On April
03 S&P Global reduced South Africa’s rating to ‘Junk’ status. South
Africans flooded the streets demanding Jacob Zuma’s head. They called for a leader
who would better manage South Africa’s international reputation so that
international money would stay, the Rand would stabilise and strengthen, so
that South Africa would not become another Zimbabwe.
But they were wrong. Zuma shouldn’t be president,
that’s obvious. But that he is the
problem and that to replace him with Gordhan or Rhamaposa is the answer, is
totally misguided. The problem reaches back to Zuma’s predecessors and to
economic policy as a whole. Zuma is a symptom, not the cause.
The Deal
In 1994 the ANC had the chance to enshrine
in new government the ideals that they had fought for. What was said at the
negotiating table between themselves and the out-going Apartheid Government is
open to speculation[i]
but the ANC, a previously Socialist party who claimed to be of and for the
people, allowed themselves to be mugged.
With the International Monetary Fund (IMF),
the World Bank (WB) and other financially astute parties (who far from being
neutral had supported Apartheid since the 1950’s[ii])
pulling strings in the off stage boardrooms, the ANC agreed (among other
things); to take over the debts of the Apartheid regime, to allow South African
giants who were made on the blood of discrimination (Anglo-American Corporation
and Old Mutual, for instance) to relocate without penalty overseas, to ignore
loans made by the regime to local institutions who supported apartheid, and
most importantly of all, they lifted all the Foreign Currency and Exchange
Control mechanisms that were in place.[iii]
In so doing the ANC held the Rand up for
every speculator, half smart accountant, bank and investment house to take a
shot at as though it was both the target and the prize at a local church fete. They
created the conditions for South Africa’s only real problem to intensify, the
problem the ANC apparently fought to eradicate: the ever-widening gap between
the rich and the poor.
Zuma’s Marbles
Imagine a global game of marbles that
doesn’t end. Team South Africa have 100 marbles to play with. They play within
their own borders to stimulate marble production, and with the rest of the world
to increase marble value.
Always Team SA has 100 marbles to play
with. If after a good day of playing there are marbles left over they’re put in
the backup pot. If after a bad day they’re below 100, the backup pot is used to
square off the total.
This is global economics. The marbles are
Rands and it’s global money movement that stimulates the market and creates
space for new markets, for people to grow with their money – presumably enough
space for all.
But a just system relies on fair play.
In reality what is happening is a tiny few
big players and individuals, say just 3% of the total, have been putting South
Africa’s marbles in their pocket and flying away to play in bigger private
games in the UK, EU and USA. They are taking Team SA’s marbles out of the game,
parking them in their own backup stores (havens, off-shore accounts) and
expecting Team SA to replenish the common pool of 100.
This is putting Team SA under more and more
stress. This is causing people to march in the streets.
In 1994 the ANC was led to understand that once
exchange controls were relaxed foreign big business would generously arrive,
declare how nice it was that nice shiny liberal blacks had taken over from dour
human rights nasty whites, and the marble pot would overflow. New jobs and
prosperity for all were expected. New marbles to repair the divide between the
rich and the poor were to materialise. But it didn’t work like that, and it
doesn’t.
Pawns In A Global Marketplace
Global businesses, or corporates, are
organisations so large they are able to leverage a market in one part of the world
against another in their search for profit. The only big business crumbs
available are for those that assist them in their activities. For the rest, the
85% of the country that will never have enough to set up accounts offshore,
there’s nothing but a gradual slide into poverty. South Africa’s big guns – including
the world giants Old Mutual, Nedbank, ABSA, Anglo American - are the chief
among the reapers.
Herve Faciani, the man who bust open
the South Africans making use of HSBC secret accounts, put it that havens are ‘a
system for making themselves rich at the expense of society, by assisting in tax
evasion and money laundering’.[iv]
Sarah Evans for the Mail and Guardian
reported three years ago ‘South
Africa is losing roughly R147-billion per year to the illegal movement of money
out of the country.’ Over the period 2003 to 2012 illicit outflows grew 13.2%
per year in sub-Saharan Africa.[v] Movement must have stepped up for Wits
University suggests as at 2016 the figure is R300 billion per year.
Standard Bank South Africa has
offices in the tax havens of the Isle of Mann and Jersey and for Capetonians a
liaison office in Rondebosch though they prefer you phone and they’ll come out
to see you.
Nedbank, a creation of the old
Nationalist Party and thus the most South African of all our private banks, has
an office in the Isle of Mann.[vi] The ‘most
South African’ label is suspect - the biggest shareholder (at over 50%) is
London’s Old Mutual. The last time I looked they had 262 million Nedbank shares.
How many have you got of this powerful player?
Treasury’s Kenneth Brown (quoted by Patrick
Bond) says corporate overcharging on state outsourcing costs taxpayers R233
billion per year.[vii]
Big boy banks like JP Morgan (one among many)
are simply too powerful. Recall George Soros shorting the British Pound? Banks
manipulate the Rand and collude to fix interest rates and charges as cats do
mice (see Sunday World’s ‘Standard Bank‚ Absa‚ Investec face
prosecution‚ huge fines over price fixing allegations’). [viii]
[ix]
These ‘activities’ cost all ordinary South
Africans a bomb, but there was no march.
The preferential disbursement of money goes
back even further - what about ‘Those Apartheid Billions’? As Karabo Ngoepe
reported in January, Absa's share of repayment of apartheid loans alone ‘could fix South Africa's education
crisis’.[x]
After letting the South African public down
so badly are you still banking with Absa? Are you marching?
The documentary ‘Project Spear - Truth Be
Told - South Africa's Stolen R30 billion’ is a reminder of how lined the
Corporate pockets are. Loans never paid back amount to money effectively stolen
from the South African Reserve Bank and it is of amounts that have ‘had
catastrophic consequences which are still being felt, as the triple challenges
of poverty, unemployment, and inequality could have been better addressed’.
Film maker Vollenhoven ‘said the government
cannot afford to turn a blind eye on the matter’. But they do, and so do
voters.
Not only have South Africa’s High Net Worth
(HNW) individuals taken their full pound of South African flesh overseas some
of the entrepreneurial class have followed the banks-cum-brokers by grabbing at
Gordhan’s lax rules. Operating on percentage ‘Investment Houses’ have developed
alliances with overseas stockbrokers/fund managers. Their business is exporting
South African marbles, err, money.
Once the money is secured in a First World[xi]
currency local big company and bank driven inflation plus an internationally
weakened Rand suits the money exporter every which way (consider that
commission at 5% on R4 equals 20c. On R15 it is 75c. It is an inflation/rand
weakening proof business). R4 exported in 1995 comfortably bought one US$. By 2016
that four Rand had become fifteen without the Investment House lifting a finger.
Meanwhile those South Africans who stayed
home have had to live with massive inflation. A litre of unleaded was R1.88
(oil at US$28 plus per barrel), now it is over R13[xii]
and the price per barrel in January 2016 was, coincidentally, US$28.50.[xiii] Since
1994 white (and new Middle Class black) salaries have bounced up but not by
600%, and lower status South Africans have had little improvement in their
income and big jumps in their cost of living.[xiv]
At the same time the ultra-wealthy have
done extremely well since 1994. Their share of national income was an
impressive 12% in 1994 but by 2008 this had risen to 20%.[xv]
Members of the government are included in this bracket. Ramaphosa, the ANC’s
chief negotiator in ’94 was made a billionaire by big business overnight, a
struggle hero without a shred of business acumen[xvi]
beyond what Anglo America had instilled in him.[xvii]
It is here that the gap between the rich
and the poor is located, and where it continues to widen, this is the only real
trickle down effect. A legacy of misery for those caught in poverty.
Under these conditions disintegration here
and good living for some overseas is inevitable. The implicit message of the
big guns appears to be: ‘we’re not South African anymore, but we’re South
African enough to have (somehow) retained your trust and to milk those of you
who cannot afford to move to Canada, Australia, NZ, etc. Come over during the
summer to see our grand offices. Speak to the doorman and he’ll let you look
through the glass if you promise not to touch.’
Junk – A Great Marble Tactic
Why does anyone give a toss about what
American Corporate owned and told what to do rating agencies say, other than to
use it as a stick to beat Zuma and the ANC?
‘All the downgrade tells us is that our
government is not behaving as the greedy overlords of global capital would like
us to’ said Lauren Hutton.[xviii]
‘Credit rating agencies are dangerous
institutions. Their mistakes can be catastrophic to investors and the broader
economy’ wrote Wits University of the South African situation last year.[xix]
‘S&P was not even reasonably competent
in their gradings’[xx]
ruled the Australian Federal Court.
The smart speculative money and the
Corporate accountancy firms are way ahead of the discerning (ha-ha) public
investor. How can it be otherwise? They move in the same circles, gossip and
share notes.
The ‘risk’ of seeking superior profits in
South Africa is regularly assessed - such as when Malan won the elections in
1947, declaring a republic in ’61, the school language riots, Sharpville,
Rubicon, basic agreement among the whites to let unfamiliar blacks run the
country, Ramaphosa’s Marikana, etc.
Labelling South Africa ‘Junk’ is simply intelligent
speculation at South Africa’s expense. The weaker the Rand, the better South
Africa functions as a free marble pot to suplement the games of others. It’s a
great game tactic.
The Way Others Play
It’s important to note that not everyone
plays marbles like South Africa is being forced to.
The USA and Holland, for example, make sure
that they have a minimal loss of natural resources to the outside world while
ensuring their business-folk are active in the economies of others. Both countries
experience net dividend inflows in the order of 200% of what leaves the
country. That means that when a dollar (say) is paid out, two dollars return
from reciprocal investments.
Over the period ‘2009 – 2014 South Africa
had as little as 20%’. That means for every rand paid to overseas investors
only 20c returns.
Bigger children play that game on the younger
ones – ‘give me that silver (one Rand coin) and I’ll give you a GOLD one (twenty
cent piece).’
In South Africa dividends flow out to South
African corporates now resident overseas.[xxi]
The outflows are commented on regularly but no one marches about it - a recent
estimate is dividend outflows from
South Africa amount to R150 BILLION per year.
If that’s not bad enough, those same
previously South African corporate giants and smaller still resident South
African corporates/businesses are along with the IMF (etc.) nicking outflows from
the rest of Africa.
“Africa is haemorrhaging billions of
dollars because multinational companies are cheating African governments out of
vital revenues by not paying their fair share in taxes. If this tax revenue
were invested in education and healthcare, societies and economies would
further flourish across the continent” wrote Oxfam in 2015.[xxii]
Why should South Africans care? For the
same reason they should care about the vast numbers of unemployed in South
Africa. Poor neighbours don’t make good neighbours. Consider the South African
immigrant situation.
Money leaving isn’t all unethical or with
devious goals. ‘Over the course of 2016, there was a net outflow of R3.25
billion from retail South African general equity funds’[xxiii]
reported Money Web. Ironically most of those withdrawals came from top
performing Allan Gray Equity Funds but in this case investor reasoning was
sound – they concluded the Fund had done as much as it could in what they
decided was an overvalued equity market.
That said, the ANC is most definitely not being
pro-active. The ANC government has colluded with business when it suits its or
individual ANC members interests. Lonmin, Marikana, all have passed as easily
as the wind. There’s more to Lonmin too – in 2014 the Alternative Information
and Development Centre (AIDC) called for an investigation into an outflow of R2.3-billion
in fees[xxiv].
And, known as the ‘sweetheart deals’,
agreements made pre-1994 gave BHP Biliton and Anglo-America energy for their
smelters at one-sixth of what householders pay. These were carried forward, resulting in that R9.7 billion loss
for Eskom in 2009.[xxv]
How many other deals were made with big
business at the expense of the small people?[xxvi]
Can you say ‘Gupta’, ‘Nuclear Power’, ‘Arms Deal’?
What to do?
Verwoerd Had It Right!
In the early 1960s South Africa declared
itself a republic and exited the Commonwealth, angering the world. Companies
(like Barclays) jumped ship, and those that didn’t moved assets overseas while
high net worth individuals began to secrete nest eggs overseas.
Verwoerd took action. [xxvii]
He hastily introduced currency and
exchange controls to stop a sudden outflow of foreign investment and local
money.
South Africa’s white owned, white driven, mixed
cheap inputs and low wages-made marbles had to be protected from more powerful
business, they were rolling overseas! The country was a baby and needed the
space to grow itself rather than compete with others. Exchange controls stopped
the bleeding.
Those same Rand-protection regulations were
again activated by PW Botha in the 1980s after his confusing Rubicon speech
convinced the smart money there were better options with less risk elsewhere. The
controls steadied a weakening Rand.
The most devastating act the ANC allowed
was the lifting of these controls. When they were abolished on 13 March 1995
the door was opened to benefit a tiny few and promote the gradual destruction
of a wonderful land for the remaining 90%.
‘Our $850-million IMF loan secured just
before our first democratic election included a condition preventing the use of currency control to curtail speculation and a
commitment to “wage restraint” to encourage foreign investment’ said Ms Hutton
in Daily Maverick’s ‘It’s
not Zuma that we need protection from, it’s the market.’[xxviii]
Today South Africa’s debts roll on, growing
daily because of onerous interest.
The Logic of the March
If on April 7th South Africa’s’
citizens were marching because Zuma has done nothing to rein in the Corporates
it would make sense. But they weren’t. The current anger at Zuma is an ignorant
belief that one man is responsible for the Rand’s seeming downfall.
And within that seems to be the ignorant
belief that he is responsible for the ever-present tension that haunts South
Africa today, the instinctive knowledge that the gap between the rich and the
poor should not be this way, and that every South African deserves more.
The anger at Zuma is really a classic case
of misdirection. It’s clinging to a skapegoat to assuage personal guilt.
Where were the crowds when Zuma was in the
dock for rape (we all know he’s guilty). Where were the crowds when the
promised RDP programs of Mandela’s era did not materialise? Where was the
outrage when textbooks were not delivered? When South Africans are murdered
daily due to the tension pressure cooker that is the reality of living daily in
poverty? Where were the marches when it became clear to every citizen that the
gap between the rich and the poor is widening, and that justice in this country
is not being done?
A Better Way
The draft People’s Charter for Africa
endorsed by various South African civil groups a couple of years ago suggests ‘Life
before property and profit: The rights of present and future generations to
live in harmony in healthy natural communities will prevail over the rights of
any person or legal entity to property or profits. The interests of
corporations, the state and other artificial entities will not be permitted to
take precedence over the interests of natural communities.’[xxix]
Could any request be fairer? Yet in
restraining the profit at all costs goal of South African corporations as a
government the ANC is useless.
Professor Patrick Bond is one academic who
has made calls for a renegotiation of the 1994 settlement.[xxx]
It is a call that needs to be supported by the South African public. The New
RSA government has lost (never had) its capacity to contain corporate power
thus it is up to the people, non-government agencies and community alliances to
confront the corporates in the streets and by withholding purchase to seek
solutions – this is the march that needs to take place. The Corporates have to
be reined in, regulation re-imposed. Corporates’ have to start recognising,
respecting and contributing to South Africa and South Africans first.
Zuma must go. But then the ANC must go
total! It is unlikely the African continent has seen a more corrupt bunch since
de-colonisation was initiated by France in the 1950s. Accepting Ramaphosa (or
Gordhan) as leader would be to add political power to the Anglo-American/Old
Mutual arsenal - Mr Ramaphosa was Mandela’s chief negotiator.
Zuma is not responsible. He is a symptom,
not the cause. It is the system that prioritizes corporate profits over
individual well-being that is responsible for South Africa’s current woes, and
this is a system all have helped create.
A march should be because of the ANC’s
total inability to stop the plunder of South Africa. To stop the corruption, support
for family and friends, and stop the Corporations.
In short, Zuma’s organisation has lost our
marbles, and we need to get them back.
[i] Whether some ANC negotiators thought the economic terms were ok or
whether they didn’t understand them or didn’t pay enough attention to the
effects of taking on the carried forward debt, and the business and banking terms
no one can definitely say. Ramaphosa was there – was he seeing matters clearly
as a businessman?
Nelson Mandela may have been out of
prison but I suspect his head was tied behind his back. I imagine the teaser
put to him was, ‘agree to the economic package or the killing goes on.’
[ii] For example from 1951 to 1966 the WB provided loans to the
Apartheid government to expand Eskom activities. The expansion programme
resulted in no African area being electrified. There are calls for the WB to
repatriate profits made… TED Talks … Dr Patrick Bond, South Africa and the
politics of climate change.
[iii] http://www.sahistory.org.za/dated-event/south-africa-abolishes-financial-rand
… ‘The financial Rand, used as a
parallel currency to the commercial Rand, was abolished on 10 March 1995. The
currency was introduced in the 1960’s and only widely used in the 1980’s and
1990’s. Created by the sale of
nonresidents’ assets in the country, it was available only to foreigners and
for investment in South Africa. The financial Rand usually stood at a discount
to the commercial Rand.’
[iv] http://www.biznews.com/briefs/2015/10/01/sa-tops-wealthy-hiding-cash-in-secret-swiss-bank-accounts/
[v] The GFI says its estimates are “highly conservative” as the
institute does not add into its calculations the movements of bulk cash,
services mispricing or other types of money laundering. https://mg.co.za/article/2014-12-16-billions-lost-through-illegal-outflows
and see http://www.timeslive.co.za/thetimes/2015/01/11/Billions-of-rands-leave-SA-under-the-radar
[vi] Better still @ http://www.manxradio.com/news/isle-of-man-business/nedbank-airs-secrets-of-success/
it records “New client accounts over £50,000 increased year-on-year in 2015 by
55% while post-tax profits were up from 30% to 38%.”
[vii] https://www.wits.ac.za/news/latest-news/in-their-own-words/2016/2016-12/south-africa-avoided-dreaded-junk-status-but-the-economy-is-far-from-healthy.html#sthash.ZRQAF2ZA.dpuf
[viii] https://www.dailymaverick.co.za/opinionista/2017-02-19-bank-collusion-we-need-a-full-scale-probe-into-the-rsa-banking-sector/
[ix] http://www.sundayworld.co.za/news/2017/02/15/standard-bank-absa-investec-face-prosecution-huge-fines-over-price-fixing-allegations?platform=hootsuite
[xi] A smart word for ex colonist now owner of a bigger bank (and army)
than others have.
[xiv] ‘Poor South Africans are facing increasing cost pressures. The
official January 2016-17 inflation rate was 6.8% but a standard food basket for
low-income families rose 16.5%. This is far higher than last year’s average
7.8% rise in the monthly child support grant …’ - See more at:
https://www.wits.ac.za/news/latest-news/in-their-own-words/2017/2017-02/steering-south-africas-budget-between-excess-patronage-and-prudence.
[xv] See more at: https://www.wits.ac.za/news/latest-news/in-their-own-words/2017/2017-02/steering-south-africas-budget-between-excess-patronage-and-prudence.
[xvi] Shawn Hattingh makes mention of the fact the Deputy President
became a billionaire rather quick – a measure achieved without much business
talent. Could it be so quick as to be a world record?
[xvii] In the mid-80s Mr Ramaphosa was hauled from the 1000s of AAC’s
black semi and unskilled to start a trade union to give the outside world the
illusion that they negotiated conditions of service in their workplaces.
[xix] See more at:
https://www.wits.ac.za/news/latest-news/in-their-own-words/2016/2016-12/south-africa-avoided-dreaded-junk-status-but-the-economy-is-far-from-healthy.html#sthash.ZRQAF2ZA.dpuf
[xx] Quoted by Ms Hutton
[xxi] The Palgrave Handbook of Critical International Political Economy
edited by Alan Cafruny, Leila Simona Talani, Gonzalo Pozo Martin
[xxiii] https://www.moneyweb.co.za/investing/large-outflows-from-sa-equity-funds-in-2016/
[xxiv] https://mg.co.za/article/2014-09-20-inquiry-into-lonmin-fee-transfers-to-tax-haven
[xxv] Bond – TedtalkX
[xxvi] Not much
more than a year ago there was a confusing furor over coal between the Ministry
of Mines, Eskom, the Guptas and Glencore … see Google search.
[xxvii] Verwoerd, the Father of Afrikaans style enhanced Apartheid. For the
first time significant numbers of educated Afrikaners left when the Union of
South Africa became the Republic of South Africa. At the same time foreign
investment and corporate South Africa monies were leaving, ironically a fait
proportion making its way to the in-formation Central African Federation’s
Salisbury.
[xxviii] https://www.dailymaverick.co.za/article/2017-04-11-op-ed-its-not-zuma-that-we-need-protection-from-its-the-market/
[xxix] https://mg.co.za/article/2012-05-25-african-drive-to-embrace-all-life
[xxx] It is an ongoing debate – pick up the thread here @ https://medialternatives.com/2016/04/15/patrick-bond-responds/
