Claude Baissac

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Is the Rainbow Nation Fraying?

Claude Baissac

August 2009

Published in The South African Property Developer, September 2009

The past few years have clouded the South African success story and brought questions over the

sustainability of the post-Apartheid dispensation. The pre-2007 discourse extolled the Rainbow Nation and

rejoiced at the ‘good news’. The fast growing economy pointed toward ever greater possibilities. South Africa

was leading an African Renaissance.

The Polokwane ‘surprise’, the electricity crisis, the race riots of May 2008, the sensational removal of Mbeki,

the Scorpions saga – to name but a few of the almost incessant attention grabbing headlines – shook the

country out of optimism. The first event, and the uncertain period following it, eliminated the sense that the

country had attained a sort of post-ideological golden age. Politics returned, with a vengeance. The rolling

blackouts dented production, turned daily commuting into chaos, and signalled that the country had been

racing forward on borrowed times. The Scorpions saga showed the extent to which politics had penetrated

and was predating on state institutions. The race riots profoundly hurt the idea of a generous, tolerant,

integrating, and progressive nation.

During 2008, the international community awoke to a South African reality much different from that of the

post-1994 clichés. Yet, these clichés had provided the country with a unique goodwill capital that

materialised in foreign direct and equity investment, advantageous lending and trading terms, and more.

Thankfully for South Africa, graver matters took the world’s attention. Soon, however, the global economic

crisis added to the country’s woes.

In 2009, the ruling party’s internal difficulties appeared to resolve themselves. Under Zuma’s leadership the

tripartite alliance seemed to consolidate, and convincingly won the national elections – though by a lower

majority than in 2005. The victory put an end to nearly one and a half year of ‘phoney presidency’, and

seemed to open a new era of stable politics and unified leadership.

Barely three months into the new presidency, the delivery protests, the endless rounds of strikes and

associated violence, the crisis at the top of the judiciary, and the continuing schizophrenic politico-ideological

speech coming out of the various corners of the tripartite alliance conspire to dispel the notion of unity. The

country’s political leadership remains deeply disunited. The policy consensus which should guide how the

country should be governed remains painfully absent.

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There is an inescapable sense that circa 2006-2007 South Africa entered a transition period, leaving behind

the consensus years of the post-apartheid dispensation – covering 1994 to about 2006. The evidence suggests

that the April elections may not have been a closing of the transition and the beginning of a new era. The post-

apartheid consensus is dying, but it is as yet unclear what will replace it. To a large extent, this is where the

future of South Africa is being played. The country’s fate will be determined by whether a new consensus

emerges, and what that consensus will be.

Claude Baissac

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The post-apartheid consensus was more than about party politics. From the negotiations emerged a

constitutional and political order designed to anchor South Africa in the social-democratic family: a liberal

democracy where centres of power counterbalance one another; a social capitalist system where the state

uses the budget to achieve greater equality and redress the distortions of the past; an open society where

political discourse and personal values are protected by a model Bill of Rights.

Between 1994 and 1997 slowly emerged the economic policy consensus that came to represent the Mbeki

first term, and the initial years of the second. This process was lengthy and difficult. Three models initially

contended: the Normative Economic Model (NEM) in the National Party; within the ANC, the Macroeconomic

Research Group Model (MERG) on the right and the Reconstruction and Development Programme (RDP) on

the left. After just two years of RDP, government turned to the Growth, Employment and Redistribution

programme (GEAR). This represented a rightward shift toward macroeconomic orthodoxy and high growth.

GEAR was able to deliver macroeconomic stability 5 years into its implementation, and the country’s longest

continuous growth. The 2004 winning of the bid to host the 2010 football World Cup seemed to validate the

route chosen. However, the strategy failed to address the ‘two economies’ phenomena.

Politically, the implementation of GEAR led to a rise in tension within the tripartite alliance, with partners

feeling sidelined and taken for granted as voting reservoirs. In spite of record growth and historically low

inflation and interest rates (see Figure 1), when in 2006 the Accelerated Shared Growth Initiative of South

Africa (ASGISA) strategy was launched, the political context had radically changed.

Fierce political rivalry,

corruption scandals, perceptions

of anti-democratic methods, and

growing grass-root unrest in the

face of delivery failures

conspired to bring the ‘Mbeki

regime’ down; first in December

2007 through the party

leadership elections, and then in

late 2008 through his ‘recall’

from the country presidency.

The then new party president,

Jacob Zuma, won at Polokwane

thanks to a groundswell of

support from the party’s left and

its partners.

In 2006-2007, the hard won

consensus eroded. From December 2007 onward, that consensus shattered under the cumulative weight of

internal events. It appeared that South Africa was taking several steps back: (i) unaided by the global

economy, its microeconomic performance tumbled and the convergence seen from 1998 (see the orange oval

in Fig. 2) was reversed.

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Figure 1: The Consensus Years in Macroeconomic Terms - a 25 Year

Perspective: Convergence

Inflation

GDP Growth

ZAR/USD

Prime Rate

Claude Baissac

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Foreign perceptions of South Africa –

damaged by the Mbeki government’s

stance on HIV/AIDS, Zimbabwe and

crime – turned more negative. Faith

in the country’s ability to successfully

host the World Cup eroded. Rumours

abounded in the country and

overseas that FIFA had a plan B,

perhaps in Australia. This was

symptomatic: faith in the African

Renaissance gave way to the old Afro

pessimism.

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Figure 3 interprets the country’

secular trajectory since 1983. It shows that it successfully transitioned from regime crisis (1983 to 1990) to

consensu

s

through

a

number

of stages:

first,

regime

change,

from

1991 to

1994,

based on

recogniti

on by all

parties

that no

consensu

s led to

civil war;

second, a

period of

search

for a consensus capable of achieving broad social goals. Consensus lasted approximately 10 years, and was

replaced by a period of doubt and crisis. During that period, political leadership was lacking, the country felt

rudderless, and economic performance declined.

Since the election of Zuma to the country’s presidency, South Africa has to some extent returned to a period

not dissimilar to that spanning 1995-1996: it is yet again in search of a new consensus. The sense of crisis of

the recent years has somewhat past. Yet there remains much uncertainty about what the future direction will

be.

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10

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09*

Figure 2: From Convergence to Crisis of Confidence

Inflation

GDP Growth

ZAR/USD

Prime Rate

Figure 3: Trajectory of South Africa Since 1983. Which Way Forward?

Consensus: 1996-2006

Doubt and Crisis:

2006-2009

Toward What

Future?

In search of consensus:

2009-?

Regime crisis:

1983-1990

Regime change:

1991-1994

In search of consensus: 1995-1996

Claude Baissac

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One of the key questions over the future is whether a new consensus can emerge. Such a consensus must

sufficiently unite the country’s key constituencies (political parties, unions, big and small business, civil

society, state institutions, and do on) so their energies and interests generate enough political, social and

economic capital to push the country forward.

A consensus of the sort is therefore more than the political project of the ruling party, even if that project has

been voted in power by the electorate. That alone is insufficient to generate the consensus required to move

South Africa to the kind of economic and political growth it needs to sustain itself.

There is evidence that the ‘Zuma regime’ recognises that. It has recognised some of the failures past, notably

as they relate to public sector performance and delivery. It is unclear as yet whether it can muster the capital

required to foster the emergence of a new consensus: the regime is constrained by hard political, institutional

and economic barriers:

The left of the alliance has played a pivotal role in the electoral victory, and has put much of its

energy into an election manifesto putting the state at the apex of change. It has clamoured for a turn

to the left, and a return to RDP. It has advocated the adoption of an industrial policy focused on job

creation and public investment, employment protection, trade barriers, and the abandonment of

macro-economic orthodoxy. It has significant clout, and is showing itself willing to use it, disruptively

and not.

There are many who also feel that the post-apartheid constitutional order represents an undue

limitation to a broader ‘revolutionary’ and ‘transformational’ agenda – the content of which

remaining unclear. This agenda is being expressed with renewed vigour.

The poorest sections of the population have reached the limit of their tolerance for institutional non

performance: (i) delivery failures; (ii) appalling public services in basic commodities like housing,

roads, electricity, water, health, education; and, (iii) continuing physical and economic insecurity.

The skilled elements of the population have become concerned by the same issues and by the

prospects of fundamental policy changes in key areas such as health care and education. There is

evidence that they continue voting with their feet, at tremendous cost to the economy.

Institutional capacity has become a critical barrier. The machinery of the state has reached its

functional limits, debilitated by a large number of factors, including: (i) too rapid a transformation,

loss of skills; (ii) juniorisation; (iii) outmoded human resources and management practices; (iv)

politicisation; and, (v) rampant corruption. Key bureaucracies and public services are in crisis,

unable to fulfil their missions. Local governments in a large swath of the country are in disarray or

have literally ceased to function.

The economy has been badly affected by the double shocks of domestic uncertain and global financial

and economic recession. It has slowed from its 2006 peak of 5.4 percent. Its 2008 slowdown was in

large part due to domestic factors, growing by only 3.1 percent, and seeing inflation jumping to over

11 percent. In 2009, it is projected to recede by 2.2 percent. This is the first recession since 1992.

With this come stressed public finances, only buttressed by the previous orthodoxy so decried by the

left: tax collection is down, demands are greater, cost of foreign borrowing is higher than in the past.

Business has become weary of the above factors and the hard push away from the orthodoxy which is

credited with the economic performance of the years circa 1999-2006. The electricity crisis, the race

riots, the current spate of delivery riots, and the militant unions have all added up.

How these constraints and critical stakeholders are incorporated into a consensus remains to be seen. The

ruling party is a very broad church, but one dogged by a problematic paradox: despite having been in power

for 15 years it still does not have a fundamental economic development paradigm. It remains divided over

Claude Baissac

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which socioeconomic road to follow, and the balance of power between the left and the right keeps on tilting.

Contrast this with countries like Botswana and Mauritius, Brazil and Malaysia, where the economic direction

has long been established and is unaffected by government changes.

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South Africa is at the crossroads again. It urgently needs to find a new ‘social pact’ that will mobilise the

country’s constituencies toward progress. If no consensus emerges, the country will remain dogged by

uncertainty, policy instability, and will experience secular decline.

There are three broad scenarios ahead:

Scenario 1 – The Paradoxical State: Convergence/Divergence

South Africa uncomfortably straddles the divide between its points of tension without ever managing to

effectively resolve them. Politically, the ruling party remains in power for many more years, but the uneasy

relationship between the alliance partners continues. Core policy remains to the most unaffected, with

variations around the theme of growth and redistribution. A pragmatic balance is maintained, but not one

which allows the state to break the stalemate. Growth, inflation, interest rates and exchange rates remain

volatile. The dual economy remains, with high unemployment and a growing informal sector living side by

side with a performing formal economy. The black middle class continues its rise, in part through the BEE

process. Skills shortages remain a significant constraint and plague the public sector. Crime remains high.

Whites and skilled people continue leaving, further depleting the productive sector of resources. HIV-AIDS

remain high. Civil society remains buoyant, playing a growing role in filling the delivery gap and keeping

government in check. The independence of the judiciary and the press remain contested ground, but both

these institutions and civil society manage to maintain their independence. The role of the state in the

provision of infrastructure remains central, and performance failures occur, leading to crisis and more or less

effective resolution.

Scenario 2 – The Weak State: Divergence

South Africa losses momentum, largely as a result of a combination of poor policy choices, bad

implementation and infrastructure collapses. Corruption rises, crime increases, and xenophobic and ethnic

tensions become part of the landscape, with regular and explosive flare ups. Economic policy becomes an

instrument of an increasingly weak populist regime. Demands for delivery, including jobs and land reform,

are headed though fiscally and economically counterproductive measures. In parallel to that, income

inequality increases further, with the government and related elites becoming predatory. Institutions of the

state and society are undermined and weakened by the executive. Parliament serves no useful purpose

beyond that of rewarding party faithful with cosy positions in a patronage system that extends throughout

society. The judiciary loses its independence and is increasingly corrupt. Law enforcement collapses and

police violence becomes institutionalised. The press is under constant pressure to toe the line. Its

independence and quality fall. De facto privatisation of key aspects of the economy takes place to provide

basic services to core economic sectors: toll roads, power generation, health care for labour, basic education,

etc. Transaction costs increase to the point that entire sectors of the economy cannot continue operating. The

more these are under pressure, the more the regime presses them, directly through taxation and policy and

indirectly through political pressures, progressively breaking the back of the tradable economy. The economy

experiences slow or negative growth, unemployment becomes an explosive issue.

Scenario 3 – The Developmental State: Convergence

Claude Baissac

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Government managed to unify key social stakeholders to define a new consensus around strongly

developmental objectives, enlisting the support of business and labour toward some sort of social and

economic pact for growth and poverty reduction. The developmental state turns South Africa into an export-

oriented economy, with a strong drive toward export competitiveness. Real productivity of labour is

improved significantly through better education, skills development and industrial vocational training. The

private sector is incentivised to invest in productive manufacturing activities, infrastructure and long term

growth. The state retains control of those functions which only it can fulfil, and develops effective PPP in

others. In the social sector, real improvements are registered in the fight against HIV-AIDS, and public health

care is restructured and managed effectively.

Probability

We rank Scenario 1 as most likely. Scenario 2 is the scenario to avoid. Scenario 3 is the most desirable, but

cannot be achieved in the short term due to structural political, administrative and economic constraints..