“There are two worlds, the one in which people are convinced they live, and the one that is considerably more dramatic, the one that is real”

Tuesday, May 2, 2017

Zuma's Not Junk, He's Just Lost Our Marbles

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. 
[xii] http://mybroadband.co.za/news/business/172370-prices-in-south-africa-1995-versus-2016.html
[xiii] http://www.macrotrends.net/1369/crude-oil-price-history-chart
[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
[xxii] https://www.oxfam.org/en/pressroom/pressreleases/2015-06-02/multinational-companies-cheat
[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/