Chairman of the Constitutional Assembly Cyril Ramaphosa holds up a copy of the country's new constitution freshly signed by President Nelson Mandela in Sharpville 10 December 1996. In 1960, this otherwise unremarkable township of Johannesburg was the scene of an apartheid police massacre of 69 unarmed black civil rights protesters. (Photo by ADIL BRADLOW / AFP)
One common refrain you will hear among people nowadays is “Ramaphosa’s economy”.
High petrol prices, load-shedding, austerity, the impossible search for gainful employment — it can all be attributed to the country’s current leader, who has presided over the toughest economy in recent memory.
But, as some will tell you, South Africa’s current economic malaise is the result of an accumulation of factors, many of them brought about long before Cyril Ramaphosa’s presidency and some made far worse in its wake.
While some of the most insidious factors hamstringing inclusive growth date back even further, it is worth now — a decade after his death — to take stock of Nelson Mandela’s economic legacy.
Soon after he died, The New Yorker mulled this exact question: what course did South Africa’s first democratically elected president set the country’s economy on?
The magazine painted a grim picture of the country in 2013. “Almost twenty years after he became its president, South Africa is effectively a one-party state, ravaged by high levels of inequality, corruption and crime,” journalist John Cassidy wrote. He later cited an International Monetary Fund report which pointed out that South Africa’s GDP growth averaged 3.3% a year since 1994 and that inflation-adjusted per capita income had risen by 40%.
The report also noted that South Africa’s economy had lagged those of other emerging markets in the wake of the global financial crisis. This predicament had the effect of aggravating existing structural inequalities, as well as the country’s already chronically high unemployment rate — which stood at 25%, a number we might be quite chuffed with today.
So how did we get to that already alarming point?
It is true that by 2013, South Africa had already been led by two other presidents — Thabo Mbeki and Jacob Zuma, who has been blamed for inflicting the ultimate economic gutting during the state capture era. The latter man’s presidency, which officially ended in 2018, is sometimes referred to as “the nine wasted years”.
But Mandela’s presidency, insofar as it laid the foundations of the post-1994 economy, is far from being faultless, despite the nostalgia we might attach to those early years of democracy.
In Elite Transition, first published in 2000, political economist Patrick Bond recounts the constraints the new government dealt with in attempting to realise its vision of an economy transformed — an endeavour it has, for the most part, failed. This failure is linked to the ANC’s acceptance of the macroeconomic policy it inherited, which had made for a “notoriously inefficient, skewed and stagnant” apartheid economy.
According to Bond, the long-term structural crisis in the South Africa’s economy is
ultimately rooted in tendencies towards what he identifies as the overaccumulation of capital.
Capital, Bond explains, is employed “not to produce with specific social uses in mind, but instead to produce commodities for the purpose of exchange, for profit”. The overaccumulation of capital pushes social and environmental limits, reproducing inequalities rather than extinguishing them.
Local overaccumulation, as well as an inflow of gold-related funds from overseas banks, created the conditions for South Africa’s entry into international money markets. This triggered a shift of flows from productive circuits of capital into financial ones. On top of this, the deregulation of the banking sector allowed for increased capital flight.
These neoliberal dynamics generated unprecedented financial profits, Bond writes. But they also made the country’s economy vulnerable to boom-bust cycles.
When the financial system was pushed to its limits, the state’s response was to deregulate and privatise even faster, according to Bond. Real interest rates were pushed higher and corporate taxes lowered.
This dynamic continued under the first post-apartheid government. In 1995, the financial rand was abolished, marking a further step towards the South African economy’s financial liberalisation and setting off a new era of hot money.
Then Reserve Bank governor Chris Stals put this moment in context during a speech he gave in Australia in 1998. “After the democratic election for a new Government of National Unity took place in April 1994, and international punitive actions against the South African economy were removed, there was general consensus within the new government that exchange controls should also be removed,” he explained.
“There was, however, major disagreement on how fast the controls should disappear. At the one extreme were supporters, mostly in the private financial sector, of a ‘big bang’ approach. They pleaded for the immediate removal of all the controls.”
The Reserve Bank opted for a more gradual approach.
The same year Stals gave that speech, the rand rapidly depreciated against the US dollar. The rand has never regained its pre-1995 strength. Critics have blamed the relaxing of exchange controls.
The New Yorker quotes late political economist Sampie Terreblanche, who wrote about what he called the “elite compromise” in his 2012 book Lost in Transformation: South Africa’s Search for a New Future Since 1986.
Years later, following Ramaphosa’s ascent to the ANC’s helm in December 2017, Terreblanche wrote an article referring to what he called the original state capture: the period from 1990 to 1994, when corporate South Africa negotiated its future with the incoming ANC government. He quotes Mandela, who, after his release from prison, called for the fundamental restructuring of South Africa’s economy.
“But the new politico-economic system turned out to be highly dysfunctional. A neoliberal politico-economic system was institutionalised to serve the narrow interests of the old white elite and the emerging black elite,” Terreblanche wrote.
“The enabling conditions of the new system were moulded in such a way that the imperial aspirations of the American-led neoliberal empire would be satisfied.”
The American economic model adopted by South Africa’s new democratic leaders was characterised by privatisation, austerity, market fundamentalism and free trade and deregulation, Terreblanche noted. As is the case in the US, financialisation has exacerbated local inequalities, which were already stark given the apartheid’s legacy.
Today’s high interest rates, as well as their effect on South Africa’s debt profile, a key factor driving us towards even deeper spending cuts, are directly linked to the country’s dalliance with financial markets.
There is a tendency, especially in the wake of tough economic times, to be nostalgic about a lost era. There is also an inclination towards doubling down on old dogma to recapture those former glimmers of hope.
But our current economic plight should prompt us to do the opposite — to break from the past and imagine an even better future.