A collection of Futuregrowth thought leadership pieces, media articles and interviews.

On the brink: SA’s political and fiscal cliff-hanger

15 Nov 2018


A book review by Melissa Moore, Investment Analyst

On the Brink by Financial Mail economics editor, Claire Bisseker, is perfectly described by the author as a ’political thriller‘, with South Africa’s fiscal undoing as its backdrop.  It is a gripping and compelling account of how the political and economic happenings since the dawn of our democracy have brought the country to the brink of a fiscal crisis, with the author posing her thoughts on how to move forward from this point. Through her impressive story-telling ability and accessible writing style, Bisseker manages to distil the complex subject matter into a remarkably easy, enjoyable – but also disturbing – read.

The political thriller

The book begins with the catalytic events of 9 December 2015, when Minister Nhlanhla Nene was unceremoniously fired and the seething influence of the Gupta family on the state became widely known in SA.  As described in the book by political analyst Nic Borain “Nene’s dismissal had been a rude wake-up call for the investment community, which, until then, hadn’t acknowledged the ‘voracious criminal conspiracy’ that had state spending by the throat, the generalised looting that was occurring, or the fact that SA’s democratic project had been hijacked by a Gupta/Zuma/Premier League set of interests”.

Without the country’s official credit rating having yet been downgraded, the rand plummeted to its lowest level ever, and SA’s credit risk was priced on par or worse than junk-rated countries such as Russia and Turkey. 

Following replacement Des ’weekend special’ van Rooyen’s four-day term as Finance Minister, Bisseker describes Pravin Gordhan’s term as a “high-stakes battle over the heart and soul of the African National Congress (ANC) - and the very future of the nation itself”. There were attempts at restoring fiscal discipline and faith in SA on the one hand, and the country being undermined by institutionalised mismanagement at the nation’s State Owned Entities (SOEs) and political interference from then President Jacob Zuma and his cohort on the other.  Amidst continued attacks against National Treasury and evidence of flagrant corruption and maladministration undermining any hopes of structural reform, the cathartic 2016 local election demonstrated that the ANC had lost favour with many voters.  Ultimately, though, the country paid the price, says Bisseker. SA’s self-destructive politics, alongside cyclical shocks such as the worst drought in 50 years, exerted a severe drag on the economy.  By the end of 2016, economic growth had slowed to a crawl, fixed investment was mired in recession and business confidence was deeply depressed.

In due course, this so called ’high-stakes battle’ culminated in a midnight cabinet reshuffle which saw both Gordhan and his deputy minister Jonas fired.  Soon thereafter, SA’s official credit rating was downgraded to junk status by both Standard & Poor's and Fitch, with Moody’s placing the country on review to be downgraded.  As Bisseker describes in the book, “The rating agencies left the country in no doubt: the ousting of Gordhan had imperilled the country’s fiscal and growth prospects…With the stroke of a pen, Zuma had labelled the country as one that placed little value on economic policy stability, business confidence or the credibility of its Treasury”.

State capture

In one of the most enthralling chapters of the book, Bisseker entrusts the pen to Rob Rose, deputy editor of the Financial Mail, to describe what has become a household term in the country: ’State Capture‘.  He relays the tale of the Guptas, an Indian family that relocated to SA in the early 1990s, whose business endeavours started with an imported shoe shop in Killarney Mall and escalated to the family all but playing puppet-master to the presidency.

This chapter invoked recollections of the concerns expressed by Futuregrowth Asset Management in our 2016 decision to halt funding to SOEs, and reiterated the dire need for meaningful governance reform within the nation’s institutions. 

He describes the insidious relationship between the Guptas and former President Jacob Zuma and his son Duduzane, and the inappropriate way in which state resources were misdirected for their private interests.  A frightening example of this was the allegation in May 2016 by former deputy finance minister Mcebisi Jonas that he had been offered the position of Finance Minister by the Guptas, along with a bribe of R600 million.  Another was the close to R600 million that Eskom advanced to the Gupta owned Tegeta company, under the guise of being an advance payment for coal, but was more likely financial assistance (from an energy utility!) to enable a Gupta-owned company to purchase the Optimum coal mine.  And on Zuma’s attempts to deny State Capture, Rose cleverly quips that for a businessman to be “shopping around cabinet positions, with all the discretion of a drunk at a poker game” the executive must indeed have been captured.

This chapter invoked recollections of the concerns expressed by Futuregrowth Asset Management in our 2016 decision to halt funding to SOEs, and reiterated the dire need for meaningful governance reform within the nation’s institutions. Futuregrowth’s decision receives high praise in the book, with the author applauding the market-leading decisive action taken to root out corruption at the country’s institutions, and our unwavering commitment to this stance in the face of severe criticism.

How did we get here?

Of course, these dramatic events did not emerge overnight.  In the subsequent chapters, the author goes on to describe the years between the dawn of the SA democracy in 1994 and the predicament that the country now finds itself in. She describes the successes experienced under former finance minister, Trevor Manuel, who implemented effective inflation targeting and improved tax collection, and exercised expenditure control and better budgetary allocations.  All of this enabled the Treasury to improve the budget deficit and almost halve government debt from 50% of GDP in the early 1990s to 27% in 2009.  Thereafter, she explores how years of low growth and unsustainable spending proceeded to push the country to the brink of a debt trap, with debt to GDP rising progressively back up to above 50% by 2017.

In her economic overview, under the apt heading "Lost in the wilderness", the author describes the various growth and development plans that were produced over the past decade and the “glaring policy incoherence” between these plans.  While the Accelerated and Shared Growth Initiative for SA recommendations of 2007, The New Growth Path of 2010 and the National Development Plan of 2012 (NDP) all sought to achieve the same objectives, Bisseker describes how she believes these initiatives contradicted one another in terms of how to achieve the objectives.  As a result, she concludes that the efforts to combat low growth, unemployment, inequality and poverty have often tugged in opposing directions.  This policy confusion and inertia, the author describes, came down to an inability of SA's leaders to transcend the ideological divides that polarised the ANC, the Tripartite Alliance (i.e. the ANC, Cosatu and SACP) and SA society as a whole, and have severely constrained our growth potential and ability to make headway against inequality and poverty.

A moment in the book that resonated deeply with me was the author’s reflection on the tragedy when, a day after the NDP was delivered on 15 August 2012, the police opened fire on a crowd of striking mine workers at the Marikana mine, shooting 112 miners and killing 34, in a show of force grotesquely reminiscent of the Apartheid Era.  "The NDP recommended that the police be demilitarised", she quotes Manuel.

The author then goes on to draw the link between this policy uncertainty and poor export performance, as well as the low level of fixed investment prevalent in the economy.

How do we get out of here?

Importantly, Bisseker identifies various areas that would need priority attention to get the country back on track. These include:

  • Addressing the country’s skills constraint through education reform and recruitment of skilled individuals from abroad;
  • Increasing SA’s savings rate to fuel higher investment;
  • Reforming SA’s transport and communication network (according to the author SA’s high logistics costs raise the cost of doing business and undermine the country’s competitiveness);
  • Shifting the economy to a more labour intensive growth path;
  • Increasing competition between firms, particularly in sectors currently dominated by SOEs;
  • Creating a more market-friendly environment with greater policy coherence and certainty in order to repair the relationship between government and business; and
  • A leadership renewal at the political level.

While I can’t conclusively opine on whether the actions above would remedy the country’s political and economic woes, they are certainly worthy considerations.

A limited perspective

The author briefly touches on the very emotive subject of Radical Economic Transformation. At times it felt that this, and any criticism against capitalism, were dismissed as populist rhetoric. A more balanced discussion on why these narratives have resonated so deeply with much of the SA public may have served the book well.

The book contains very little criticism of the private sector, other than to say that business has perhaps not been vocal enough in the face of the political challenges of the day.  But recent scandals in the corporate market (think Steinhoff, Resilient and MTN) have shown that a lack of ethical leadership is rife in the private sector and this too has a cost to the economy.  The author speaks highly of the CEO Initiative that stood up against political corruption and state capture in 2017 - but what of the exorbitant salaries of certain CEOs, which continue to reinforce the inequitable patterns of wealth that were inherited from the past?  Mark Lamberti is quoted in the book as expressing the outrage of business over state capture and corruption – however, he himself was recently embroiled in allegations of discrimination when a fellow white male was appointed instead of an arguably more qualified woman of colour who was then unfairly dismissed for escalating her concerns via the appropriate channels.

The author, through her limited perspective, may not be able to fully consider and relate to these issues. This is my biggest criticism of the book. 

Notwithstanding these nuances, it remains an insightful and informative record of SA’s political and economic history and is certainly a worthy read.

What has happened since?

Since the release of the book towards the end of 2017, SA has continued to live in the unabated political and fiscal thriller.

The outcome of the ANC’s 54th Elective Conference boosted sentiment in the first half of 2018, with President Jacob Zuma ousted and replaced by President Cyril Ramaphosa, the favoured choice among the business and investor community.  Investors and consumers were buoyed by the promise of a ’new dawn‘ and the incoming President’s rejigged cabinet largely asserted itself with decisive action, evidenced by the tabling of a market friendly national budget and timely governance-related changes at ailing SOEs.  Moody’s retained SA’s sovereign credit rating at investment grade and improved the outlook from negative to stable. This ratings decision, which may have prevented large scale selling of SA bonds by foreign investors, post-elective conference rand strength, meaningfully lower inflation expectations and improved local sentiment, allowed a 25 basis points cut in the repo rate.  However, the tide soon started to turn.

Since the release of the book towards the end of 2017, SA has continued to live in the unabated political and fiscal thriller.

’Ramaphoria‘ quickly tapered off when the reality of weak underlying growth momentum become evident, with a contraction in GDP for the first two quarters of 2018, pushing SA into a technical recession.  Some participants still expect a cyclical recovery in domestic GDP to take root throughout the remainder of the 2018 fiscal year but the urgent need for policy reform to address SA’s structural constraints remains clear.  While global trade tensions and emerging market crises have largely dictated foreign investor flows and rand weakness in recent months, the SA-specific risks abound.

We continue to see certain ailing SOEs dominate news flow.  Government debt to GDP remains unsustainably high (and growing) and meaningful gains to economic growth and employment continue to evade us.  Land expropriation remains unclear as the ANC attempts to straddle the legitimate demands of the masses for land and economic transformation on the one hand, and the need to ensure property rights and the stability of the economy and the country on the other.

But, of course, the hope remains that the economy will eventually recover modestly, that land reform will be carefully managed and that continued efforts of the Ramaphosa administration to meaningfully restore the nation’s public institutions and effect the much-needed economic reforms will over time begin to bear positive economic fruit.

And so the nation remains poised - on the brink …

The author

Claire Bisseker is the economics editor of the Financial Mail. She has won the prestigious Sanlam Financial Journalist of the Year Award twice, and the award for the economics category five times. Her passion for economics was ignited at the then University of Natal, where she was taught by Harvard economist Robert Klitgaard. Bisseker lives with her husband and three daughters in Franschhoek. She is an avid hiker and kloofer. [Source:]