Austerity gathers pace in volatile South Africa

Friday, April 15, 2016

A wedge is being quickly driven through Pretoria's political elite. Among the victims of this power struggle are vast numbers of poor people.

The poor are starting to bear the brunt of the diverse shakeouts in the ongoing confrontation now underway between the country's two most powerful 21st century politicians: President Jacob Zuma and his predecessor Thabo Mbeki.

That battle began in 2005, when Mbeki sacked then-deputy president Zuma following a corruption conviction against a long-time Zuma associate.

The revival of their duel comes at a very tense time in South Africa. Student, worker and community protests intensified last month.

Repeated currency crashes left a 30% decline in value over the past year, prompting the country's financiers and upper-middle class commentariat to universally applaud finance minister Pravin Gordhan for maintaining low-grade austerity.

Splits in ruling party

Gordhan has himself been under growing political threat. His parliamentary budget speech preparations were interrupted by allegations he once set up a “rogue unit” to spy on Zuma during the time he ran the tax agency.

The ruling ANC party appears split down the middle with durable loyalty to Zuma balanced against fear that Gordhan's misfortunes will reverberate chaotically across the sickly economy.

To make matters even muddier, Zuma — formerly head of the ANC spy unit during the liberation struggle when Gordhan was amongst his most loyal cohort in Durban — was defended in court recently against allegations from his allied spies within state security. In April 2009, just before being elected president, Zuma faced potential charges for 783 counts of corruption.

However, his spooks foiled the prosecution by releasing transcripts of tapped phone calls between Mbeki's main crime investigator, Leonard McCarthy, and Bulelani Ngcuka, who was a former prosecutor and the husband of Mbeki's then Deputy President.

Though it is unclear how much Mbeki knew and endorsed, the two apparently arranged the timing of earlier attacks on Zuma to coincide with Mbeki's ambition to serve a third term as ANC leader in late 2007.

Mbeki's failure to win support for that bid (Zuma replaced him in a decisive election) led to Mbeki's sacking as state president by September 2008, nine months before his term was due to end.

The main conspirator, McCarthy, was quickly moved in 2008 — without any apparent due diligence investigation at the time — from Pretoria to Washington, to become World Bank Integrity Vice President with the assistance of Mbeki ally, finance minister Trevor Manuel.

Meanwhile in South Africa, corruption was spreading like wildfire. In one futile effort to douse an obvious source (illegal cigarette smuggling), local tax authorities ran foul of Zuma's spies as well as his son Edward in 2011. Those investigations apparently generated the recent attack on Gordhan, who was the chief tax commissioner before becoming finance minister in 2009.

The unprecedented contagion of what Zuma called “gossip and rumour” around his inner circle threatens the internal stability of the Pretoria regime. The loyalty of many key individuals is being tested.

Indeed, the ANC's volatility was amplified two weeks before Gordhan's budget speech. Before delivering his February 11 State of the Nation Address, Zuma himself finally agreed to repay some of the US$16 million in state subsidies that were spent on upgrading Nkandla, his rural palace.

This about-turn occurred after Zuma compelled ANC parliamentarians to support him when he refused to pay back the money, as opposition politicians long demanded.

Creditor-pushed austerity

South Africa's economic ship has continued to list dangerously as world financial markets roiled the currency and ever-worsening GDP statistics fuelled capital flight.

In spite of bending over backward to meet financial markets' demands for a lower budget deficit, Gordhan was pummelled by an immediate 3.2% currency collapse in the minutes after speaking to parliament.

Yet he had done what the financiers demanded: increased the austerity began a year earlier by the then-finance minister Nhlanhla Nene, who was sacked in a farcical musical chairs operation in December that led to Gordhan's return.

Gordhan was once a leftist, but his new budget provides just a 3.5% nominal raise for foster care providers (who play such a vital role given the catastrophic AIDS orphan rate) and a 6.1% raise for mothers who are Child Support Grant recipients.

These poor families face double-digit inflation this year thanks to food, electricity and transport hikes. Gordhan's “real” (after-inflation) cuts to welfare grants will lower the incomes of 16.5 million recipients, out of a population of 55 million.

They will struggle to find more holes in their frayed belts to tighten up, given that 63% of South Africans — mostly women — already live below the poverty line.

Worse is to come. South Africa's foreign debt has doubled to $145 billion since 2009. As a result of that worsening vulnerability, the men who really yank Gordhan's chain work for Standard & Poors, Fitch and Moodys credit rating agencies, and financiers such as New York-based Goldman Sachs.

Goldman Sachs helped raid the South African currency on January 11, sending it down 9% to R17.99/$ in just 13 minutes of flash-crash speculation.

The dire financial situation is far more complicated than mere ill-will. In 2009, after International Monetary Fund managing director Dominique Strauss-Kahn advocated deficit spending to save world capitalism from implosion, Moody's actually upgraded Gordhan after his soaring 7.3% deficit/GDP rise that year. The agency also raised South Africa's credit rating from BBB+ to A-. With similar wild abandon, Moody's also rated Lehman Brothers as 'investment grade' just days before it crashed.

Gordhan's budget included a substantial $40 million rise in funds for the notorious Public Order Policing (POP) unit instead of defunding the POP and replacing it with skilled peace-broking units.

On the other hand, Gordhan slashed $500 million in overall spending on defence, public order and safety services from the 2018 spending projections made by his predecessor.

But it was when Gordhan bragged of the state's most active spending that leaders of the residential community in Durban's seaside Bluff neighourhood grew furious. For me, the highlight of Budget Day was reviewing the carnage with the South Durban Community Environmental Alliance in a long strategy session two hours after Gordhan finished speaking.

In the basement of a shabby community hall that Gordhan himself once frequented when he was a Durban activist, two dozen hardened activists of all races, classes, genders and ages mulled over his generosity toward the parastatal corporation Transnet and other behemoths within the local port-petrochemical complex — the activists' sworn enemies.

Gordhan would not be the first politician accused of pandering to the construction mafia. But outrage is being fuelled by Transnet's racist rerouting of the oft-exploding pipeline that doubles petrol-pumping capacity to Johannesburg from the Engen and Shell/BP plants at Africa's largest refining complex, sandwiching the Indian suburb of Merebank.

The Settlers Primary School in Merebank has an asthma rate that was recently measured as the world's highest at 53%. A recent cost estimate revision, originally priced by Transnet at around $400 million, is now nearly $2 billion.

Gordhan announced another $19 billion in state spending on “inter-modal transport and logistics networks [to] improve South Africa's competitiveness”, but vast shares of those spoils are going to Zuma's white elephant breeding project: useless fossil fuel-centric infrastructure.

In South Durban, we worry that the Baltic Dry Index — which measures shipping capacity — is now at its lowest in history. And with demand having crashed, fossil fuel prices have also hit the floor, casting a dark spell over Gordhan's brag that “work has begun on a new gas terminal and oil and ship repair facilities at Durban”.

Ironically perhaps, this sentence came just three lines after Gordhan praised the Paris UN Summit's (highly dubious) commitment to fighting climate change.

Worst of all, Gordhan violated both climate and economic commonsense by bragging about Transnet's financing of the top priority Presidential Infrastructure Coordinating Commission project: the rail-to-ship transfer of 18 billion tonnes of coal in coming decades dragged over mountains by new heavy-duty railroads.

The Waterburg-Richards Bay rail line — costing upwards of $20 billion — may have looked profitable in 2008 with coal at $170 a tonne, but now the price is $50 a tonne. Yet the project trundles on, fertilising the northern areas of the country — including an area not far from Nkandla — with white elephant manure.

Amid rumours of a two-year Dig Out Port delay last December, Durban Chamber of Commerce and Industry president Zeph Ndlovu insisted on adding this biggest single elephant to the herd: “We have to press ahead, and if we are to unseat our competitors up north, we can't win this battle if we pull back every now and then and look at accounting principles.”

Coming implosion?

Whether Gordhan goes ahead with cutting the state payroll by tens of thousands of public servants (as he promised the ratings agencies), or continues his nudge-nudge-wink-wink toward corporations' $20 billion in annual Illicit Financial Flows, it is in his coddling of accounting-challenged Durban cronies and the crack-down on welfare grant recipients that Gordhan has most decisively intervened in South Africa's growing class struggle.

The tearing of the social fabric by one faction of the ruling party, with the backing of the country's core capitalist interests and cheerleaders, makes the overall split between Gordhan's technocrats and Zuma's populists all the less appealing. Some might be tempted to hope that both factions succeed — in ripping each other's power bases to shreds.

[Abridged from Socialist Project. Patrick Bond is Director of the University of KwaZulu-Natal Centre for Civil Society and a professor of political economy at the University of the Witwatersrand.]

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