End of the line for the ANC economy

THE FLAMES burning warehouses, stores and factories have finally been extinguished. In front of shattered shopping centers, residents dressed in bright yellow or orange vests keep watch like an army of gatekeepers. Crowds of volunteers – white and black, young and old, sometimes singing together – sweep through broken glass and ashes after the week of riots sparked by allies of corrupt former president Jacob Zuma in a futile effort to undo his recent incarceration for defying the Constitutional Court. In the cleanup, the optimism and generosity of spirit of the Rainbow Nation resurfaced, a reminder of the miracle that allowed a liberal democracy to be born, against all odds, 27 years ago, after the brutality of apartheid.

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Make no mistake about it, however. The riots were nothing less than a violent attempt by a pro-corruption faction within the ruling African National Congress (ANC) to overthrow the democratic order. And the fires started by Mr. Zuma’s allies have caught fire so fiercely amid the anger generated by more than two decades of poor governance and corruption. Much of this has been to blame for one of the highest unemployment rates in the world, which stems from a growth-undermining mixture of crony capitalism, fossilized state industries, and laws that discourage businesses from hire new workers.

Let’s start with crony capitalism, which in South Africa is called the euphemism “black economic empowerment”. The underlying idea seemed laudable enough: to right a historic wrong. Under apartheid, the country produced white industry titans such as the Oppenheimer family (owners of DeBeers), while making it difficult for black South Africans to own businesses. the ANC thought it was right that there were also black billionaires. To give them a boost, he insisted that mining companies hand over at least 26% of their shares to “historically disadvantaged”. Mining companies (as well as banks and insurers) did so on purpose, diluting existing holdings when they transferred holdings to Cyril Ramaphosa, now president, as well as to Patrice Motsepe, his brother-in-law, and Bridgette Radebe, his sister. -in law.

If these donations had been a single tax, their damage would now have been forgotten. But once the new black shareholders sold their holdings, the government wrote regulations to repeat the process. Thus, capital investments in mines decreased by 45% between 2010 and 2018, with a decrease in production of 10% and employment of 50,000, or one tenth of direct employment in industry in 2010.

the ANC amplified this damage by insisting that the state retain control of some 700 companies including Eskom, the electricity monopoly, and Transnet, which manages all ports and railways. Poor management, corruption and a lack of investment have made them brakes on growth. Some economists estimate that South Africa’s exports could have been 50% higher during the commodities boom that peaked in 2008 if its mines, railways and ports had functioned properly and had obtained electricity. that they needed. Mr. Ramaphosa first sought to clean up corrupt managers. It was a start, but it will do nothing to provide the competition necessary for these companies to improve.

Perhaps the most pernicious laws have been the laws that discourage companies from hiring, forcing them to jump through hurdles when hiring staff, and even more so when trying to fire them. The government has also actively destroyed several thousand jobs. Since 2009, he has forced hundreds of small garment companies employing tens of thousands of workers to close, because they do not pay wages as high as those agreed in an agreement between the unions and the big factories. The government is failing to keep the lights on. Yet it blithely puts people out of work.

It is no wonder that the number of unemployed (including those who have given up looking for a job) has increased from 5.4 million to 9.2 million in the last ten years up to 2019. Almost the only group of people who prospered thanks to ANCNomics, aside from billionaires, are those who work for the state: their wages increased by around two-thirds in real terms between 2007 and 2019.

Since the riots, NGOs and unions have called for a basic income allowance to reduce poverty. Mr Ramaphosa says he is considering these proposals. But the state already pays social assistance to 31% of the population, making it the second largest budget item after education. Mismanaged South Africa cannot afford such a huge expansion of support.

In power, Mr. Ramaphosa began by taking action against the crooks of his party and his government. But if he wants to save his country, he can’t just throw the ANCthey are bad apples. He also needs to get rid of his bad economy and change the system that made him and his family rich. If it doesn’t, the country must throw out its party. â– 

This article appeared in the Leaders section of the print edition under the title “End of the road for ANCnomics”

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