South Africa should prepare for the worst case scenario: seeking help from the IMF

IMF Managing Director Christine Lagarde at the “G20: Compact With Africa”.
Reuters/Mike Theiler

Prudence teaches that societies experiencing difficult and uncertain times should hope for the best but prepare for the worst.

South Africa should take this lesson seriously. It is facing a serious crisis. South Africa’s economy is growing too slowly to address its profound challenges of poverty, inequality and unemployment. Social tensions are rising. Business is not transforming quickly enough. The governance and solvency of key state-owned enterprises (SOEs) are collapsing. Government finances are deteriorating. Credit downgrades may limit government access to finance. The institutions of governance are decaying. The complex political situation is paralysing policymaking.

Countries facing analogous crises of confidence like Nigeria, Poland and Turkey have had to seek IMF support.

South Africa can hope that the situation will improve. But it should also plan for the possibility that it will not and that confidence in the government’s ability to manage its deteriorating financial situation will evaporate. This will lead to both higher borrowing costs and reduced access to financing for the government and state owned enterprises. It could also lead to state owned enterprises defaulting on their debts and their creditors calling in their government guarantees. As government loses the ability to fund its operations, it will be forced to turn to the IMF. It is the one organisation that can help it regain access to financing – on condition that South Africa agrees to implement an IMF approved set of reforms.

No-one wants an IMF programme for South Africa. First, it means the government accepting an outsider, dominated by rich countries, overseeing its economic policies. Second, IMF support will be conditioned on the country agreeing to painful reforms such as:

• Reducing the government’s budget deficit and the current account deficit so that it can meet its financial obligations
• Deregulation and labour market reforms designed to encourage investment.

But if South Africa begins preparing for this possibility it may be able to mitigate its worst effects and be ready to exploit whatever opportunities it creates.

Negotiating with the IMF

The South African government has considerable experience dealing with the IMF, which regularly visits each of its member states to consult about the state of its economy— the most recent IMF mission visited South Africa in early November. However, it is over 20 years since South Africa negotiated a financing arrangement with the IMF.

Unless challenged, the IMF is likely to condition its financial support on a standard recipe of reforms. However, over time the IMF has become more amenable to supporting the programmes proposed by its member states. It has learned that, while there are similarities between macro-economic crises in different countries, there is more than one strategy for resolving such crises. In fact, the optimal solution depends on each country’s institutional arrangements, history, and particular economic, social, environmental and political characteristics. It also depends on the impact of macro-economic policies on such social factors as gender, equity and environmental and social sustainability.

Yanis Varoufakis, former Greek finance minister, reports in his book on his experiences negotiating with Greece’s creditors that countries like Poland, through careful planning and shrewd negotiations, were able to convince the IMF to follow their plan rather than the IMF’s standard approach. His book also shows that the cost of failing to prepare adequately for negotiations like these can be very high indeed.

So what should South Africa do to ensure that it gets the best possible deal?

First, South Africa must establish clear and realistic objectives for the plan that it wants the IMF to support. Second, it must get its diplomatic ducks in a row so that it can strike the best possible deal.

Fixing the budget

As a priority South Africa should focus on restoring a sustainable budget situation. This will require government to make some painful policy choices about levels of expenditures as well as the purposes for which funds are allocated.

The government can build confidence in these choices if it can show that:

• the benefits exceed the costs and that the costs are being equitably shared.
• Policy choices are based on both the human rights imperatives stipulated in the South African Constitution and on promoting growth.
• it’s serious about addressing the governance problems in state owned enterprises and government departments.
• it is complying with the legal procedures applicable to government finances and the open budgeting processes that it used in the past.

Finally, government must encourage other social actors – such as business and labour who have contributed to the crisis – to help mitigate the pain. A demonstration of broad support would help convince the IMF to support the government’s strategy.

Diplomacy

As Varoufakis’ experience shows, the cost of under-estimating the impact of international economic diplomacy on the outcomes of complex international financial negotiations can be unacceptably high.

The South African government must therefore prepare to sell its programme to the IMF. This requires it to appoint negotiators who have a good understanding of both the IMF as an institution and global financial diplomacy. They can make the South African case in the way that is most likely to convince the IMF staff and Board of Executive Directors to support the South African programme.

These negotiators should also seek to exploit all the benefits that South Africa can harvest from its membership in the institutions of global economic governance. For example, they can tap the experience and expertise of groups like the G24, a lobby group for the interests of IMF developing member states in which South Africa participates, to help it prepare for these negotiations.

They can also draw on the stores of information in international organisations like the IMF, the World Bank and the African Development Bank that have had extensive experience dealing with developing countries facing macro-economic crises. Access to this information should be a benefit of membership. The executive directors that represent South Africa at these institutions can help the government gain access to this information and, if appropriate, identify the relevant experts to consult.

Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of Pretoria

This article was originally published on The Conversation.

South Africa moves one step closer to a sugar tax -- and a healthier lifestyle

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South Africa has joined only a handful of countries in the world close to imposing a sugary drinks tax. A new bill that imposes a tax on sugary drinks has cleared the first of three hurdles in South Africa’s law-making process. One of two houses of parliament has approved what is being called a health promotion levy. The bill is expected to be passed by the other, The National Council of Provinces, and then signed in by the President. Implementation is expected in April 2018, but industry interference may still have an impact. The Conversation Africa’s Health and Medicine Editor Candice Bailey spoke to Karen Hofman and Aviva Tugendhaft about the tax.

How important is the sugary drinks tax and why?

The decision by South Africa’s Parliament is a very far sighted decision. It shows that the country’s parliamentarians fully understand the health implications of a product that is excessively high in sugar and has no nutritional value.

The sugary drinks tax – or health promotion levy – is expected to prevent a wide-range of obesity related non-communicable diseases. These include diabetes, cancer, stroke and heart disease. This is important because South Africa’s public health sector is severely overburdened. Public hospitals are seeing on average of 25 000 new hypertensive cases a month as well as 10 000 new diabetic patients each month. These are estimated to be only half of the real numbers because both are silent conditions.

The effect of the reduction in the prevalence of non-communicable diseases will be twofold: it will help the country to implement National Health Insurance (NHI) as an overwhelmed health system will be a barrier to NHI. And it will reduce the negative effect that chronic non-communicable diseases have on economic growth because of the impact on the workforce due to increased absenteeism and decreased productivity.

Already, there are signs that obesity related diseases are affecting the country’s economic growth rate.

The sugary drinks tax will also help people make healthier choices. In Mexico, after a sugary drinks tax was implemented soda consumption decreased by between 7% and 10% and water consumption increased.

Lastly, tackling chronic noncommunicable diseases will ensure that South Africa doesn’t lose the gains it has made in life expectancy after the introduction of antiretrovirals to treat HIV infections. Life expectancy has improved to 62.5 years of age after falling as low as 52.1 at the height of the AIDS pandemic in 2003. Without further policies to promote health, the country’s life expectancy is likely to reverse. This has been seen in countries like Brazil.

The initial lobby was for a 20% sugar tax. But in the end it was only 11%. Is it good enough?

It’s a start. The sugar tax is similar to the one introduced in Mexico which contributed to a 17% reduction in the consumption of sugary beverages among poor people.

Once the tax is implemented in South Africa it will be monitored and an evaluation will be done to establish if it has helped.

What will this levy mean for consumers?

The industry is clearly against the tax. This was illustrated by the fact that the chairperson of the finance committee in parliament, Yunus Carrim, spoke out about industry interference in the process.

The sugar industry sees South Africa and sub-Saharan Africa as their growth market This means that they will continue to find a way to increase profits. We’re expecting to see the industry change their products in an effort to ensure their bottom line is not affected. The tax will be levied on sugar content, which will hopefully encourage industry to lower the sugar content in its drinks and create healthier alternatives.

The sugar tax has been criticised because it deals with only one factor among a myriad that lead to obesity. What’s your response?

This is true. But that criticism only stands if you view it as a single event. The levy is the first step in a very long journey of a range of different interventions that will need to happen.

This was also the case with tobacco. The first step was a tobacco tax. This halved smoking rates over two decades. It was followed by the banning of advertisements and very clear labelling about the dangers of tobacco.

The health promotion levy – which research shows is by far the most effective mechanism – will need to be followed by clear and transparent labelling. We need to move away from just having sugar levels listed in grams on the back of cans. There should be labels in large letters on the front of cans informing consumers about the number of teaspoons of sugar they’re drinking.

The second intervention should be marketing and advertising regulations of these drinks, particularly to children.

Karen Hofman, Program Director, PRICELESS SA ( Priority Cost Effective Lessons in Systems Stregthening South Africa), University of the Witwatersrand and Aviva Tugendhaft, Deputy Director, PRICELESS SA, Wits/MRC Agincourt Rural Health Transitions Unit, Wits School of Public Health, University of the Witwatersrand

This article was originally published on The Conversation.

Lessons for South Africa's Jacob Zuma in Robert Mugabe's misfortunes

The political troubles of Zimbabwean President Robert Mugabe comes with lessons for his South African counterpart Jacob Zuma.
REUTERS/Siphiwe Sibeko

President Robert Mugabe’s endgame in Zimbabwe holds various lessons for his South African counterpart, Jacob Zuma, as the latter too, considers his prospects towards the end of his presidency. The first, obviously, is that while, from the pinnacle of power, a country’s president may feel the monarch of all he can survey, it is always possible that the blade of the guillotine is just around the corner.

Accordingly, it is always prudent to keep at least two bags packed for a hasty exit: one full of suit, shirts, underwear and socks, another full of foreign currency (preferably dollars or Euros). You just never know how things might pan out, so it is best to be prepared.

Following the almost-coup, Mugabe has been in a stronger position than many African dictators before him because the African Union has in recent years become a lover of democracy and a hater of coups. It therefore now demands that changes of leadership must have at least a veneer of constitutionality.

This has always been the Zimbabwean military’s weak point during this past week of flirting with political power. Hence its insistence that, despite its take-over of the airwaves, State House and parliament, alongside its house-arrest of the president and his family, its actions are not a coup.

In turn, this has provided Mugabe with a considerable degree of wriggle room, which he has sought to exploit to the full. Indeed, it has remained his key bargaining chip, not least because the African Union does not want to be seen as party to the overthrow of a hero of African liberation.

Explicit political actor

Zuma will feel confident that whereas in Zimbabwe the army has long been deeply involved in the ruling party’s internal affairs and the wider political arena, the South African National Defence Force is not an explicit political actor. He stands in no fear of a military coup (or even a Zimbabwe-style non-coup). Yet he does have to worry about what happens within his political party, the African National Congress (ANC).

Even if his favoured candidate, Nkosazana Dlamini-Zuma, were to win the party leadership at the ANC’s December congress, Zuma’s continuing as South African President might be seen as a political embarrassment. If strong contender Cyril Ramaphosa wins, even more urgent calls will be made from within the ANC for the him to be “recalled” because he will be viewed as an electoral liability.

It is a fair bet that, whoever wins, an excuse will be made for a delegation from the party leadership to visit the president and to ask him to stand down. Just ask former President Thabo Mbeki who was fired by his own ANC. If Zuma refuses to cooperate, then the ANC might turn to parliament, where enough ANC MPs might feel emboldened to vote with the opposition to dethrone him.

Fighting for survival

Like Mugabe, Zuma will be battling for a dignified exit. Even more urgently, he will be fighting for survival. In previous years, Mugabe may have feared the prospect of retribution for his sins, and would have been determined to secure immunity from prosecution.

Now, at 93, he is confident that once out of office he will be left in peace. He may or may not appreciate the irony that, unlike his country’s last white ruler Ian Smith, he will not be able to stay in Zimbabwe after he has been forced to stand down, but he will know that he has to leave.

Neither the army nor Zanu-PF will want him hanging around, fearing his ability to continue pulling strings. So off he must go, to South Africa, Dubai or Singapore (anywhere with a few decent shops for his shopaholic wife Grace). His major immediate concern then, we may presume, is safe passage and immunity for his family. We may further presume, that there is lots of money stashed away in foreign bank accounts to keep the crocodile from the door.

Zuma’s tricky position

Zuma is differently placed. If he loses the Presidency he stands in all sorts of dangers, not least of which is prosecution for past financial crimes and the prospect of his ending his days in prison. In other words, he has much more to bargain for, and he will be doing so from a considerably weaker position. Not least of his problems is that he is a lot younger than Mugabe, so could spend quite a few years in jail.

Zuma’s major strength is that, whoever wins the party leadership, the ANC will probably want to grant him immunity and get him out of the way, as otherwise they face the prospect of their former leader facing a corruption trial during the lead up to elections in 2019.

But for a start, there is no provision for presidential immunity in the constitution, and its grant would face a strong challenge in the courts. Furthermore, if the Gupta or other Zuma allies in the project of “state capture” were to be prosecuted, Zuma could face being dragged into court as a witness.

In short, Zuma will realise that it will make sense to hot-foot it out of the country, preferably to a comfortably authoritarian country which will turn down requests for extradition.

The fickle people

What Mugabe is learning now, and it is something of which Zuma should take good note, is that the people are an ungrateful lot, and are likely to turn against you just when you most need their support. Up till a week ago, it was presumed that Mugabe retained the backing of all who mattered in Zanu-PF and that he would again be its candidate for president at the next election. But now, like many a dictator, he is having to learn fast that the people no longer love him.

Past allies, like the war veterans, had already turned against him, repudiating his apparent bid for his wayward wife, Grace, to replace him. Zanu-PF Youth leader, Kudzai Chipanga, initially declared his willingness to “die for Mugabe” and labelled Major-General Constantino Chiwenga, the leader of the non-coup, a traitor when the army first intervened. After being locked up, he shamefacedly read out an abject apology, begging forgiveness, and pleading the inexperience of youth.

This has been followed by all 10 provincial organisations of Zanu-PF calling for Mugabe to go, and even encouraging ordinary people to join the marches being organised by opposition parties and civil society demanding his dismissal.

Zuma is too wily a politician not to know that once he loses the party presidency, his support base will drain away, and that he will become known as yesterday’s man. Yet like Mugabe, he will take comfort from the regional body, the Southern African Development Community (SADC), for there is nothing his fellow presidents dread more than the prospect of any one of their number facing impeachment.

He will also know that, unlike Mbeki, whose stature in Africa remains high, he has no viable future as a roving ex-president. Zuma will know that if he wants to enjoy his retirement in peace, he has to leave South Africa before he gets tangled up in court proceedings.

His best option will be to grab those two suitcases, make a hasty exit and move in next door to Bob and Grace in Dubai.

Roger Southall, Professor of Sociology, University of the Witwatersrand

This article was originally published on The Conversation.

Groundswell against nuclear in South Africa could put paid to a power deal

President Jacob Zuma has appointed David Mahlobo, a close ally as energy minister.
Flickr/GovernmentZA

South African President Jacob Zuma, has a maximum of 18 months left as head of state. This time he hopes to rescue a nuclear power deal involving a proposed contract to build between six and eight new nuclear reactors in South Africa.

In an attempt to push through the deal, Zuma has appointed his former minister of state security, David Mahlobo as energy minister. The president trusts that Mahlobo, a close ally for over ten years, will act decisively to implement the deal. He appears to be under orders to get a deal with Russia done and dusted.

The nuclear deal contract is for nuclear reactors to produce 9600 megawatts of power. This would be five times the amount of energy generated from Koeberg, South Africa’s only nuclear power plant which generates a maximum of 1844 megawatts.

But the facts show that the country does not need this extra power. Demand for electricity has come down every year since 2011. And the National Treasury argues that the costs, in the range of at least R1-1,8 trillion, will be prohibitive.

Nuclear energy will also be the most costly electricity source, according to work done by energy experts. In a climate where the state utility Eskom is deeply in debt and is therefore trying to raise the price of electricity by 19.9% for the next few years, investment for nuclear will force up the cost to consumers, and meeting the borrowing requirements will put unnecessary pressure on an already stressed economy.

Zuma’s push for nuclear continues to emphasise how isolated he really is. The anti-nuclear lobby is no longer confined to environmentalists. Large sections of civil society, business, academia and even sections of government have come out against it. My hunch is that democracy will win, and the people will triumph over a tainted and over-extended kleptocrat.

Massaging the energy strategy

Zuma’s efforts to get the deal underway have been stopped in their tracks following a court ruling that declared previous attempts to privilege Russian interests as illegal. The court ruled that before the deal can be reinstated, it has to go through a public participation process and parliament has to approve it. The court also ruled that state efforts to put Eskom in charge of procurement were illegal, as the proper procedures weren’t followed.

It is unlikely that even Mahlobo can meet these legal requirements in the time that his boss has left in office.

Mahlobo’s first step has been to try to speed up the state’s energy strategy – which was supposed to be updated in April 2018. Although the plan is supposed to be updated every two years the 2010 version – which called for more nuclear procurement – is officially still on the table. A subsequent revision in 2013 questioned the need for nuclear. But this plan was never tabled in parliament by the Department of Energy.

The 2018 plan being promised by Mahlobo is expected to re-emphasise the commitment to nuclear. Zuma wants the plan fast tracked. But by speeding it up, the government has indicated to parliament that it will be excluding a public participation process.

This is likely to be challenged given that the plan is the closest thing South Africa has to a national discussion on its energy future.

But even if the plan can be massaged in Zuma’s interests, it won’t be enough to ensure the deal goes through. It will be challenged by political parties and NGOs who are prepared to litigate to challenge a rigged plan if necessary.

Additional hurdles

The public participation process that the national electricity regulator must manage – as prescribed by the April 2017 court judgement – is far from being established. The regulator was berated by the court for not doing this. It has to happen before procurement takes place. The process will provide the perfect opportunity for organisations to make the case that the scientific, environmental and economic arguments against new nuclear are backed by solid evidence.

Even if this process approved the orders of new reactors, there are other hurdles to be cleared. Before the competitive procurement process can be initiated, South Africa would need to renew a series of legal memoranda of understanding with vendor countries. These include France, Russia, China, South Korea and the US. This would ensure that these are free of contractual content, and then sanctioned by parliament. Only then can the procurement proceed legally. And government would have to ensure that the process abides by the Constitutional requirements of “fairness, equity, transparency, competitiveness and cost-effectiveness.”

This means that it will be illegal and unconstitutional to offer Russia preferential treatment in guaranteeing that it secures the deal.

Any transgression of the law or the Constitution will be met by litigation from the environmental lobby. It will be strengthened by an array of other actors, ranging from tax and anti-corruption to human rights activists.

Zuma can of course flout the rule of law, but would he want to jeopardise what is left of an already problematic legacy over this more or less unwinnable issue?

David Fig, Honorary Research Associate, University of Cape Town

This article was originally published on The Conversation.

After Mugabe: why the role of Zimbabwe's army can't be trusted

Zimbabwe’s Defence Force has taken control of the country’s political affairs.
Philimon Bulawayo/Reuters

Former Zimbabwean President Robert Mugabe’s forced resignation invites a re-examination of the military’s role in political affairs. While a professional military is typically expected to refrain from politics, the interface between security and politics can sometimes be blurred.

In Kenya for example, the military Chiefs of Staff usually come from the president’s ethnic community making them partisan to the head of state and the party he represents. Most recently, there have been allegations of the military’s involvement in a poll rigging scheme with President Uhuru Kenyatta’s government.

Other countries such as Uganda, Egypt and Thailand have experienced more flagrant examples of the military’s involvement in politics.

Recent events in Zimbabwe need to be understood within this context. The Zimbabwe Defence Forces (ZDF) latest stunt must be read as political subterfuge. The military has been enmeshed in Zimbabwe’s politics since the liberation struggle. While it has occasionally flexed its muscle to support Mugabe’s grip on power, this time around it has intervened to shore up the ruling party’s fledgling support after years of the former president’s unpopular rule.

Officers who call the tune

The ZDF have been an invisible actor in the country’s protracted crisis. The intervention that resulted in Mugabe’s resignation was the result of a slow brewing coup that has been occasioned by the military’s involvement in the country’s politics since independence in 1980.

The military has been accused of violence and intimidation, as well as participation in electoral malpractices. ZDF’s human rights violations, economic plunder and entanglement in politics have been widely documented. And its professional misconduct has fomented poor civil-military relations.

The military takeover is therefore a manifestation of undercurrents that have been present for years.

According to the latest research, Zimbabwe is ranked 81 out of 133 countries in terms of military strength, just after the Middle Eastern nation of Kuwait, and one rank above Georgia, which is a former Russian territory. It has a total of 52,000 military personnel, 30,000 active personnel and 22,000 reserves.

ZDF prides itself as having been the liberator in the country’s struggle for independence. During the fight for independence political figures were deployed in the military rank and file to motivate the fighters. At the time, the Zimbabwe African National Union (ZANU) was the political wing of the Zimbabwe African National Liberation Army (ZANLA). This close relationship between the military and political wings persisted after independence.

Mugabe has regularly gifted the military through the allocation of exploited resources. He has also rewarded military men with high positions in the civil service to retain their loyalty, for example the late Mike Karakadzai and Samuel Muvuti. These dynamics have progressively obscured the separation between the army, state and party.

Open support for the ZANU Patriotic Front

The military has been openly partisan in its support for ZANU-PF. The politics of patronage and wealth accumulation has characterised the relationship on both sides. In suppressing the opposition, ZDF has created an uneven political playing field through intimidation and election rigging. The Joint Operations Command which coordinates the military, police and intelligence has been central to ZANU-PF’s security policy.

The military has also taken an openly antagonistic stance towards the opposition. An example of this was Brigadier Douglas Nyikayaramba’s description of Morgan Tsvangirai, the leader of the Movement for Democratic Change (MDC), as a national security threat.

By engineering Mugabe’s ouster the military has reasserted its position as an important player in Zimbabwean politics. It may not hesitate to intervene in the event of another “national crisis”.

Factors in the Mugabe ouster

In their clamour to oust an oppressive ruler and his ambitious wife the Zimbabwean people have placed their hopes in a devious military.

It is hard to tell whether Mugabe’s Achilles’s heel was his wife, Grace, or an equally scheming military, which lured him into a false sense of security and then double-crossed him when he failed to indulge their political whims.

The current political crisis could in fact be the climax of an unwitting convergence of machinations from both sides. By casting Grace as the villain, and taking on the role of saviour, the military is attempting to erase the part it has played in Zimbabwe’s fractious politics.

By joining in the calls for the installation of former Vice President Emmerson Mnangagwa, the people seem to have momentarily discounted his dark past in the country’s politics. Examples of his misdeeds include his role as chief architect in the Gukurahundi massacres which was carried out between 1983 and 1987. Approximately 20,000 Ndebele’s were murdered by the military and security forces.

Another dark cloud that hangs over him includes his special relationship with the military. They were jointly involved in the economic plunder of the Democratic Republic of the Congo.

The former vice president has also been known to persecute his opponents.

While he has the support of ZANU-PF and the top military brass when he becomes president he will face the challenge of de-linking himself from his murky past.

What next for Zimbabwe?

The military takeover strongly suggests that the men in uniform are intent on determining the country’s political trajectory. As such, there are limited leadership choices open to Zimbabweans. With the military’s support, Mnangagwa will take over in the interim and potentially win a future election. But he has a blemished past, which the ZDF cannot sanitise. And his installation could plunge the country into further uncertainty.

For Zimbabwe to take a different route, two things need to happen: the radical security sector reforms that have stalled since 2008 need to be revived. These reforms should be targeted towards professionalising the sector by addressing past misconduct, mainstreaming human rights, and introducing community policing. This should go in tandem with depoliticising the sector, and demilitarising the state and some civilian populations.

In addition, the people of Zimbabwe need to agree on a framework for a viable transitional justice process.

Yvonne Rowa, PhD Candidate in Politics and International Studies, University of Adelaide

This article was originally published on The Conversation.