The long read: Can South Africa afford the ANC?

As Pravin Gordhan faces fraud charges, African Business investigates whether the South African economy can survive the infighting within the ruling African National Congress (ANC).


As the clock ticked down on preparations for South Africa’s local elections in August, the mood noticeably darkened in Johannesburg’s Luthuli House, the towering headquarters of the African National Congress (ANC).

Facing the greatest electoral challenge since the advent of democracy in 1994, ANC organisers, their ears close to the ground in the deprived townships that comprise the movement’s heartlands, began to worry that the party of liberation was finally losing its vice-like grip on the electorate. With poll after poll showing expected gains for opposition parties, even the most committed ANC cadres steeled themselves for a tough rear-guard action and a battle to shore up the party’s shrinking base.

Few expected the spontaneous outpouring of township adulation that followed past victories. Yet for President Jacob Zuma, the ill omen of dozens of opinion polls failed to puncture his election day optimism.

After marching to a local polling station near his sprawling Nkandla estate in Kwa-Zulu Natal, a beaming Zuma turned to the assembled well-wishers and made an astounding prediction. “I will wake up in the municipality of the ANC,” he claimed.

Never mind that Nkandla, site of Zuma’s infamous taxpayer-funded home upgrade, had become a byword for political corruption and the widening gulf between South Africa’s rulers and the majority of the population. Never mind that the country’s highest court had ordered Zuma to repay R7.81m ($571,000) of the costs after a protracted and very public legal battle.

The ANC, Zuma insisted, was on track for victory in Nkandla and beyond. As it was, the electorate sent a message to Zuma that the ANC will struggle to forget. Nkandla – where the party was routed by the unfashionable Inkatha Freedom Party – played its part in a dire ANC performance. From tiny rural seats to sprawling urban centres, voters delivered a stunning rebuke to the party. 

For the first time in over 20 years, the party claimed less than 60% of the popular vote. Cities long seen as strongholds – including Johannesburg, Port Elizabeth and Pretoria – slipped from the ANC’s grasp for the first time as the conservative Democratic Alliance and radical Economic Freedom Fighters counted their gains.

For many, Zuma’s wilful blindness in the face of his declining personal popularity mirrored his complacency in the face of the country’s dire economic situation. South Africa repeatedly flirted with recession prior to the vote, shedding 350,000 jobs as official unemployment ticked up to a decade high of 26.7%.

The electorate was given an opportunity to cast a damning judgement on the ANC’s economic stewardship, and they eagerly took it. Yet despite the message of the election, the ANC’s subsequent attempts to kickstart the economy have been piecemeal.

According to Capital Economics, an encouraging second quarter gave way to business as usual in the third. Manufacturing output rose by just 0.4% year on year, retail growth undershot expectations by a half, and mining output fell by 5.4%.

The immediate return of political infighting to the highest levels of government has repelled investors and stalled a nascent recovery. Fundamental questions over the country’s economic direction – including whether the ANC should adopt the economic policies of the populist left or the conservative right – remain unanswered.

Many are beginning to ask whether the ANC – torn asunder by competing factions and mired in Zuma’s never-ending scandals – has the discipline, competence or even desire to forge a coherent response. “There seems to be absolutely no drive or determination, other than occasional lip service, to concentrate on growth or address the series of challenges laid out to us by various ratings agencies,” says Tony Leon, former leader of the opposition Democratic Alliance.

Yet with the ruling party’s victory in the 2019 national elections all but assured, a much-needed economic renaissance remains dependent on the ANC. Whether the economy is robust enough to outlast continued drift – or further bouts of political bloodletting – remains very much an open question.

But with years to go until the post-ANC political landscape takes shape, and pressure for jobs and service delivery building by the day, the country is crying out for renewed economic leadership. “What we have in the country today is a lack of decisive leadership that can put us on the correct path to meeting the needs of citizens,” says Jay Naidoo, a former ANC minister and ex-general secretary of the Congress of South African Trade Unions (COSATU). “We are leaderless. The political centre is not holding together.”

ANC infighting

Summoned yet again to appear in front of South Africa’s Directorate for Priority Crime Investigation, known as the Hawks, minister of finance Pravin Gordhan could be forgiven for wondering exactly why he ever signed up to return to his former role. Less than a year after his re-appointment in the wake of Zuma’s successive sackings of Nhlanhla Nene and David van Rooyen in the space of four days, the internationally respected Gordhan now finds himself the target of repeated Hawks questioning relating to the setting up of an alleged spying unit during his stint leading South Africa’s tax agency.

It’s just the latest distraction for the veteran ANC operative, whose attempt to turn around the economy has at times resembled a series of pitched battles, often against his own party. Whether arguing for public spending restraint or the reorganisation of inefficient state-owned enterprises, Gordhan has found himself leading a lonely fight for fiscal credibility.

Many see the Hawks’ questions as a thinly veiled attempt by vested interests to derail his reform efforts at the Treasury. The outcome of the battle is likely to have implications far beyond the political future of Gordhan.

In September, Moody’s – one of several major ratings agencies placing South Africa marginally above junk status – released an ominous quarterly credit report warning that further political infighting, particularly at the Treasury, could lead to a downgrade. Anton Eberhard, professor at the University of Cape Town Graduate School of Business and a former National Planning commissioner, says that such a move would have dire fiscal implications for the country.

“The National Treasury is one of our best institutions and there are many highly experienced, competent and committed professionals working there. The assault on the Treasury is very serious and we are already seeing the costs in terms of our national reputation as an investment destination and the risks of further downgrades in our credit ratings and access to reasonably priced debt.’’

It is an opinion echoed by South African business leaders, who fear that investors are increasingly put off by the spectre of political infighting. “What they [political battles] do is make the environment in which we operate noisy,” says Nicky Newton-King, chief executive of the Johannesburg Stock Exchange.

“That is disconcerting. So it’s in the interests of everybody that one addresses that noise.” The persistence of inter-party factionalism along both personality and policy lines makes that a challenge.

While Gordhan has championed fiscally conservative policies – including constraints on public spending to win back investor confidence – his limited capital within the ANC and propensity to upset vested interests means his vision lacks political traction. With no definitive policy direction under Zuma’s leadership, the costs of inaction are mounting.

GDP growth in 2015 was a paltry 1.28%, according to the World Bank – far below the 7% annual growth that Gordhan said in 2010 (during his first tenure as finance minister) would be required for twenty years if the country is to tackle unemployment and poverty. The country has failed to grow at more than 5% since 2007 as it struggles with a global drop in commodities demand. According to the World Bank, gross national income per capita declined from $7,640 in 2012 to $6,050 last year.

The lack of policy direction is being felt beyond the Treasury. A flagship government report on the country’s network of state-owned enterprises found an absence of commonly agreed goals or priorities, with many SOEs delivering patchy services and requiring massive capital injections.

Professor Eberhard believes that this “systematic and widespread neglect in policy leadership” is affecting the wider economy. “My concern is that policy delays and poor governance in our energy, telecommunications, transport and water state-owned enterprises widen the space for corruption and are now constraining economic growth,” he says.

The concern that a leadership vacuum is having a very real effect on the economy is echoed by Tony Leon. “I think that the need for a step change in economic policy is as great today in South Africa, given the challenges we face, as it was for South Africa in 1990 to change political direction.”

Inequality Persists

For a country that has struggled to shake off the appearance of permanent economic drift, South Africa and its government have a surprisingly sophisticated awareness of what needs to be done to improve economic performance. From the earliest days of the ANC’s tenure in power, rich and detailed plans have been formulated with reassuring regularity, playing an occasionally successful part in the fraught transition from apartheid.

The most recent iteration – 2012’s National Development Plan (NDP) – provides a compelling template for reducing inequality by 2030. The problem, as ever, is in the implementation.

“There is a place for a national strategy of the likes of the NDP, but one must caution against going long on strategy and short on execution. I do think we haven’t executed well enough and we’re going to have to execute better if we’re going to want to grow,” says Newton-King.

Naidoo, who was the minister responsible for the Reconstruction and Development Programme – a key 1990s blueprint initiated by Nelson Mandela’s government – says that the ANC’s feet must be held to the fire on implementation.

“We’re not a poor country, we have a budget of over R1 trillion. We have to send a clear message that the problem is not money, not policy, it’s implementation capacity and the commitment of government to address a growing underclass in our country.”

Despite a plethora of policy prescriptions, key areas of national importance, such as the widespread joblessness facing young South Africans, remain largely unaddressed. Put simply, millions of citizens are ill-equipped for all but the most basic interaction with the labour market.

 Yet while the country’s jobless pile up as a result of mining sector woes and stunted manufacturing growth, the ambitious solutions offered by the NDP in the areas of education and labour relations gather dust on the shelf. If big thinking is to reap rewards, says Naidoo, government must work as an effective facilitator.

“We should produce a whole new paradigm of thinking about jobs. In the current environment we’re going through a tech revolution – the very nature of work is changing. We need 21st century thinking about work that requires us to think about the redesign of education, employment, and building a services economy. The government is purely a vehicle for finding appropriate partnerships with stakeholders.”

With the electoral costs of failure mounting, the ANC finds itself under sustained pressure for the first time since 1994 to turn these ambitious visions into a reality. With the economically conservative Democratic Alliance and radical nationalists of the Economic Freedom Fighters now controlling a greater share of municipal spending – the ANC’s share has fallen from around 87% to 24% says Leon – the opposition will have a limited role to play in shaping economic policy.

Herman Mashaba, the new DA mayor of Johannesburg, has promised to build an unashamedly pro-business administration in the city. Meanwhile, DA leader Mmusi Maimane continues to tweak his pitch for national power after the party’s electoral breakthrough.

But with the ANC odds-on favourite to win another general election in 2019, few doubt that primary responsibility for an economic renaissance continues to lie in the hands of the ruling party. Both the national interest, and the ANC’s self-interest, demand that they raise their game.

“The ANC needs to prove itself through delivery day by day,” says Naidoo.

“In two to three years when we go to national elections, if the party does not change how it works, if it does not reduce political arrogance and improve service delivery, I think the ANC will face the grave chance of losing power, and they will have no one but themselves to blame.”

David Thomas

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