South Africa on “The Road to Nowhere”

The ANC could compliment the citizens of South Africa for their forbearance if it was “The Long and Winding Road.” In that case we could at least enjoy the scenery of the journey but just for good measure we are being taken along known treacherous paths where wisdom cautions one not to tread – the proverbial Road to Nowhere. It is a sad indictment that wisdom and sanity has not prevailed. This is the path to perdition. That is why am I so profoundly despondent about South Africa’s future?

Main picture: The Road to Perdition, the theme of this blog. Like the movie starring Tom Hanks, South Africa’s future is murky & full of foreboding.

For understandable reasons such the magnitude of the change required in the 1990s, at first most people were willing to give the ANC the benefit of the doubt. Many of the initial ANC cohort were surprisingly competent, wise and eloquent. The standard rapidly declined with Zuma’s regime being an unmitigated disaster. Within the past year even this best kept secret has now been leaked to the rest of the world. A recent article in the Economist was a sad indictment of this malaise.

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Zuma is floundering – totally out of his depth

Consider the aftermath of his previous State of the Nation speeches. Did you for one moment even believe Zuma’s sincerity or did you just give Zuma the benefit of the doubt? Or just hope, feign disinterest or hope for the best? Probably all three. Even though the speeches covered all the bases, for me they sounded contrived, without conviction as if he were merely reading a bunch of facts from a prepared hymn sheet. Did Zuma even understand what he was reading?

What Zuma does comprehend is the power of patronage. When the rest of the developed countries have a Cabinet of 15 – at most – why do 3rd world countries such as South Africa and Zimbabwe have a Cabinet of 35? Perhaps it is stating the obvious but the reason for such a bloated executive was not as Zuma proclaimed it viz to speed up service delivery, it was to allow more snouts at the patronage trough.

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Given the imperatives of Zuma own opulent life style where he has multiple wives and houses, he requires hand-outs. Needless to say, somebody is always willing to step into the breach. First it was Shabir Sheik and now it is the Guptas. Zuma is now so in thrall or beholden to them, that the Gupta family which resides in Saxonwold even has Cabinet Ministers and CEOs of SOEs at their beck and call.

Nkandla will always be the hallmark of corruption and Zuma’s failure to account for it will forever be his millstone. Aside from the saga of all the denials & obfuscation, the one aspect which has not received sufficient publicity is the magnitude of the rip-off. At most, the upgrades and security measures cost R20m yet the Public Works Department spent R246m. By deduction that implies that R226m was fraudulently spent. To put it in different terms, for every R1 of value obtained, R11 was fraudulently incurred. Even the quality of the finished items has left everybody incredulous.

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I recall reading an article on what it cost a [Western] donor to build a dam in one of the East African countries, probably Kenya some 20 years ago. From an initial estimate of R150m at inception, it ballooned to over R1b by the time of completion and took 5 times as long to complete as anticipated.

Zuma embodies cronyism and crony capitalism where all measures are engineered to suit Zuma. No wonder ex South African Peter Hain – now a British citizen – is in despair about the current leadership of the ANC.

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Most tellingly about Zuma’s lack of understanding of how a modern economy works was the dismissal of Nhlanhla Nene as Finance Minister and his replacement with a 3rd rate back bencher, Des van Rooyen. The whole business community went into collective apoplexy while Zuma was blissfully unaware of the breaking some cardinal rules about this critical position – competence, predictability and sane monetary policies. Whilst his acolyte, Lindiwe Zulu went into attack mode and accused the business of hatching a plot to unseat the government, the economy imploded.

The inevitable ratings downgrade will probably be challenged by Zuma as racist much like Lucky Montana, the CEO of PRASA, blaming the white reporter for being racist for having the temerity to suggest that PRASA had ordered railway engines which were too tall!

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ANC is anti-business – views business as the enemy

With its pervasive Socialist and Communist roots both within the ANC and its alliance partners, this stance was inevitable. That was to be predicted but superimposed upon that was the requirement to force through social change using business as the engine. It is purely a numbers game and not a competence or skills requirement anymore. Either one meets a certain quota target or one will be penalised.

What has the consequence been? Effectively it meant that companies had to give 25% of their shares to some Black Empowerment Company usually well below market value and in many cases gratis.

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What that mean for business? In effect the dilution of the share’s returns means that the existing shareholders are being substantially disadvantaged. Then there is the small matter of Eskom’s latest requirement on their Suppliers. Eskom now demands that the Supplier hands over 30% of its shares to Eskom AT NO COST. As Bidvest explained to them apart from having already given 25% of their shareholding away but now they are expected to forfeit control as well. Apparently Eskom was not fazed at Bidvest’s apoplexy!!!

Take Zuma’s attitude to the cost of a product. He is still enamoured with the labour theory of cost, the widely discredited 19th century Marxist concept when units of labour fairly equated with the cost. Innovation, mechanisation and automation have rendered this concept obsolete. According to Zuma’s reasoning because a Swatch watch is not manufactured by hand but by a machine, its cost is nil. How bizarre? What happens when the Fourth Industrial Revolution makes most manufacturing jobs redundant will Zuma then decry the fact that everything is not free?

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Instead of holding a loose regulatory leash on business, the ANC seeks to obtain social justice through social engineering on a large scale. The ANC’s lack of business nous leads to their failure to understand the maxim that the more burdensome the regulations, the less business will invest and grow.

Why does Nigeria – in spite of being a major oil producer – not refine its own oil? If the oil majors viewed the installation of a refinery in Nigeria as beneficial, they would have done so. Business is colourblind. It is profits and no skin colour that counts.

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Why did the Industrial Revolution have its roots in Britain and not in say China or Tsarist Russia? Was it the superior mental ability of the British people? Hardly likely compared with say France or Germany. Was it was the fact they had possessed an excellent work ethic? The Orientals were undoubtedly superior in this regard. None of the usual codswallop about race, religion and climate explains the level of British innovation. It was primarily driven by unregulated private enterprise. The fact that Watt worked so assiduously to sell the new contraption to pump water out of mines was to lead to machinery replacing manpower and horse power. What was Watt’s driving force – personal return.

Even John Harrison’s invention of the chronometer to measure longitude could be attributed to this base desire: to make money for one self.

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Companies are not in business to create jobs and assist in the welfare of the country. Rather employment is a by-product of that process. Not to understand this is why socialist countries such as Chavez’s Venezuela always fail.

Why did North America prosper but Latin America stagnate? Read Niall’s Fergusson’s book on economics and this aspect will be evocatively illustrated.

In such instances I always use myself or my family to apply the reasonable man test. If my son of 25 years of age wishes to start his own company will he be able to? He certainly has very little capital – less than R 10 000 – but his first requirement will be to source a black partner who must own 25% of the business. It is hard enough to start a business without imposing some additional impediments in his path.

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In business, one realises that it just a numbers game. The large companies have an objective: meet a predetermined target. That fact that my son’s product or service offering might be better or cheaper is irrelevant. The Buyer has been instructed to meet a target. Often even the Buyer’s bonus will be dependent on attaining that target.

The ANC is under the mistaken belief that Business is the enemy. Listening to Zuma at Cosatu’s recent conference confirmed that suspicion.

Instead of industrialising, South Africa is de-industrialising. Most large engineering companies – if they still exist – are a fraction of their previous size. Production costs in South Africa are too high.

Make it too difficult or onerous for business to operate and then the pendulum tilts the other way. It is easier merely to import instead of manufacturing.

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That is what is happening today.

 

Mining

The comments made above relating to the ANC’s anti-business attitude apply equally to mining except that the ANC seems to be more determinedly anti-mining with a whole slew of new taxes and regulations in the wings.

What has been the outcome?

While the rest of the world experienced a mining boom in the form of green fields’ projects over the past 10 years, South Africa only experienced the positive impact of the rising price. No new investment was made in capacity. Instead of investing heavily in automation and cost reduction for the bad times, the industry succumbed to political pressure to award wage increases without consideration of the productivity.

The golden goose in this instance was the platinum industry. The mines were told by all the politicians that the mines were so profitable that they could afford even the unions most outrageous demands.

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The mines succumbed. Unaffordable increases were duly awarded with the expectation of more to come

The looming recession in the mining industry will decimate the traditional miners especially Anglo America. The government could prevent retrenchment but such an action will make the demise even more painful. The mines will simply go insolvent.

The worst scenario that could happen is that the PIC purchases these cadavers. Their logic will be that they are saving jobs and as a bonus they are handing previous white owned companies to the rightful owners. What they will learn to their dismay, that like the other SOEs these will not be investments but rather burdens.

State owned Enterprises and State Departments

With cronyism, maladministration, cadre deployment, incompetence now well entrenched at all SOEs, losses mount and service declines.

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Eskom is emblematic of this phenomenon. Despite the electricity production over the past 5 years remaining constant, the head count has risen by 25%. Why? Incompetence, nepotism and the whole panoply of malfeasance.

SAA is a disaster with Dudu Myeni performing a parody of a competent Chairman. Petro SA is losing billions through the usual maladies. PRASA has just purchased rail engines to the value of R3 billion which are unusable. Don’t expect the Post Office to deliver because they cannot despite their slogan of We will deliver whatever it takes. Do not attempt to use them when ordering from overseas as one is unlikely to receive the item. Do not ask me for details as I will bore you will too much information.

Instead of serving the public, their shambolic operation does not even produce the minimum of service. Tell us not even consider their level of productivity.

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All government services need to be in intensive care. Most are dysfunctional with Unions – such as SADTU in the case of Education – controlling the schools. Inappropriate appointments are made and the pupils suffer.

EFF – the Hugo Chavez road to failure

Waiting in the wings is the EFF. A populist in the mould of and admirer of failed politicians and philosophies such as that of Hugo Chavez, Fidel Castro and Robert Magabe, Julius Malema will determinedly collapse South Africa economy with his inane economic prescriptions.

Listening to the EFF bully boys outside the Constitutional Court claiming that unless the judges found Zuma guilty, they would not let them out until they changed their verdict was reminiscent of the Nazis Brownshirts threatening all and sundry who opposed their policies. They branded all opponents as enemies. The justification by EFF for such behaviour was they were attempting to uphold the Rule of Law! By breaking it?

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It was akin to Julius’s intemperate comment that ALL previous Ministers of Finance were lackeys of white capital but they want Nene back as Finance Minister. If one thought that the ANC dislikes Business, the EFF hates them.

Casting further doubt upon Malema’s suitability for higher office, Julius himself has been involved in many questionable contracts so he is not the virtuous knight that he portrays himself as.

Lastly what is Malema’s preferred response to any challenge? Not that of a democrat, but rather the voice of the thug threatening, bombastic and intimidating; no something who would carefully evaluate alternatives. For me, Malema is reminiscent of Benito Mussolini with his swagger, bombastic comments and threats.

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Epilogue

Even the most sanguine optimistic person such as myself has been given pause to doubt whether the ANC has the capacity to understand the solutions to what ills South Africa let alone the ability to place us once again on the path to the sunlit uplands as Churchill so eloquently stated it in 1940 during the depths of British despair.

What does the future hold?

What does the future hold?

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