BACK in February, The Economist described President Jacob Zuma as a “one-man demolition job”, prompting considerable outrage within the ANC. A few months earlier, columnist Max du Preez had described him as a “one-man wrecking ball”.
Both of them were talking about the way Zuma has captured key state institutions and used them to protect himself from investigation or even arrest. Du Preez was pushed out as a columnist for the Independent newspaper group for his trouble.
The stories, as events in themselves, have been forgotten, so episodic has our information diet become.
But it was inevitable that Zuma’s poor judgment and management, his ignorance of business and economics and his heartfelt belief that there would always be enough money around for him to carry on regardless would some day trip him up, and the country with him.
That day is approaching at high speed. It has not, as I had always anticipated, taken a ratings agency to rate our debt (the bonds that South Africa issues to fund its growing budget deficit) as “junk”. All it has taken is for the debt market to conclude, without the help of an agency, that our debt is junk already.
Perception is what matters in the market. Last week, a cautionary headline appeared on every Bloomberg terminal in the world – the people who trade our debt in the markets we borrow from all have such a terminal in front of them.
It read: “Zuma’s fiscal strain almost matches Putin’s as junk status looms.”
The story noted that the difference between the rate charged on five-year credit default swops (the insurance against a bond issuer such as a state defaulting) between South Africa and Russia (which is in recession, faces economic sanctions and is involved in two wars) has narrowed to just 14 basis points. A basis point is one hundredth of one percentage point.
The credit default swop rate for South Africa has risen sharply, by 84 basis points to 275 just this year, while Russia’s rates have dropped 188 basis points to 287. That tells us the markets long ago fully priced the insurance on the possibility of Russia defaulting, and it is lessening, while they have cranked up South Africa’s as clear signs emerge that our debt is growing too fast and that there is no obvious evidence the government can stop it.
The ratio of South Africa’s debt to gross domestic product (the total value of all the goods and services we produce) is now about 47% and budgeted to rise to 49%. That is by no means the worst in even the developed world, but all the markets can see is the government demanding of Finance Minister Nhlanhla Nene that he spend more.
He is in an incredibly difficult position, best illustrated by the nonchalant disregard shown for his strictures to spend less by SAA chairwoman Dudu Myeni, a close confidante of Zuma.
The Zuma government inherited a budget surplus from former finance minister Trevor Manuel. By handing operational control of the economy over to the SACP, Zuma virtually guaranteed that our debt is now so large that merely paying the interest on it has become the fastest-growing item in Nene’s budgets.
We spend more servicing this debt than we do on the education budget. It is scandalous confirmation of administrative decay.
It is also a tragedy for Zuma. I have always assumed, and I still do, that he wanted the country to succeed under his hand.
It doesn’t really matter much that he puts party before country. All party leaders do that.
Without party unity – which is what Zuma means when he says “ANC first” – a leader is nothing.
Zuma’s problem is not that he doesn’t know much about economics. Ronald Reagan didn’t either. It isn’t that he “steals”.
Corruption here is still dwarfed by the excesses in countries such as Italy, Russia and Ukraine. Malaysian Prime Minister Najib Razak is under pressure after the transfer of $700-million (about R10-billion) into his personal account!
No, Zuma’s economy is dying of neglect. The long ladder to the Bloomberg headline is built on dereliction.
Zuma has ignored warnings from outside his circle. He has neglected the economy, believing that there is a bottomless pit of money to fund his vaulting national fantasies.
It isn’t easy running this economy. It is, in fact, very difficult. You have to pay attention.
And when you are a leader, it is best to know what you don’t know. I once heard the president try to explain why companies merge.
It was, he said, to cut jobs. You can almost hear his left-wing ministers whispering that to him.
It is a lie. When companies merge, one of the attractions is always to cut costs, not jobs.
But the Zuma government has cut off almost every avenue to reduce costs. Electricity costs are huge. Infrastructure is poor and charges high, so raising the cost of doing business.
The rand has been poorly managed so imported machinery and services are expensive. With youth unemployment now more than 50%, we’re about to introduce a minimum wage.
Eventually, the people who own or manage companies and who have borrowed money to finance them have to pay their debts. The last thing left to cut is jobs.
That’s a direct result of the cost of doing business just rising and rising.
You can squeeze executive pay or tax the wealthy until the pips squeak, but the result will be a mere drop in the ocean.
Fortunately for South Africa, we still have solid institutions at the base of our economy – the Reserve Bank, SARS and the Treasury are well regarded around the world, but they are all under dreadful pressure and, fiscally (in the budget), there is no escape any more.
There will be no Zuma “legacy”. There will just be debt.
Of course, if (when) our debt is downgraded formally to junk, he can still borrow. But the interest climbs exponentially.
First it surpasses the education budget. Then education and defence. Then education, defence and, I don’t know, agriculture. It doesn’t stop, sir, until you stop. But Zuma can’t stop. He knows it and it explains why he is showing signs of distress.
A statement reaffirming already silly remarks earlier about party before country was entirely unnecessary. He is rattled.
But the worse the economy performs, the more money he needs. To buy votes. To make Julius Malema go away. To satisfy his party and his cronies.
The ANC should have no complaint. It has been an enthusiastic accessory to the executive destruction of the past seven years.