even President Mbeki is not free to campaign due to intimidation. Mbeki has yet to confirm whether he’ll stand for a third term as party president.
For his supporters, Zuma is, as Vavi puts it, someone who “relates to us”. This is not a view widely shared in Johannesburg’s ever-growing Sandton financial district, which is looking for another business-friendly leader. “We understand you need social justice, but you need business to thrive too to make that happen,” a Sandton banker observes: “That’s what Trevor [Manuel], basically, has delivered – shame he’s not standing when Thabo [Mbeki] goes.”
Supporting orthodoxy
In an interview with Emerging Markets, Manuel defended the social benefits of an orthodox economic policy. “Macroeconomic policy is always just macroeconomic policy,” but sound finances can underwrite greater social justice, not least by mobilizing fiscal policy, he says. Thus “we have raised the tax threshold to R43,000, or $6,000 a year, [and] that change has been very considerable, so that working families can benefit more.”
Programmes have been funded so that “now the poorest quintile of South Africans can have free education”. A just but realistic policy “is about free basic services in water, sanitation, etc; it’s about access to healthcare – a range of things that improves the quality of life for people... 11.5 million South Africans – almost one in four – now benefit from the social security system.”
There are limits to this. Manuel comments that: “You can try and stretch the boundaries, but fiscal policies are always going to be constrained.” Inequality is a critical feature of all emerging markets, Manuel argued. Overcoming this requires society agreeing “to expand economic opportunities, to bring more people into credit, and try and shift people into micro-enterprising and small and medium enterprises.”
Mixed scorecard
Making these policies work creates a dynamic that “tends to be outside what we can measure,” Manuel observes.
Indeed, many South Africans believe the achievements of the Mbeki/Manuel era should be subjected to a few critical tests: how many jobs and houses have they produced, how good are the schools and clinics, and how secure do most people feel some 13 years after those first, glorious democratic elections?
On almost all these measures, South Africa outshines regional peers such as Nigeria, Algeria and Egypt. But more relevant comparisons are drawn with fast-growing East Asian or reforming Latin American countries – not least by Manuel himself – and there, South Africa fares badly. As Mbeki said recently, South Africa remains far from emulating the growth paths of China and India, or even Brazil.
Outwardly South Africa’s economy is a success story. Manuel reports sustainable annual GDP growth of 4.5-5%. This is the highest level for more than 25 years, with inflation at around 5% a year, the lowest for over two decades. “We need to maintain that trend-line in the first instance, but more importantly we need to accelerate it to a higher level,” the minister says.
De-racializing the post-apartheid economy and the rapid growth of the black middle class, together with a slow but significant development of new SMEs, are driving some of this growth. But much of the growth is consumption-led, driven by a domestic credit boom. Critics say the band of beneficiaries remains too narrow.
Jobs for all the boys and girls
When the ANC took over in 1994, a common view was that the post-apartheid order would
fail. The ANC government proved these sceptics wrong.
Today, the big battles are over wealth creation and distribution; about a million new jobs have been created over the past three years, according to Manuel, with job creation growing at 5-6% a year – and it is being boosted further by massive infrastructure investments ahead of the 2010 football World Cup. Tens of thousands of South Africans are already at work on stadia and mega-projects like the Gautrain high-speed rail link between Johannesburg’s airport and northern suburbs.
But the harsh reality is that even stronger growth rates aren’t enough to reduce structural unemployment substantially (depending on the measure, between 20-40% of South Africans are jobless) and the appalling social inequities.
Dani Rodrik, a Harvard economist who advises the government, argues that the poorly performing non-mining export sector has been holding the economy back. He compares it unfavourably with Malaysia: two decades ago, the share of manufactured exports in Malaysia’s and South Africa’s economies was level-pegging at around 6-7%, but by 2004 it was 80% in Malaysia and about 12% for South Africa; manufacturing jobs in Malaysia have grown rapidly while they have steadily declined in South Africa.
Rodrik and other economists argue that the economy must become more competitive. Meanwhile, the bulk of the now substantial foreign inflows into South Africa are portfolio investments. The Johannesburg Stock Exchange’s capitalization grew from R3.5 trillion to just over R5 trillion in 2006, when foreigners invested some R140 billion overall, mostly in equities.
The fear is now that, with a looming downturn in many commodity prices, including some of South Africa’s export metals, those flows could stop or reverse. And the manufacturing sector’s relative weakness adds to South Africa’s dependency on world commodity prices; just over half export sales are derived from mineral exports, although mining accounts for just
10% of GDP.
Manuel and Mbeki explain the trade deficit as an inevitable result of retooling local industry, and the pressing need for major infrastructure investment, underlined by some alarming power cuts in major conurbations around Cape Town and Johannesburg.
The Mbeki/Manuel project is still focusing on the big picture: fixing the infrastructure and reindustrializing the economy, as well as keeping the macroeconomy stable. But the social equity issues are growing in significance and will be centre stage in the battle to succeed Mbeki in 2009. Traditionally, ANC leaders emerge from the party, rather than openly campaign to gain the job. Politicians outlining policy programmes to deliver more for the poor may hope to ride a wave of popular – and ANC-caucus – support, with all eyes turning to the biggest prize.