South Africa's stimulus package shows power is finely balanced in the ANC

Cyril Ramaphosa’s economic stimulus package shows that he and his political allies are in charge of economic policy.
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The economic stimulus package announced by South African President Cyril Ramaphosa shows that he and his political allies are, contrary to much analysis in recent months, in charge of economic policy.

Ramaphosa insists that it is a ‘bold’ attempt to initiate economic change which will particularly benefit youth, women and small businesses. It rests partly, he adds, on ‘significant regulatory reform’.

But the package is more interesting for what it says about the politics of economic decision-making in South Africa’s governing African National Congress (ANC) than for its likely impact on the economy.

Certainly, it does not signal readiness by Ramaphosa and his allies to use their power to introduce much-needed reforms. In an article in the financial press explaining the thinking behind the package, Ramaphosa acknowledged that it rested not on new ideas but on trying to get the government to do what it has already said it will do. He wrote that it was “tempting to unleash novel policy directions” but it was far more important “to build a track record of successful implementation.”

Much of the package depends, therefore, on trying to ensure that government lives up to commitments it has already made – on, for example, funding infrastructure and allocating broadband spectrum licenses – rather than striking out in a new direction.

It is hardly surprising, then, that critics to the President’s left complain that there is no change in the government’s market-friendly approach. Indeed, a business chamber noted that it repeated much that the government had been promising to do over the past five years. The package does not depart from the policy framework which has guided government thinking on the economy for more than two decades.

This might make it seem like a non-event. In reality, the background to the package means that it is politically important.

Timing

The package’s details were announced in late September two months after Ramaphosa first
announced it was on the way. At the time, he also revealed that the ANC had changed its mind and would seek a constitutional amendment to allow it to expropriate land without compensation, having previously insisted that it did not need to change the constitution to do so. Both announcements followed a meeting of the ANC’s national executive committee which makes decisions between conferences. This strongly suggested that the national executive committee had insisted on both the land and the stimulus decisions.

This seemed to send an important message on the balance of power within the national executive committee on economic issues - that Ramaphosa and his allies had been caught off guard by supporters of former president Jacob Zuma.
Ramaphosa narrowly won the ANC presidency whose leadership, including the national executive committee, is divided almost evenly between his supporters and those who backed Zuma. His backers, who are inclined towards a market economy approach, are opposed to the patronage politics of Zuma’s faction, which has come to be associated with corruption and ‘state capture’ (using government for personal enrichment).

Ramaphosa’s chief mandate was to tackle corruption and ‘state capture’ and it was assumed that the Zuma group would try to stop him. But his opponents seem to have shifted their strategy. Instead of, as expected, complaining that anti-corruption measures were doing the bidding of white-owned corporations, they demanded change on policy issues such as land. This seemed to have wrong-footed Ramaphosa and his supporters, forcing them to react rather than to steer the ANC’s agenda.

The stimulus package seemed to stem from the same source as the land announcement – a push by the Zuma group to shape economic policy. All of this suggested that the Zuma faction was successfully pushing ANC policy in a less market-friendly direction.

But the fact that the package is firmly within the current framework signals clearly that Ramaphosa and his supporters are, after all, in charge of economic policy. It shows that they decide the government’s response to economic challenges despite the Zuma faction’s strong presence.

This does not mean that they are directing the ANC and government economic agenda. They still seem to be reacting to pressures for policy change from their rivals.

This is not surprising. Poverty and inequality are still strong realities in South Africa and many black professionals and business people still believe that they do not enjoy equal opportunities. If Ramaphosa and those who agree with him simply dismiss the calls for change, they will appear to be defending the indefensible. This allows its opponents to insist on government action – but they do not control the details when the decision to take action is turned into a concrete policy or programme.

That they were able to decide the details of the stimulus package is important if we bear in mind that the economy is in recession, which should increase pressure for more government spending – a pressure which they resisted. And, if they are able to shape the details of the stimulus package, it seems likely that they are equally able to shape policy changes on land and other issues, such as national health insurance, which are likely to be sources of pressure for change in the near future.

What is not clear is whether they are able to decide what will change – rather than just react to what their opponents want. To do this, they need to move beyond their current framework and to seek to take the economy in a new direction, which would tackle the exclusion of millions from its benefits while preserving, and strengthening, its ability to produce.

Need for a new path

It is now widely agreed that a new path is needed. Ramaphosa’s group will, therefore, remain on the defensive as long as the voices insisting that change is needed are those of their opponents. There is no contradiction between taking seriously the need for growth and investment and steering the economy in a direction which will open opportunities for many more people. On the contrary, the one depends on the other.

Given this, the voices calling for change – as well as those deciding what form it should take – should be those of the faction which insists it wants to get the economy working for all. It should not wait for the group which sees calls for radical change as a means of siphoning off the public’s resources to a small group of connected people to place the need for change on the government’s agenda.

Steven Friedman, Professor of Political Studies, University of Johannesburg

This article is republished from The Conversation under a Creative Commons license.

A view of Johannesburg through lenses from a different era

Carmel Building in Diagonal Street, Johannesburg.
Museum Africa (left) Yeshiel Panchia (right)

Johannesburg was always a much photographed place from its earliest days. It was a city that grew up with photographers and their cameras. As a town of migrants and immigrants, people wanted to send postcards and photographic souvenirs back home.

Some proof is in a new book, Johannesburg Then and Now, by history blogger, Marc Latilla. It is a series of photographic juxtapositions of early photographs of the city – dating from the 1880s to the 1940s – with contemporary images of the same street scene or building by photographer Yeshiel Panchia.

The book is descriptive rather than analytical, with the emphasis on Johannesburg buildings, places and streets and not its people. Latilla’s love and passion for his city comes through in his descriptions.

Young city

At a mere 132 years Johannesburg is a young city compared with cities of the world. London and Rome go back over 2000 years.

It started as a mining camp with a gold bonanza once George Harrison had found gold on the Main Reef in 1886. The new mining settlement was named Johannesburg – the origins of the name and who precisely was the “Johannes” of Johannesburg is still in dispute. The camp grew over time to a city. Today it is a metropolis that dominates the province of Gauteng, both as the provincial capital and the financial heartland of South Africa.

Johannesburg is a fractured city, divided in all sorts of ways. Geographically it’s split by the mines of the Witwatersrand - one can still see their remains south of the city while the north has a very different landscape.

Another divide was created by the railway which cut the town in half with the most affluent suburbs to the north and the less affluent to the south.

The city’s economic divide was also evident in the architectural styles of the residential areas which reflected status: from the working class, to the lower and upper middle class, and then at the very top end the grand estates on the northern ridges for the Randlords and newly enriched capitalist class.

The town was also divided by race from its earliest days. While there was always economic integration, segregated residential areas for different racial groups were the norm. The township of Soweto was created in the 1930s when the white government started separating black people from white people.

This policy of racial and class separation was perpetuated further when apartheid became official policy in 1948. It also led to forced removals of black people to townships outside the “white” city.

Growing in circles

Johannesburg has always grown in concentric circles. Municipal boundaries were periodically extended, mapped and basic services of water, sewerage, lighting, tramways financed by an increasing number of ratepayers brought into the net to support the city. Soweto, once the internationally recognised site of the 1976 youth uprising, is now part of the city, but so is the glitzy new glass and concrete post-modern city of Sandton.

The Johannesburg that has been captured in this book though is the old Johannesburg; what was called the Central Business District and its surrounding suburbs. This is Johannesburg from 1886 to a date more or less 50 years later when the city celebrated its jubilee with the Great Empire exhibition at Milner Park in 1936.

I should declare an interest – I was first asked by Penguin Books if they could use an image of an old early title deed that I had written about and then to give the book a preliminary early opinion. As historian I found myself drawn in to assist in some fact checking and comments to help the author. Of course the selection of photographs and his commentary remain his entirely.

The old photographs were taken by countless unknown and mainly anonymous photographers. They are remarkable in their own right. It was so much more difficult to take and make a photograph in 1900 than in our digital age. Those old photos in black and white are works of art as much as are the perfect colour and light reflected images of today. The sources of the old photographs are primarily from collections held by the University of the Witwatersrand, Museum Africa and the Transnet Heritage library. The early photographs are tend to be undated, so that the “then” can be any time from circa 1890 to the 1930s and even later, while the now photographs are all in colour and clearly belong to the last few years.

Superb find

My favourite photo is the old aerial view of the Harrow Road redevelopment when the first Johannesburg freeway was engineered (Harrow has since been renamed after a famous Johannesburger, the liberation struggle stalwart Joe Slovo). The photo allows us to see precisely how Harrow Road was widened and changed direction in the fifties. This single photo is a superb find.

A book such as this makes a contribution to heritage because it captures, assembles and documents the old and now the new. Where old photographs have been found recording what a particular building looked like and the building is still there, such photographic documentation strengthens the heritage preservation case.

However, none of the grit, crime, grime, litter or lack of maintenance we battle against today is visible in the modern photographs. This is the Johannesburg we don’t see: the crisis of homelessness and densification of dwellings. Who, for example, would know in the photo of Plein Street park that it is actually now a dormitory area for dozens of homeless people without jobs? Is it the city or history or harsh economic realities that has failed them? Of course one can argue that modernization and urbanization always left victims and the city of gold did not bring fabled wealth to all .

Johannesburg Then and Now is a fascinating book. It’s important for cities to preserve their pasts , because “Roots” matter as much as “shoots”. This book can perhaps start a discussion about what ought to be appreciated and “saved”. The book will remind city planners to include heritage in their planning for a 21st century city.

Johannnesburg Then and Now is published by Penguin.

Kathy Munro, Honorary professor in the School of Architecture and Planning, University of the Witwatersrand

This article is republished from The Conversation under a Creative Commons license.

Shades of Brazil as anti-corruption drive in South Africa turns nasty

Julius Malema and his Economic Freedom Fighter are using President Cyril Ramaphosa’s anti-corruption campaign against him.
EPA-EFE/Kevin Sutherland

What better way to derail an anti-corruption campaign than to beat it at its own game? You might damage or derail democracy in the process, but that is the country’s problem, not yours.

Anti-corruption campaigns are normally good for democracy. But they can threaten it: this happens when the people claiming to root out corruption are themselves corrupt. One recent example is Brazil, where an elected president, Dilma Rousseff, was forced from office by politicians who are far more corrupt and were covering their own tracks. Something similar seems to be afoot in South Africa.

One recent sign that not all fights against corruption are principled is an unexpected shift in strategy by the Economic Freedom Fighters (EFF), the country’s third biggest party.

The EFF, whose founding leaders were either suspended or expelled from the governing African National Congress (ANC) at the behest of former President Jacob Zuma, won the hearts of sections of the middle class when it joined the campaign against Zuma and his faction. Its brash style, designed to win maximum media attention, struck a chord among a middle class angered by Zuma’s patronage politics.

Now it has changed sides and is using the same style of politics to go after Public Enterprises Minister Pravin Gordhan, who plays a key role in President Cyril Ramaphosa’s fight against corruption.

This is part of a wider shift in approach in which it now says in public what the Zuma faction would like to say but which ANC discipline will not allow. It has supported former head of the South African Revenue Service Tom Moyane whose dismissal was recommended by a judicial commission of inquiry after hearing evidence that he had caused the Revenue Service huge damage in the service of Zuma’s faction. It has backed VBS Bank, which was wound up after an inquiry found it had been brought down by looting.

Diverting Attention

The EFF’s reasons for switching sides are not mysterious. Its leaders are accused of benefiting from VBS and the party has received money from a company accused of benefiting from the illicit tobacco trade: one of Moyane’s goals was to close down the Revenue Service’s investigations of this trade. So, like the Zuma faction itself, it is diverting attention away from its own dealings.

This confirms what the middle-class enthusiasm for the EFF ignored. Its campaign against Zuma was not a fight against corruption but pay-back for driving them out of the ANC. Before then, the EFF’s leader, Julius Malema, had been a loud supporter of Zuma and was accused of much the same behaviour. Now that Zuma has gone, he and the EFF can return to defending the behaviour which once made them Zuma allies.

More interesting – and ominous – is how they are going about it. During the last period of Zuma’s presidency, his faction’s routine response to criticism of their links to key figures in the state capture project, the Gupta brothers, and campaigns against corruption, was that the critics were lackeys of “white monopoly capital”. The EFF has not abandoned this theme but has added one: instead of denouncing the anti-corruption campaign as a white plot, it has tried to turn it on those in the ANC who pose a threat to them by accusing Gordhan of corruption.

Their first salvo was an attempt to link him to the Guptas by suggesting that, like recently resigned Finance Minister Nhlanhla Nene, he met them and did not disclose this. Later, they claimed he and his daughter Anisha benefited financially from their links to government.

What’s behind the switch

This campaign may not be all the EFF’s own work. Its many admirers in the media like to portray it as immensely powerful despite the fact that its share of the vote has never reached 10% – they suggest that it has an army of sources feeding it information.

More likely is that ANC factions use the EFF to fight their battles by leaking it information about their opponents. The Zuma faction may also have leaked to the main opposition, the Democratic Alliance, the claim that Ramaphosa or his son received money from Bosasa, a security company which does business with the government. If, as is probable, the faction is leaking the information to the largest two opposition parties, then it has decided that instead of denouncing the anti-corruption campaign, it will use it against Ramaphosa, Gordhan and their allies.

The obvious reason for this switch is that it is far more plausible. Anger at corruption is deep and widespread and so blaming white business for the campaign against it persuades no-one outside the faction. But precisely because many people are appalled by corruption, painting politicians who say they are fighting it as corrupt wins some sympathy from media and citizens who are more than willing to believe that all politicians are on the take. This is particularly so because the baleful effect of money on politics is not restricted to Zuma and his faction and many citizens know this.

If this strategy gains momentum, it could threaten democracy. Anti-corruption campaigns are essential to democracy – when they seek to replace corrupt people and practices in government with alternatives. When they signal that all office holders are corrupt, they breed cynicism which weakens or ends democracy. Why bother who wins and loses if all politicians are corrupt? Why fight for clean government when no-one will make it happen? But that does not deter those who smear their opponents – democracy is probably an obstacle for them anyway.

Fortunately for democrats, the new campaign is likely to fail. The evidence so far suggests that Gordhan has no case to answer and most voters will probably see this. Ramaphosa does have some explaining to do but voters are likely to see a President who did not know about an untoward payment and then rectified it as a better bet than one who tries to wreck government to hide those payments.

The EFF is a long way from challenging for control of a single province, let alone the country and so the only plausible winner is the ANC’s Zuma faction which is discredited among voters: if it took over the governing party, it would probably lose the next election in 2019.

But, unless public debate distinguishes clearly between politicians who serve themselves and those who serve citizens, and continues to insist that corruption can be controlled, those who peddle cynicism to protect themselves will continue to threaten democracy.

Steven Friedman, Professor of Political Studies, University of Johannesburg

This article is republished from The Conversation under a Creative Commons license.

Book on Steinhoff's demise shows danger of 'big men' business leaders

Steinhoff CEO Markus Jooste was an excessively dominant, forceful and feared boss.
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The collapse of Steinhoff International, the multi-billion dollar global business group, has been rightly described as the biggest corporate scandal in South African history.

The company’s history, and its subsequent evolution and demise, are skillfully told in a new book Steinhoff: Inside SA’s Biggest Corporate Crash, by former journalist James-Brent Styan. It is the story of a bold vision and ambition, entrepreneurial grit and guile, continuous innovation, relentless risk-taking, corporate hubris, and friendship betrayals.

The extraordinary way in which Steinhoff grew from being a modest firm with a footprint only in Germany and South Africa to becoming a multinational behemoth straddling sectors such as furniture manufacturing, retail, logistics, consumer finance, building material, wood and vehicles with a global presence, is impressive.

In its pursuit of growth, Steinhoff employed a two-pronged strategy. The first focused on creating a low-cost manufacturing base. This enabled the business to supply products at cheap prices to its target market of lower-to-middle income groups.

The second pillar consisted of an aggressive acquisition of companies. A great deal of the acquisitions took place in European countries such as Germany, Poland and France but also extended to Australia, New Zealand, Britain and the US.

The acquisitions were costly and the conglomerate paid above the market value for the shares. The rapid spate of takeovers saw the group expand to 12 000 stores across the world, employing 130 000 people. Ultimately, Steinhoff became a fully vertically integrated enterprise – it was involved in all the value chain links from sourcing raw materials, to manufacturing and finally to distribution and sale of products.

Shaky foundations

At the pinnacle of its success, the international business giant became the darling of investors, asset managers, analysts and financial journalists. They all feted its expansion into new ventures and countries. But, as it later turned out, its success was built on shaky foundations epitomised by unfettered greed as well as dodgy and unethical practices, including alleged accounting irregularities, tax evasion and lax corporate standards.

The day before the Steinhoff group’s precipitous crash, the corporation was worth R193bn. On the following day, its market value was decimated by a staggering R117bn. Among the victims of the financial carnage were financial South African services giants Coronation Fund, Foord Asset Management, Sanlam, Investec, Liberty, Old Mutual, Allan Gray, Discovery and the Nedgroup.

The biggest losers were key investor and Pepkor chairman Christo Wiese (R37bn) and the Public Investment Corporation (R14bn), which manages the Government Employees Pension Fund. Overnight, millions of South Africans had lost billions of rands in pension funds.

The book encompasses a diverse range of themes and proffers a number important business lessons. Some bear mentioning.

Lessons

The case of Markus Jooste, then Steinhoff CEO, shows that the cult of personality and “Big Man” syndrome is as ubiquitous in the corporate world as it is in politics. He comes across as an excessively dominant, forceful and feared boss. He brooks no dissent and only those subordinates who obsequiously defer to him benefit from his extensive patronage. To the detriment of the business, his leadership style fostered an institutional culture of uncritical subservience and self-censorship.

A recurring question in the book is: Despite occasional red flags how could the analysts, investors, asset managers, directors and the Johannesburg Securities Exchange have been oblivious to the wrongdoing at Steinhoff?

Part of the problem was the dominant view that the company could never go wrong. As long as the share price kept rising, and the good news kept flowing, there was nothing to worry about. There were, of course, some skeptical and dissenting voices, but they were too few to upend the prevailing consensus.

The crucial lesson here is that the share price is not the only indicator of corporate performance; fundamental governance issues are equally, if not more, important.

As Steinhoff’s global expansion accelerated, its business model and structure became more complicated. Some market analysts have argued that the firm’s increasingly complex structure, coupled with the group’s continual acquisitions, made it nearly impossible to analyse its books and to do year-on-year comparisons.

Even so, there was a belief that as long as strong, charismatic and venerated business personalities such as Jooste and Wiese, Steinhoff’s chairman at the time, were at the helm the business was in safe hands. This trust in Jooste and Wiese, as well as in management and directors, proved to be misplaced. As Warren Buffett has wisely counselled, never invest in something you don’t trust.

The Steinhoff board of directors, long viewed as one of the strongest and most dependable, has come under fierce criticism for failing to exercise its fiduciary duty. Describing the board, one fund manager stated that it was
“ineffective, not independent and was overwhelmed by Jooste’s strong personality”.

Criticism has also been directed at Deloitte, the firm that audited the company’s statements for 20 years, for disregarding the irregularities and the danger signs preceding the crash. It is this milieu that prompted an analyst to describe what happened at Steinhoff in the book as follows:

It’s a buddy-buddy system, a bunch of people who know each other and have worked together for years. It strips them of their capacity to question things that don’t make sense.

Up there with the worst

Styan must be commended for producing a cogently written and thoroughly researched book. In terms of its drama and catastrophic impact, the Steinhoff scandal is up there with the likes of Enron, Worldcom, Tyco, Freddie Mac, Bernie Madoff and other world infamous episodes of business malfeasance. As such, the book provides valuable insights and lessons that are universally applicable and comparable. It must be made compulsory reading in corporate boardrooms and business schools.

Mills Soko, Associate Professor, Graduate School of Business, University of Cape Town

This article is republished from The Conversation under a Creative Commons license.

Why giving South Africans title deeds isn't the panacea for land reform

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The land reform debate in South Africa has become increasingly polarised since Parliament resolved to consider amending the country’s Constitution to allow for the expropriation of land without compensation.

But the slow pace of land reform – a process that aims to address the dispossession of the previously oppressed black majority – will not be solved by amending the Constitution. That’s because the main problems with the country’s land reform programme have nothing to do with it.

The main problem lies with the government’s thinking behind land reform. It’s rooted in a Western, colonial mindset that’s totally out of step with how many would-be beneficiaries understand land.

The problem stems from the fact that indigenous systems of land ownership are not the same as the absolute ownership approach preferred by the West. Nor are they what early colonialists assumed when they adopted a communal paradigm, assuming that land was collectively owned by indigenous communities. This was not the case. Some land was for communal use (particularly grazing and some agricultural land), but families and individuals held exclusive use rights over other areas such as homesteads.

The legacy of this is devastating. Adherence to a communal paradigm strips people of the ability to hold land rights individually. This is unconstitutional. Yet the paradigm persists: we can see it in, for example, the communal land rights Act, and the communal land tenure policy.

South Africa needs to move away from the communal paradigm that entrenches colonial and apartheid-era thinking, and move towards an approach that’s better aligned to living norms and traditions.

Rejecting the communal paradigm, I prefer to refer to customary land tenure to describe how indigenous communities manage their land. Customary tenure systems are regulated by traditional norms and practices, within which land rights are socially embedded. They are dynamic, multi-layered and responsive to the needs of the community. As a result, and contrary to common perception, they can offer secure tenure.

What is required is legislation to recognise and protect them, and for such legislation to be properly implemented. This, unfortunately, is not the government’s approach.

Flawed thinking

The government sees customary tenure as insecure and an impediment to economic development. In terms of the Green Paper on Land Reform, land in South Africa may only be owned by a “small elite”. The State Land Lease and Disposal Policy (which does not provide for ownership, but allows beneficiaries of land redistribution to lease land from the State), has been criticised as showing the government’s lack of faith in poor black farmers. And the Communal Land Tenure Policy seeks to transfer ownership of customary land to tribal authorities.
This deprives land rights-holders of their land rights, rendering them subjects of the chief instead of citizens of the country. Such an approach is unequivocally unconstitutional.

Globally, individual title to land (ownership) is seen as the ultimate goal because it allows people to access the capital value of their land and promotes investment. This view is supported by both the African National Congress and the main opposition party, the Democratic Alliance.

Titling is seen as a sure way to lift people out of poverty. But the link between giving people title deeds to their land and poverty alleviation in sub-Saharan Africa is contested.

Ownership

Titling, or the formalisation approach is supported by some people, while others argue against it. Those who oppose it warn that it could bring about greater insecurity of land tenure, especially for women and other vulnerable groups.

From interviews I conducted with customary land rights-holders in the Eastern Cape, the biggest fears around formalisation were:

• Having title to land is expensive because you are immediately liable for rates and taxes, and banks may seize your property should you default on loan repayments.
• For the poor and vulnerable, especially, this may lead to a decrease in tenure security and push them further into poverty.
• Titling also leads to a loss of tribal identity because individuals may choose to sell their lands to outsiders who do not identify with the traditions and customs of the area.

Government views formalisation through registration and title as a quick fix “silver bullet” solution, but it’s beset with “intractable problems and conflicts”.

In some cases, beneficiaries of land titling programmes revert to customary practices. This is partly because they don’t identify with government’s imposed system of ownership.

Customary tenure systems

A conservative approach is to recognise customary tenure systems that are socially embedded and that may offer more security than ownership through titling. Such recognition represents a shift away from the supremacy of ownership that views individual title as the be all and end all.

In South Africa, both the Interim Protection of Informal Land Rights Act and the former Land Rights Bill of 1999 adopted a conservative approach. Both documents recognised existing land rights and sought to protect and further strengthen them. But Interim Protection of Informal Land Rights Act is often overlooked, and the Bill was scrapped.

Current policies seek to undermine customary land rights-holders, allowing them only to lease land from the state or to have secondary use rights as subjects of traditional authorities. South Africa needs a new approach, one that challenges the supremacy of titling and casts off the shackles of the communal paradigm.

Simon Hull, Senior lecturer, Division of Geomatics, University of Cape Town

This article is republished from The Conversation under a Creative Commons license.