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March 12, 2008 My dear friends and fellow South Africans, The ship of state is a lovely metaphor presented by Plato in the "Republic'', likening the governance of a city-state to the command of a naval vessel. The work, unfortunately, contends that the only men fit to be captain of this ship are philosopher kings. Well, its probably best if we leave the latter point for now! Our ship of state 'SS South Africa' has passed through some stormy weather lately, and, alas, still more inclement economic weather is forecast. With 2010 bobbing up on the horizon, it is important that we are not seen to be capsizing, or even listing to one side, in the treacherous seas of international opinion. Eskom's capacity problems and the continued political uncertainty have taken their toll on the economy. (The rand fell 7.8 percent against the US dollar and 9 percent against a trade-weighted basket of international currencies in the month after January 17 - the day Eskom said that it could not provide power for big new industrial projects until 2013). And last week, Bloomberg reported that SA's rand continued to decline against the greenback after an industry report showed annual vehicle sales in Africa's biggest economy fell for an 11 month period as interest-rate increases curbed demand. "The drop in vehicle sales again shows that consumption expenditure is falling off a cliff" says the same report quoting Michael Keenan, a currency trader at Standard Bank. And "because consumption accounts for over 60 percent of the economy, that puts the rand in a vulnerable position". Adding to this bleak domino effect, the rand has also weakened as investors have taken flight. Foreigners were net disinvestors this year despite the continuing commodity boom in platinum and coal. It was for these reasons that the IFP welcomed the recent budget's thrust of stimulating growth through foreign direct investment and job creation, rather than by simply fuelling consumer consumption through personal income tax cuts and irresponsible credit lending. Whilst the IFP believes in tax cuts in principle when the economic circumstances are precipitous, they are pretty pointless if they are taken away in the other hand by high interest rates. I have to acknowledge that we, like most centre-right parties everywhere, have perhaps been slow to absorb this economic truism. I would also like to reiterate again that the R60-billion earmarked to help fund the Eskom's massive short-term expansion plans is spot on as the right intervention. President Mbeki's crisp and uncluttered response to this crisis with a rare apology from government has helped enormously to repair the damage done. The other key intervention urgently needed is to address South Africa's unhealthy current account deficit - the shortfall between revenue on exports of goods and services and the cost of imports. It is negative for growth and adds inflationary pressure. In the third quarter South Africa's current account deficit was equal to 8.1 percent of gross domestic product. Worryingly, SA is 152 on the list of countries by current account balance (China is number 1). Hopefully the budget's stated aim to invest in capacity will lead to slower growth in imports relative to exports. I suspect that most 'ordinary' South Africans would not disagree with my broad outline of the economic path which SA must continue on. SS South Africa should not change course because, I believe, it is set upon a broadly, if not deeply rooted, understood consensus across South African society. When I speak of consensus in this context, I mean the raw kind of "yes it is hurting, but it is kind of working". This kind of non-codified consensus, of course, implies fragility. Maintaining it is akin to carrying a priceless vase across a highly polished floor. Look away, one slip and ..... As the World Bank and others have observed, South Africa is a society where deeply-entrenched poverty, illiteracy, unemployment and loss of human dignity among the majority of the black population co-exist with economic wealth, scholastic achievements, and a "first world" lifestyle among the white population at par with the richest countries in Europe. This, understandably, has led to a level of schizophrenia in our public policy formation. In all spheres and sectors of government, old legal and policy frameworks have been replaced with new ones in line with international best practise, but, as a Minister, I felt the frustration at the 'lag' between decision-making and implementation. This 'lag' and, too often, tardiness (how often do Ministers fail to acknowledge, let known reply to correspondence?), at the heart of government has, over time, a corrosive effect which rusts away at our national consensus. The supreme danger at the moment, paradoxically, comes not from an incipient peoples' revolution, but from the top: the political elite. Are we successfully managing popular discord about the wide economic disparities (second only to Brazil), crony economic empowerment, the inexorable centralisation of power, and a low-level kleptocracy a la Putin's Russia? Are the new leaders of the ruling-party getting the message across that South Africa is open for business? They need to. It must be made politely, but firmly, clear to Cosatu and the SACP - and the entire 'family of ideas that might be called left' - that SS South Africa will not be fundamentally changing its macroeconomic policy. My recent visit to the UK left with me the distinct impression that the international community are also waiting for this unequivocal reassurance. You cannot, as the Bible makes clear, 'serve two masters'. Our new leaders must speak up clearly for our hard-gained compact - imperfect in construction as it is. Yours sincerely, Prince Mangosuthu Buthelezi MP |