During her recent two-year stint in South Africa , Cath Everett wrote about a range of issues in her blogs for the International Business Times – from the death of Nelson Mandela to the Oscar Pistorius trial. Now back home in England, she reflects on how the political turmoil of the past few weeks just might become a seminal moment in South Africa’s development.
I love South Africa. It’s a beautiful, intriguing country jam-packed full of smart, entrepreneurial people and an amazing wealth of natural resources. But it’s also a troubled place, a place that never quite recovered from the harrowing experience of apartheid and which is scarred by vast unemployment, poverty and inequity – mainly along racial lines.
I was lucky enough to live there for two years when my husband’s work took us to the country at the start of 2013. We lived for the first year in the affluent town of Stellenbosch in the Cape Winelands and the second year in the well-heeled northern suburbs of Johannesburg.
Both are a far cry from the townships populated by blacks and coloured (the South African name for people of mixed race, which doesn’t have the same negative connotations as it does in America or Europe.) These were created by forced resettlement under the apartheid regime and people largely stay there to this day, even if they make money and can afford to move out, as this is where their community is based.
Living where we did, it was easy to forget – if you so chose – that you were living in the developing world. In fact, northern Johannesburg reminded me most of the suburbs of the Australian city of Melbourne where my brother resided for a while.
South Africa at the time was being portrayed as the continent’s success story. After all, it was Africa’s largest economy – this was still the period before Nigeria realised the full scale of its economy by redefining what constitutes gross domestic product. South Africa stood out from the rest of the continent for having relatively low corruption, a transparent legal system built on the British model and a well-developed financial market backed by Africa’s largest stock exchange.
Although like most other places, it had been hit by the global recession, the firstinkling that something slightly more deep-rooted might be afoot didn’t come until late in 2013. The rand was dropping in value slowly but surely. This wasn’t a problem for us. My husband was paid in pounds, so this meant that within the space of nine months, he had received an effective pay rise of 20%.
The rand’s weakness at the time was put down to strikes spreading across the automotive and construction sectors – and the all-important mining industry. South Africa is the world’s third largest exporter of coal, the nation’s biggest source of foreign-exchange capital after platinum and gold, hence their importance to the economy.
But coal is also vital domestically. Over three-quarters of the nation’s electricity is produced by coal-fired power stations. It’s only recently that state investment has started trickling into solar and – somewhat more controversially – nuclear, in a bid to reduce its reliance on fossil fuels.
By the start of 2014, years of government underinvestment in the state-owned utility Eskom, which supplies 95% of the country’s power, started to take its toll. Its ageing power stations were creaking and high levels of debt had resulted in delays to moving new facilities on-stream.
As a result, Eskom was forced to introduce load-shedding, the local term for rolling power outages, across the country as it was no longer able to meet demand. This situation really kicked in with a vengeance in November 2014 and meant that we were plunged into scheduled darkness three days a week around dinner-time (between 5-9pm being peak time for electricity consumption when people return home from work).
Inconvenient as this was for us, it was a lot worse for others. The power outages affected everything from factory output to small firms – not all of which could afford the backup generators purchased by the big boys in 2008, the last time that load-shedding hammered the economy.
By the second quarter of 2015, the blackouts had contributed to South Africa’s economy shrinking 1.3%. Unemployment jumped to 26.4%, the highest level in 11 years. The cost to the economy from the load-shedding was running at 8 to 11 billion rand (over $300 million) every month.
Although the situation has eased somewhat since the first generating unit came online at the new power station near the northern border with Botswana in Medupi, the country is still operating on very tight energy margins and is expected to continue doing so until new capacity is rolled out in 2018 – a scenario that is inevitably putting a break on the economy.
In fact, until the country’s supply problems are resolved, the economy lacks inherent capacity for growth to climb above 3%. That’s a problem because in order to make a dent in poverty and unemployment, both of which aggravate societal instability, the International Monetary Fund says that GDP has to average 5% per year. It estimates 2015 growth at 1.4%, down from a projection of 2% in October, and forecasts a mere 1.3% for 2016, the slowest pace since the 2009 recession.
Knowing this, it makes mess-ups like the firing of two finance ministers in a week by South African President Jacob Zuma all the more painful to read.
One thing South Africa had been respected for is choosing its finance ministers based on merit rather than political cronyism and corruption. Nhlanhla Nene was well regarded and widely seen as a steady pair of hands. His dismissal for apparent dissension and initial replacement by the relatively unknown Des van Rooyen sent the rand crashing. By the end of the week Pravin Gordhan, the highly respected former finance minister between 2009 and 2014, had to be hurried back to his old job to salvage South Africa’s reputation.
Instead of unsettling things even more than they are, you’d have hoped that Zuma would concentrate on getting the nation’s energy situation under control and finding ways to stand up to the unions, with their traditionally close ties to the ANC – not to mention diversifying the economy away from its huge reliance on China as the biggest trading partner.
Yet this is a leader who, since being elected in 2009, has presided over the economic decay that resulted in the nation being downgraded from A3 status to just one notch above junk by Fitch.
The consequence isn’t felt so much by the wealthy classes in Stellenbosch or the rich suburbs of Johannesburg but by people like Connie, who used to clean for me. She comes from the most desperate of Johannesburg’s neighbourhoods: Hillbrow. Controlled by Nigerian drug gangs, it’s the epitome of South Africa’s violent troubles. Around New Year, I think of the traditional “celebration” there – throwing refrigerators and other heavyweights from apartment balconies, thudding down on whichever unfortunate happens to be wandering below.
And yet – there’s reason for hope too. For one thing, South Africa now has a far better finance minister than it started with, for all Zuma’s flipping. More than that, the experience provided a very clear lesson in political accountability for Zuma, reflects Jan Dehn, who helps manage more than $50 billion of emerging-market assets as the head of research at Ashmore Group Plc in London.
“He tried to put a ‘yes man’ into the most important position, of finance minister, but he was prevented from doing that,” Dehn said on the Emerging Opportunities show on Share Radio. “Now we have a clear understanding of the limitations of the president,” so “I like what we’ve seen.”
As the new year draws in, it’s not impossible that we could look back on the flipping finance ministers debacle as some kind of turning point for South Africa. At least for Connie’s sake, that’s my hope for 2016.