There appears to be a deep misunderstanding among many ANC leaders, officials and members about how the market works – which in turn has sabotaged economic growth, job creation and reduction of poverty.
Many appear not to understand how the actions, decisions and policies of ANC leaders are perceived by the global and local markets, and how these can wreck, and have wrecked, our economy.
Some dismiss the markets as dominated by Western investors, institutions and actors – “imperialists”, “big capital” and “racists” – who are in any case hostile to Africa, South Africa and other developing countries.
Others say because market institutions are dominated by “white” capital, they invariably always instinctively oppose any policy, action and decision by a black ANC government.
Many others again ideologically reject the markets. Some believe the power of the markets is being exaggerated.
President Jacob Zuma unexpectedly sacked former finance minister Nhanhla Nene, which caused a market backlash that saw company shares, stocks and the rand plummeting.
Zuma afterwards said his decision to sack Nene was not the cause of the stocks and rand plunge.
The president dismissed the market response as an “overreaction” and as a “#ZumaMustFall” conspiracy by “big business” to bring down his presidency. The harsh reality is that the market, its institutions and actors cannot simply be dismissed, rejected or ignored.
Unless ANC leaders accept this truism, any attempt to resuscitate South Africa’s moribund economy will come to nought.
The country’s economy is highly integrated into global markets, and cannot, North Korea-like, build a wall around itself to cut itself off from them.
The reality is South Africa has decided to use the markets to set the value of the rand, seek foreign aid to plug our widening budget deficit or to raise funds for failing state-owned companies.
The country is facing rapidly ballooning public debt, budget and current account deficits and a volatile currency. It is increasingly depending on finance for its development from global markets, institutions and players.
This means, that as a country, the perceptions of the market are crucial for securing finance, or not.
When South Africa borrows money from the markets to fund failing state-owned enterprises, such as Eskom, the government then becomes liable to the markets.
And if we run a budget deficit that needs to be plugged by foreign investment, market rules apply.
The ANC took a decision to have the market set the value of the rand.
As South Africa’s dependence on the markets rises, so too does the market’s oversight over the government decisions, policies and action.
Foreign investors, foreign borrowers and traders use rating agencies to assess the governments that they invest in. When they hand over their funds to South African public entities, they will watch the behaviour, decisions and policies of the government, because this will impact on whether they will get returns in the future. To dismiss the market ”opinion”, therefore, would be foolish.
This means that any poor public behaviour, decisions or corruption perceived by the market will impact on the value of the currency, whether investments come in or leave, and the price of funds.
Institutions such as Parliament, opposition parties, civil society, and the media usually play an oversight role over government.
Markets, especially now that government increasingly depends on them, now play an increasingly larger oversight role over government’s behaviour.
Since government needs the markets, political leaders, public representatives, leaders and officials will all have to behave more credibly.
Firstly, ANC leaders and public representatives will have to use a new public language, and move away from other old discourse of “us”, the “revolutionaries” or “progressives” and “downtrodden” against “reactionaries”, “capitalists” and “imperialists”.
This binary scheme of dividing the world into either black or white, the good or the bad, the “workers” or “capital” are simply too limited. The reality is never exclusively black and white – it has many shades, and therefore a more nuanced approach is called for.
Secondly, public finances will have to be managed more prudently. Wastage, mismanagement and corruption must be genuinely tackled. There has to be some political will to rein-in free spending, budget guzzling and wasteful public entities, provincial and local governments.
If one conservatively uses government’s own figures, and adds them up, then more than R1 trillion of public funds have been lost since 1994 on corruption, and in addition certainly close to that has been lost through wastage and mismanagement. Public entities that seek funds from the markets must be run on a professional basis, must have competent managers and must be free from pork-barrelling and political meddling. If not, the markets will price finance in entities that are mismanaged at higher levels.
It does not make sense to bail out, say, the South African Airways (SAA) with public funds and not make it fly on a professional basis, with credible management, boards and definitely without political meddling.
Some of the East Asian “tiger” economies have “governed” the market – setting fairer rules, oversight institutions and regulators. South Africa has a range of such market oversight institutions.
However, the effectiveness, credibility and believability of such market oversight institutions depend heavily on whether government is seen to be prudently managing its own public finances.
It is true that the market institutions in South Africa are mostly white dominated – and the financial sector like all other sectors in the country needs to deracialised. ANC members are also half-right that the global and local market institutions are dominated by Western actors, with many of them at the best of times having a dim view of African and developing country markets.
However, even if the local market institutions are all black, and ANC leaders, officials and members stuck to their current hostile approach to the market, very little will change. A social pact between government, business and organised labour, which sets out a new path for South Africa, in which each partner agrees to key compromises and deliverables to get the economy back on an even keel, will help restore market confidence.
Such an approach will help build trust between business, government and labour, currently missing. It will deracialise the local market. It will also give government better information about how the markets function, its needs and how to manage perceptions.
It is true that the global financial architecture is skewed against developing countries in favour of developed countries. So unfavourable is the current global financial architecture that policies, decisions and events are triggered in industrial countries, over which developing countries have little say.
The governor of India’ central bank, Raghuram Rajan, has rightly argued that it is unfair that the US can, for example, adjust its domestic monetary policy to calibrate the dollar to stimulate local jobs, growth and development in such a way that it undermines the currencies, trade balances and foreign reserves of African and developing countries.
In the long-run, to reform global markets, South Africa will have to act in partnership with other countries – both developing and industrial ones – which want a fairer global financial and market system.
However, South Africa will have little credibility to push for global market reforms unless the ANC policymakers put aside their outdated approach to the market, engage more rationally and pragmatically with the market, and finally govern its own public finances more prudently.
*This article was featured in the Sunday Independent and can be viewed by clicking here.