South Africa won't create jobs unless it settles on a new social compact

A significant number of South Africans can’t find jobs and scrounge for a living on the sidelines of the economy.
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Nearly a week has passed since South Africa’s 2018 jobs summit. The two-day gathering produced some useful agreements between the social partners: government, organised labour and business (essentially, big business).

This was the fourth jobs summit in 20 years. The frequency of attempts to find a solution to the country’s unemployment problems isn’t surprising given that South Africa has one of the highest jobless rates in the world. The unemployment rate has increased from under 22% in 2008 to the current rate of 27.2%.

But the record on delivering results has been mixed, to say the least.

The first jobs summit in the post 1994 era was held in 1998 when Nelson Mandela’s presidency was nearing its end and amid a developing country debt crisis. It achieved very little. The next one – the 2003 Growth and Development Summit – achieved significant agreements. But these were poorly monitored and implemented.

Six years later in 2009 social partners agreed on a framework to respond to the global financial crisis. In spite of the measures introduced by agreements reached at the gathering, South Africa lost nearly a million jobs.

Undoubtedly the outcome of the recent summit is positive. Job-saving elements of the 2009 agreement have been revived. There are forward-looking commitments such as finance for the black industrialist scheme and a focus on the export of manufactured products. There are initiatives for small business support, technical training and a mechanism for the absorption of graduates into the economy.

But perhaps the most important outcome was that a Presidential jobs council will be established to monitor progress.

As welcome as these developments are, the agreement doesn’t explicitly acknowledge that there might be some fundamental issues in the approach to development and job creation in South Africa. In a paper just published Brian Levy and I identify what these might be.

We argue that the implicit social compact of the 1990s laid a poor foundation for job creating growth in South Africa. Our view is that unless South Africa revisits the implicit and explicit deals struck at that time, the chances of making serious inroads into unemployment are remote.

But is South Africa in the kind of crisis as Mauritius was in 1968 and Ireland in 1988, where key social players were forced to review the social compact and work together towards a coherent developmental model? And do the social partners have strong enough leaders to arrive at suitable agreements?

These are the questions excitingly raised by the outcome of jobs summit, and should, in our view, be the preoccupation of the President’s jobs council.

The 1990s compact

An elite bargain over the country’s economic framework formed an essential part of the foundation for a democratic South Africa. The context of the bargaining process included the capitulation of the communist block, economic stagnation in most African countries, and a relentless campaign by the white South African business community for government not to intervene in the economic framework.

There was the threat of flight of capital and white citizens who were virtually monopoly owners of wealth and key economic skills and networks. What emerged was an apparently strong commitment to market-opening reforms.

The result is well known. The economic policies emphasised what was then called “getting the prices right and what we call "disciplining reforms”. This included: trade and financial liberalisation, fiscal restraint, tougher competition laws and a conservative mandate for the central bank.

Conversely, policies lacked on the side of interventionist mechanisms that were effective in some more successful developing countries. These included support for industrial innovation, cluster development and industrial policy which would have encouraged domestic investment in job creating growth.

Policy choices weren’t the only problem. Key players in the economy were pursuing new agendas as their options had broadened with the end of South Africa’s economic isolation and the repression of apartheid.

South African corporations were focused on narrowing their South African operations and spreading their activities and assets abroad. While they cast off some non-core assets, the corporations remain extraordinarily powerful.

At the same time, the trade unions used their bargaining power with government to strengthen worker rights. All labour laws had to go through the newly formed National Economic Development and Labour Council (NEDLAC) and could not go through until all parties were happy. The result was that big business, which always dominated the business delegation, agreed to labour laws that they could manage with their sophisticated human resource departments and because of the choices they could exercise. However, these laws were not all easy to implement for small and medium companies.

In addition, the reformed industrial training system was poorly designed which set back industrial training for many years.

The market opening reforms combined with the labour reforms achieved very little in the way of supporting dynamic investment and innovation. So, the elite pact that emerged reflected what powerful stakeholders were prepared to agree too – not a coherent package derived from carefully thought out trade-offs.

Compared with outcomes of more successful social pacts like Mauritius in the late 1960s and Ireland in the late 1980s, South Africa’s social compact failed. And over time commitment to the elements of the compact waned.

In a different world

In a different world, perhaps, had South African elites agreed on a clear developmental model and had they strived for suitable strategies, the outcome might have been very different. There would have been a much stronger emphasis on the more interventionist kinds of supportive industrial policies.

It’s not too late. More recently, industrial policy has formed part of the approach of government as seen in major initiatives in several sectors.

Informed analysts in South Africa are now asking “Where is growth going to come from?” Skilled people are streaming out the country as they did in Mauritius in the 1960s and in Ireland in the 1980s. Could it be that this is the moment for a coherent, developmental social compact?

Alan Hirsch, Professor and Director of The Nelson Mandela School of Public Governance, University of Cape Town

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

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.