Author, RW Johnson, widely known for his 1977 best-selling book How Long Will SA Survive – the Looming Crisis, says with the current debt crisis the country has about five years to survive before the slippery slope sets in and we head to a possible International Monetary Fund bailout.
Addressing a Gordon Institute of Business Science forum in Johannesburg recently, Johnson said certain structural reforms recommended by the IMF, World Bank and other ratings agencies must be carried out to ensure stability. These include liberalising the labour market, reducing public sector pay, turning around falling state institutions and fundamentally reforming the education system. Johnson pointed out that these reforms could very well mean an end to the labour movement Cosatu as we know it, leaving us with a “deadly combination of powerful unions and drift”.
South Africa’s history, since the days of deep-level mining, has relied heavily on foreign capital. As a result we have become reliant on foreign direct investment to provide that capital. Johnson told the audience that the country was running a budget and a payment deficit of 5% each and foreign investment continues to dwindle significantly and more South African companies are investing offshore because of slow growth in the economy.
He added that the country was sitting with a debt burden of 48% of the GDP which above the acceptable 40% rate stipulated by the IMF. The figure however excludes debt created by state-owned enterprises and municipalities otherwise it could be as high as 60% according to Johnson. He added that rating agencies have now placed South Africa only two grades above investment level and internationally it is forbidden to buy junk bonds. If this was to happen to South Africa it would result in an IMF bailout.
It could also go the other way. Up until now Johnson says the treasury has been careful not to borrow much in foreign currency which has been smart. However the problem still remains that if we were ever to reach junk bond status there would be huge capital movement offshore, stringent exchange controls and negative knock-on economic effects. All this in turn would lead to crisis.
Ferial Haffajee, editor-in-chief of City Press, counter-argued that South Africa did not show many of the characteristics of a failed state. She believed that having recently climbed the global competitiveness ranking of the World Economic Forum (by more than five places) and statistics from a recent McKinsey report showing productivity levels similar to Brazil’s and China’s, along with other indicators, the economy was not in “rude health” and must be at least a decade away from a bailout.
Haffajee also argued that the social welfare net, which had been increased, was an essential poverty relief mechanism.
Although Haffajee believed that South Africa had a vibrant and healthy democracy with four presidents post democratic South Africa, unlike other African States and a strong Constitution which will see the Nkandla spending taken to court on the eve of the state of the nation address, other factors were more prevalent and worrying.
One such factor was electoral reform. Haffajee was of the belief that it was easier for people with money to sway who became premier or president.
“We have a situation where we have the ‘premier league’ which consist of the premiers of Mpumalanga, Free State and the North West who all have large business portfolios and have managed to swing conferences in their favour.”
Unless we had some measure of directly electing our government representatives, a mixed representation model, politics would become fundamentally corrupted, she said.
Haffajee added low employment rates and lack of good leadership, both in business and government, as other areas of concern to the country’s stability.
Both Johnson and Haffajee expressed their commitment to the country and hoped that the resilience shown in the past continued. Both agreed that the best examples of leadership today came from civil society.
Johnson concluded: “Our entire political system works like a patronage machine and that may well be the point of the exercise but it doesn’t mean that the correct decisions are being taken but despite all this I still wouldn’t want to live anywhere else.”
» City Press is the sponsor of the Gordon Institute of Business Science’s forum sessions.