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The reshuffle, “junk status” and South Africa in crisis

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The reshuffle, “junk status” and South Africa in crisis

Photo by Ivor Markman
Professor Raymond Suttner

5th April 2017

By: Raymond Suttner

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The word may be over-used but there is little doubt that South Africa is in the middle of a significant crisis, which has engulfed the country’s democratic system, its economy and the ruling party.  This has been precipitated by actions of President Jacob Zuma, although we should not see the recent firing of ministers and the subsequent declaration of “junk status” by the Standard & Poor’s (S&P) ratings agency as the onset of the crisis.  It has been ongoing and deepening over some years.  How do we understand the condition of the country, why do we speak of a crisis and what is the way out of this?

Historical context behind cabinet appointments in a fragile economy

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While South Africa’s democratic advance of 1994 and its progressive constitution have won widespread admiration, the new democracy has always been vulnerable.  It entered an environment that was inhospitable from an economic point of view.  It also faced dangers within, with doubts about the loyalty of security personnel and civil servants from the apartheid era.  Some of these doubts proved to be well founded and led to dismissal of some senior security officials.

It inherited a huge debt from the apartheid regime and had to find a way out of the junk status it was bequeathed so that any further borrowing would not necessitate paying a premium.  Even though the “new South Africa” attracted many admirers it entered a world that was unfavourably disposed to the transformatory policies that the ANC had advanced in the 1980s and in many of its policy discussions prior to the 1994 elections. 

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It entered what was becoming a unipolar world with the gradual collapse of the former Communist-led states on which the ANC had counted for much of its support.  This was a globalised world where hard-nosed investors were not swayed by emotions and the charisma of Nelson Mandela. They wanted to be sure that their monies were safely invested and that they would see returns, whether or not the investment made a material difference to the country in which they placed their funds.

It was especially hard to secure fixed long term investment, with much of what was attracted being “hot money” looking for quick results and high returns and prone to retreat and move quickly to greener pastures in the event of the outlook in a country proving risky.

In this context the new ANC government managed the economy with caution and observed a relatively conservative macroeconomic policy. This caution was manifested also in the first two Finance Ministers: the first and second, Derek Keys and then Chris Liebenberg, being chosen from outside the ANC, and with Trevor Manuel becoming the first black and ANC Minister of Finance only two years later in 1996.  But this approach was primarily intended to signal to the world that the economy was being managed in a responsible manner, with stipulated procedures being observed, reducing risks through maintaining stability. The level of debt and rate of inflation received constant attention. The idea of incurring debt in order to fund investment and especially job creating projects was more limited than had been envisaged by the economists that had earlier formed a significant force within the ANC’s team of advisers.

The Growth Economic and Redistribution macroeconomic policy (GEAR), introduced in 1996 signified a particularly controversial manifestation of the caution that characterised ANC macroeconomic policy and led to much contestation between the ANC and its allies, and within the ANC itself. 

Contestation over macroeconomic and developmental policies vs safeguarding the fiscus

While the controversies around GEAR were heated no one questioned the duty of the Treasury to safeguard the resources of the country, to monitor that spending was regularised, that procurement followed procedures that ensured that the state’s monies were not wasted and it was not defrauded. In short, in the period prior to the elevation of Zuma to the presidency in 2009 there was no disagreement about the duties of the Treasury, although there was much contention about the macroeconomic policies pursued. One of the prime goals of those who ousted Thabo Mbeki in Polokwane in 2007 was said to be to reverse the “class project of 1996” (i.e. GEAR). In practice, the macroeconomic policies pursued in the Zuma period have not been markedly different from that of the Mbeki period.  The Finance Ministers continued to ensure that regularised procedures for disbursing and accounting for funds were followed.

What has been different, in more recent years, is that there has been widespread irregularity, looting of state funds and plans for more substantial pillaging of the resources of the country. The Treasury has stood as a barrier against this. It has blocked deals affecting nuclear energy, as well as questioning ones in SAA, Eskom, Denel and a range of state departments and state owned entities (SOEs).

SOEs have been seen as engines for developing and transforming the South African economy in order to improve the lot of the poor. But for a contract with an SOE to translate into a developmental process requires that it be carefully scrutinised. If controls for entering such contracts were loosened instead of enabling development this could deplete the very resources that are needed in order to effect transformational goals.

The Reshuffle and the radical economic transformation

Why did the recent cabinet reshuffle arouse such a high level of disquiet and public outrage?

Appointments and dismissals of ministers are acts entrusted to the president as part of the prerogative of his office.  Despite this being a right reserved to the president, the appointment and removal of a person in high office should follow careful consideration and evaluation. 

Because of the uncertainty and instability that it evokes, any reshuffle of ministers ought to be an exceptional matter, engaged in because the minister or deputy minister who has been removed has failed to perform the tasks with which s/he has been entrusted, either through demonstrating a level of incompetence or lack of integrity or failure to observe the rules governing the tasks that have to be performed.  

In other words, on appointment to a position there were expectations of duties to be performed by the minister concerned.  For removal not only would the tasks not have been met through some minor errors.  A level of inadequacy for the task ought to have emerged that made it not just desirable but necessary to remove the person in order to ensure adequate performance, in accordance with what is required for smooth running of that sphere of government

By definition, the serious flaws that justified the dismissal must not have been present at the time of appointment, for if they were there at the time of appointment there was no justifiable reason for putting the person in such a position in the first place.  In other words, the rationale for removal presupposes that appointments are made in the first place, in good faith and in accordance with what is required for the job. 

That does not mean that the President is barred from taking into account special relationships s/he may have with individuals.  The President may choose people in whom he places special trust, including, through common experiences in the ANC or in the struggle.  What is necessary, however, is that the mutual trust between the president and the person appointed is not a reason in itself for appointing someone, though it may reinforce the level of confidence that the president has in elevating that person to perform specific tasks that the person is able to perform in a ministerial position.

One of the reasons for outrage at the dismissals, especially of the Finance Minister and Deputy Minister and appointments that have been made is that these do not appear to bear on the competence, integrity or level of performance of those dismissed or appointed.  Nor do the required qualities appear to be present in some who have been appointed to or retain office.

The most marked features of those recently appointed and many who retain office, appear to be the loyalty they owe to the person of the president and their potential willingness to comply with courses of action that individuals like Gordhan would have considered irregular. 

The Treasury and the reshuffle 

For some time there have been official reports and media investigations that have pointed to a high level of irregularity in the allocation of state contracts and plans afoot for further contracts that raise questions of legality and compliance with regulations.  As is well known the role of the Gupta family has featured prominently in many of these issues and the Treasury has refused to consent to certain contracts where it has doubted their compliance with due process.

It is said that this was the reason why Nhlanhla Nene was removed from the Finance Ministry in December 2015, replaced for four days by Des van Rooyen.  In those four days, the currency plunged and the value of stocks lost considerable value. This led to widespread reaction from sections of business and the return of Pravin Gordhan as Minister of Finance, the position he had previously held, before Nene.  The attempt to appoint Van Rooyen has come to be widely understood as part of “state capture”, that is, to run government through the intervention or instructions of outside parties, in particular the Gupta family.  This is very different in scale from the dangers manifested in the corruption engaged in by someone like Shabir Shaik, which did not affect the sovereignty of the state, or making appointments.

Gordhan was forced on Zuma, as a result of the outrage over Van Rooyen’s appointment.  Zuma did not want him and Gordhan has come under fire as he has sought to ensure compliance in SOEs and state departments with regulatory frameworks and refusal to release funds or approve deals unless that had been done. There have also been constant threats of criminal charges and other attempts to implicate Gordhan in wrongdoing.

In recent times, a discourse has emerged, embraced by Zuma and ministers who are seen to be close to the Gupta family – this discourse that refers to the need for “radical economic transformation”. It also bemoans the scrutiny of the economic activities of the Guptas while allegedly ignoring the real danger of “white monopoly capital” (WMC).

The Treasury, in this discourse has been depicted as held captive to WMC and indeed, when Gordhan was dismissed the new Minister used the language of “radical economic transformation” with which he believed the Treasury needed to align itself.  Since announcement of the downgrade, he has been more cautious in his language, stressing continuity.

Loosening controls in the Treasury has no connection with any common understanding of what radical transformation entails.   In reality that is antagonistic to transformation and also endangers the stability of the economy as a whole.

This has been dramatically illustrated by the S&P downgrade that may well be followed by further downgrades.  The short-term effect of the downgrades is to increase the costs of borrowing and has already led to depreciation of the value of the rand. In the long run, unlike what the Zuma/Gupta supporters claim, it is not the wealthy that will suffer most from the downgrades, but the poor, as the cost of imported goods, including fuel rises have an impact on the economy as a whole.

The cabinet reshuffle was preceded by Zuma instructing the former Minister, deputy Minister and Director General of the Treasury to return from an international road show aimed at attracting investment.  The instruction induced shock insofar as it entailed wastage of resources but also undermined efforts to stabilise the economy in relation to potential investors.  At the same time as this forced return of Gordhan and his team, which was widely interpreted as a prelude to their dismissal, liberation struggle stalwart Ahmed Kathrada died.  The Kathrada funeral, the subsequent reshuffle and the memorial services and other protests have seen a groundswell of public outrage.  

Where to from here?

When people are angry it is important to speak responsibly about how that anger ought best to be channelled.  At the moment there are a range of initiatives to protest the reshuffle and call for Zuma’s resignation.  Some represent specific organisational forces, other initiatives emanate from unknown sources that may represent no one or very few.  I think those of us who do not have an organisational base need to approach this situation with humility and recognise that commonalities need to be sought with a range of people who are angry and want to see change. That may take time and the pace cannot be forced.

It is also important that whatever outcome one seeks, should be aimed at building unity behind a range of forces that aim at defending our democratic gains and conserving the resources of the country from pillage. 

Should Zuma resign and Cyril Ramaphosa become acting president until the end of Zuma’s term of office, Ramaphosa would need to have a clear mandate.  That ought to include responsibility to engender a public dialogue aimed at rebuilding trust in the institutions of state.  It ought also to include a review and public discussion of key moments that have ruptured the sense of legitimacy in state institutions. These include the Marikana massacre (not in order to implicate Ramaphosa, but to discuss its meanings), plus the Nkandla and social grants scandals.

In other words, the removal of Zuma should be understood as part of a broader process whereby we regain confidence in public institutions and involve the broader citizenry in an ongoing dialogue where we can all voice our concerns and recover our political agency.


Raymond Suttner is a scholar and political analyst. Currently he is a Part-time Professor attached to Rhodes University and an Emeritus Professor at UNISA. He served lengthy periods in prison and house arrest for underground and public anti-apartheid activities. His prison memoir Inside Apartheid’s prison will be reissued with a new introduction covering his more recent “life outside the ANC” and will be published by Jacana Media in the first half of this year. He blogs at raymondsuttner.com and his twitter handle is @raymondsuttner

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