Max du Preez: “SA’s balance sheet will take a decade to recover from post-Zuma hangover”

by | Jan 9, 2019 | Blog, News, Production, Wineland

Jacob Gedleyihlekisa Zuma. Gedleyihlekisa is Zulu for “The one who laughs while grinding his enemies.”

By the time former president Jacob Zuma left office on Valentine’s Day last year, his negative legacy was so widespread and profound, it had become structural, affecting both the economical, societal and agricultural sectors of South Africa. Anton Pretorius reflects on the impact of the post-Zuma hangover.

President Jacob Zuma became ANC president and later president of South Africa when the full impact of the 2008 global financial crisis was upon us. We experienced our first post-apartheid era recession and a 24.9% unemployment rate. Nine years later, he was at the centre of the worst corruption and state capture allegations in South African history.

Although Zuma inherited an economy in distress when he became president in 2009, there’s no doubt it worsened under his leadership. By 2017 the GDP growth forecast was 0.7%, unemployment stood at 27.7% and gross national debt – driven largely by state-owned enterprises (SOEs) – reached its highest level since 2008. Business and investor confidence continued to deteriorate.

During his tenure, South Africa’s economy stalled, the rand slid to an all-time low and two ratings agencies downgraded the country’s debt to junk. To top it all, on Zuma’s watch, the once-mighty ANC party lost control of three big cities, including Johannesburg, in the 2016 municipal elections.

Zuma, who has resisted corruption charges for years, was finally summoned to court last year. A probe was launched against the Gupta family, whose members stand accused of influencing state appointments and government tenders through Zuma. Of course, both the Gupta family and Zuma deny any wrongdoing.

For the four years of his vice-presidency, current president Cyril Ramaphosa looked on with seeming impotence as his boss dragged South Africa closer to the brink. And now, with Zuma out of the picture, it’s Ramaphosa who has been left to pick up the pieces in the post-Zuma era.

South African author and political commentator Max du Preez says Zuma took South Africa right to the edge of the abyss. He, along with his Gupta friends and others, hollowed out state-owned enterprises and compromised and captured many of South Africa’s state institutions such as the Hawks, crime intelligence, state security institutions, the National Prosecuting Authority and South African Revenue Service (Sars). “Political accountability virtually ended during Zuma’s reign,” Max says. “He and his friends, helped by Bell Pottinger, turned our politics into a populist circus and pitted citizens against each other on the basis on race.”

Bell Pottinger, once a leading multinational public relations company, went into administration in 2017 after its dirty campaign came to light. It played on racial animosity in South Africa, including the creation of fake news to benefit its client, Oakbay Investments, a company controlled by the Gupta family and with strong ties to Zuma’s government. “South Africa was left more polarised and angry while poverty and in equality grew,” Max says. “South Africans will suffer greatly as we try to pay the massive debt Zuma’s government ran up.”

Speaking to Bloomberg during April 2018, Rand Merchant Bank’s Isaah Mhlanga said South Africa might take a while to shake off the curse of Jacob Zuma on its credit ratings. “If you look at Standard & Poor’s, even if they upped the economic forecast, they still view the hurdle for thinking about upgrades as too high,” Mhlanga said, referring to S&P doubling its estimate for GDP expansion last year to 2%.

But exactly to what extent did Zuma wreck South Africa’s economy? “If South Africa were a company, the dramatic plunge in its brand value would be a deep worry,” Financial Mail editor Rob Rose says.

In April last year economist Mike Schussler published a graph showing just how much Zuma’s presidency has affected investment in the country. It illustrates the difference between South African firms investing abroad and foreign firms investing in South Africa as a percentage of GDP and clearly shows the country’s net foreign direct investment (FDI) sitting at 22% of GDP in 2010 and plummeting to -30% of GDP only seven years later.

“This will take years to fix,” Mike says. “This is worse than during the disinvestment campaign in the ’70s and ’80s.”

Zuma’s impact on agriculture

What direct or indirect effect has Zuma’s legacy had on South Africa’s agricultural industry? The management of the national water resource was severely undermined during the Zuma years, Max says. In 2017, when the country was hit by the worst drought in its history, Agri SA asked the public protector, auditor-general and parliament’s standing committee on public accounts to investigate what happened to millions of rand in drought relief funds that had been allocated for producers in six of the nine provinces.

Despite the R265 million spent by the department of rural development and land reform, producers told horror stories of how they only received enough feed for their livestock for one day. Agri SA CEO Omri van Zyl says 90% of the R212 million in relief funds was distributed to subsistence farmers, while emerging and commercial producers received less than 10% of the allocated budget even though they produce 90% of the food in South Africa.

Agri SA did an analysis of the drought relief funds spent after president Jacob Zuma announced during the 2017 State of the Nation Address that government had spent R2.5 billion on drought relief. “This was clearly incorrect and misleading,” Omri says. As a result, producers in the Western Cape lost 25% of their orchards and vineyards during the drought.

The government not only dismissed the seriousness of farm attacks, most of all Zuma was responsible for the ANC’s acceptance of expropriation of land without compensation, a political decision which has led to great uncertainty in the country’s agricultural community, Max says.

Can we recover?

The challenge for Ramaphosa is to address and fix some of the structural legacies and moral decay of the Zuma era. Max believes South Africa is capable of recovering but the capacity and professionalism of many state institutions will have to be painstakingly rebuilt. “Yes, South Africa can recover but it probably won’t make up for lost time and opportunity in the next generation,” he says. “A political culture of accountability and the entire criminal justice system will have to be restored.”

It’s estimated about R100 billion was stolen from the state over the last five years of Zuma’s presidency, to which must be added the R700 billion debt load of Eskom, Denel, Transnet, Prasa and several other state-owned entities, Max says. Looking on the bright side, it helps to know these taps have been turned off and South Africa won’t lose as much money to corruption and state capture in the future.

If South Africa were a company trading on the JSE, what would be the extent of Zuma’s damage in rand or share value? And can the balance sheet ever be fixed? “It’s impossible to quantify, but it’s probably more than R1 trillion,” Max says. “It will take a decade or more of tight fiscal discipline and economic growth to fix the balance sheet.”

When it comes to South African agriculture, the future is bright, Max says. “That’s if the ghost of expropriation without compensation is laid to rest quickly, something I think will happen within the next few months.”

There’s currently no indication that working commercial farms will ever be targeted for expropriation without compensation below market value. “South African producers are famous the world over for being resilient and innovative,” Max says. “I believe commercial agriculture will do more to effect genuine land reform than the state ever can, and it will bring more stability and goodwill.”

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