deliver?
In the second report of his seven-part series on transformation, John Matisonn looks at the financial problems that confronted the ANC when the party took over government
The South African Airforce helicopters flew past the Union Buildings bearing the new flag in salute to President Nelson Mandela. Jet fighters streamed through the sky trailing the African National Congress’s black, green and gold alongside the orange, white and blue. For those who had fought apartheid, that was the moment when they knew they had won.
When the tears were wiped away, South Africa’s new Cabinet ministers found themselves standing in cavernous offices in the HF Verwoerd Building in Plein Street, Cape Town, looking out of panoramic windows at the great mountain, and wondering how on earth to get their arms around a bureaucracy calcified by 342 years of racial oppression.
The dowry each ANC minister carried across the Verwoerd Building threshold consisted of the support of the people, and the Reconstruction and Development Programme (RDP) document. But the RDP was a light tool for the heavy and complex tasks it would be called upon to perform.
One idealistic new technocrat would later compare working in government to standing in front of a long piece of string. “You want something done. You can’t do it yourself, because it’s too far away. So you push the string – and all that happens is that your end compresses a few centimetres. Nothing else moves.”
The stories of old Nationalist bureaucracy interacting with new ANC ministers are legion and varied. The postmaster general, Ters Oosterhuizen, sat expressionless as his assistant brought a meeting to a standstill with a claim that his great department of state did not have a working copying machine, as the reason he could not provide the minister’s new staff with basic documentation that was piled on the desk in front of him.
Some fell over themselves to cooperate. Directors general hired ANC academics as consultants to tell them how their ministers thought, then submitted the consultants’ work to the minister as departmental ideas.
But the biggest and most serious problem was that many departments lacked the equipment to perform the real, basic tasks of a government department – to develop policies, plan strategically, and ensure that their sectors of the economy were regulated to achieve their objectives fairly.
Many departments, geared to serve a static white population under siege, and run by a white Afrikaner civil servant class, did not have a meaningful policymaking capacity. They were not equipped to develop strategy. Nor did they have the ability to regulate their sectors – services were provided by monopolistic parastatal companies, which regulated the industry themselves!
Mandela had conducted a gruelling, single- minded campaign to complete the task he had started when he was a young adult, and which had taken him on one of the 20th century’s most unique personal journeys, what he called his “long walk to freedom”.
On May Day, as president-elect, he said: “In our economic policies there is not a single reference to things like nationalisation, and this is not accidental. There is not a single slogan that will connect us with any Marxist ideology.”
Though it was not strictly correct, since the RDP had a section which talked of both privatisation and nationalisation, Mandela’s statement did reflect the general vision that had taken hold at the highest levels of the party leadership. “A short walk to (economic) orthodoxy,” sniffed Hein Marais in his book, South Africa: Limits to Change, a book critically asking why the Macro-Economic Research Group (MERG) document proposing expanded government spending was sidelined.
Although economic policy was increasingly central to the future of the government, ANC leaders were still substantially preoccupied with the even bigger task – bringing the country together and ensuring that the right wing, Inkatha, and several other splinter groups did not turn from the negotiated democracy, and pick up the guns they had access to in their thousands.
The ANC’s democratically won majority did not guarantee a peaceful future.
Mandela’s genius at bringing the country together and inventing a vision of South Africa in post-apartheid unity, and the genius of the ANC at negotiation and compromise in the face of the most extreme, often racist and violent provocation, undoubtedly created the first essential preconditions for viable nationhood.
But how was the government to begin to deliver to all those who had fought for this moment, and who deserved a decent chance in life? There was the RDP, which spoke to many economic issues, but also reflected the issues that the ANC had been unable to resolve. And there was the letter of intent that committed the ANC to cutting government spending, which was sent to the International Monetary Fund (IMF) in November 1993 in order to get the IMF loan.
Jay Naidoo was appointed RDP minister, and some commentators dubbed him the second most powerful man in the Cabinet. But he well knew, even if many did not, that the RDP ministry’s work would have to be financed by savings in the existing line budgets of departments. Naidoo had no control over fiscal policy – that is, spending levels, and the line departments considered him at minimum an intrusion, at most a threat.
Moreover, hardly had the new Cabinet ministers found their way to their offices when they received the news: the country was down to four weeks’ of foreign currency. If the ANC had intended to reverse the position it took in the letter of intent to the IMF, which I think highly improbable by this stage, the hard reality of South Africa’s fragile economic numbers put paid to it. Credibility with private investors, local and foreign, would take priority. There would be no sliding back.
There has been some speculation about why the government made the two key financial appointments – Derek Keys as finance minister, and Chris Stals as governor of the Reserve Bank. Some have claimed that Michel Camdessus of the IMF wanted both appointments.
The truth is that the answer is almost irrelevant. Once the ANC had nailed its colours to the letter of intent and international debt restructuring masts, it might as well appoint them both. Not doing so would have cost them credibility, with nothing tangible in return. Whoever sat in those chairs would have been tied to much the same policies anyway.
The purpose of giving the Reserve Bank independence from government was to insulate it from political influence. Political control had been used under Nationalist rule to cut interest rates before elections, then raise them afterwards, to the economy’s detriment.
Keys would see to the deficit cutting; Stals, with some consultation, would lighten foreign exchange controls. The clause in the Constitution that gave Stals independence from government required him to protect the currency and inflation, which meant he was likely to keep high interest rates.
In a sense, this relieved the ANC of the necessity to grab their constituency and take it with them. Meanwhile, Naidoo and the line ministers were trying to find ways to get the job done. While the RDP implied a large role for the public sector, they were increasingly frustrated in trying to get things done using the public sector.
The RDP set ambitious objectives, but it included statements requiring macro- economic prudence that severely limited the ability to achieve those objectives.
“I accept that the RDP is not a Bible,” said Naidoo in an interview. “It’s a politically negotiated document of the broadest consensus. The RDP ministry was always transitory in my mind.”
There were a set of initiatives in the beginning, including school feeding and medical care for children and pregnant mothers, and other presidential lead projects that made a start.
“But what we didn’t think through clearly enough was the institutional mechanisms to implement the RDP. My view changed on what could be done by the public sector and what by the private sector. Because a lot of delivery is about innovation, risk, entrepreneurship.
“My view changed in government. We had a very romantic idea of what government could do. In government, delivery is tied up in a lot of formal government procedures. The most important tendency of a bureaucracy is not to want to take risk.”
At times it was acrimonious and painful. As a former trade union leader, Congress of South African Trade Union (Cosatu) officials would refer to Naidoo as “comrade”. Then they would pause, and ask: “You are still a comrade, aren’t you?”
Naidoo responded by saying, “Tell me your primary goals. Let’s work out how what mechanisms will achieve them.”
In an interview, he added: “Are we fighting for a slogan, or for a better life? What did Marx and Engels and Lenin want to achieve – a better world for workers, a shorter working week, the right to various services. That’s the RDP.”
In the first 18 months of the new government, significant foreign exchange did come in. The macro-economic policy was on track. South Africa was out of recession for the first time in the 1990s, but was it a fundamental turnaround of the economy? And delivery was extremely slow.
Late in 1995 it started to become apparent that the honeymoon was over. The economy was levelling off. The government realised there were major problems with delivery, and recognised the need for a new growth strategy.
At a workshop in late 1995, Deputy President Thabo Mbeki presented a document called the National Growth Strategy, which came out of the RDP office. Several people on the financial side felt it lacked a macro- economic thrust. The Department of Finance, with Alec Erwin as deputy minister, decided to put together a macro-economic policy.
By early in 1996, key figures in the finance department were increasingly convinced that the rand was too high, and needed to be devalued. Devaluation boosts exports. Discussions began about how to achieve a devaluation, given the independence of the central bank, and how to prepare the markets and take maximum advantage of a devaluation.
While officials were still making these plans, there was a run on the rand. Later, there would be speculation that some of the businesspeople saw the direction in which the policy-makers were moving, and took their own actions accordingly, by selling rands.
All of a sudden, there was no need for a devaluation strat-egy. It was too late. Once the run on the rand began, the devaluation strategy became irrelevant. In fact, officials worried that the rand had gone down too far.
Work then began on the growth employment and redistribution document that became known as Gear.
Gear spelled out what the RDP had already raised about macro-economic restraint. South Africa had to have foreign capital, and the international financial community sets great store by governments’ ability to control domestic spending.
Gear caused great acrimony, especially because, for a political movement that prides itself on consultation, here was a document issued without even a debate in the ANC’s national executive committee.
But economic orthodoxy tends to encourage non- consultation. The independence of the central bank, for example, is advocated precisely to insulate it from political influence. Leaders of Cosatu , the South African Communist Party and the ANC were offended.
“We strutted on the curb asking to be picked up,” said the SACP’s Jeremy Cronin. “Instead we got run over. And now we say we were the innocent bystander of Asian contagion and so on.
“But Gear was a strategy to solicit passing global traffic. Gear put us on the curbside. It made us vulnerable to global traffic, and it gave us no protective measures.”
Whatever the differences in the ANC, the basic strategy of Gear was set. While most commentators agree it was a mistake to set unrealistic targets for economic growth and job creation, the general thrust of deficit reduction, selling off some assets and combining with the private sector for others, was official government policy.
The political flak led to some adjustments as part of the negotiations in recent days, around the Jobs Summit and Minister of Finance Trevor Manuel’s latest mini-budget speech. Manuel would also prefer a lower interest rate than Stals has imposed. Some in the tripartite alliance have seen in this the beginning of a reversal of Gear.
In fact, these adjustments were made easier by a shift in economic orthodoxy. The international economic crisis has led to some relaxation. But the executive branch of government does not intend to reverse course.
They argued in interviews that these are adjustments of degree. The deficit target for this year goes up from 3,5% to 3,9%. There will be some new job creation programmes, and the name Gear will be quietly dropped from government pronouncements. These are minor changes, not a fundamental reversal.
In his book, Hein Marais argued that higher government spending is the way to provide services. But government economic thinkers do not believe that the international financial community will fund a country that adopts that approach.
A confidential government study has shown that all the government and private-public sector project partnerships since 1994 have created only about 160 000 jobs. The most powerful government thinking is still committed to reducing the role of government relative to the private sector, and expecting growth to come from private sector satisfaction with government policy leading to investment, rather than a reversal in the trend away from a government role.
Effectively, it will be a centre-left, social democratic government.
Minister of Transport Mac Maharaj, for example, has negotiated long-term agreements for new roads and bus services that bring in the private sector to achieve goals he sets them.
New bus routes will be open to tender from both private and public sector bids, as has been done successfully in Sweden. The result will be private and municipal bus services functioning at the same time. The winning bidder will be the one that offers the best services to commuters, whichever it is.
“To get productive forces to a higher level, you need an element ofcompetition.”
Asked if he was giving away national assets when the private sector takes over a toll road, he said: “The public sector still owns it. It has to be returned at the end of a 30-year contract, in good order.” And there are benchmarks of performance to achieve public policy goals.
Maharaj admits that the shortage of funds when the government took office was in some ways a boon. He says that if government had not been short of money, it might have applied less rigour in thinking through the real needs and the most efficient ways of serving them.
Lack of funds, lack of capacity in the old bureaucracy, and ministerial inexperience slowed the delivery of services, and the RDP targets were not met in the first few years. Delivery of houses, electricity, water, phones and other services are now much closer to the annual targets.
Government policy has been influenced by political constraints. The policy changes imposed by Maharaj in transport, Pallo Jordan and then Naidoo in telecommunications, open whole new specialist skills needs for the economy, from transport economics to telecommuncations law. The government should ensure they are provided – in the medium term by education and training, in the short term by allowing specialist immigrants where needed.
Both immigration policy and educational reform are slowed down by political resistance, from the jobless and from those protecting existing educational institutions or departments that are not providing the skills required to expand the economy. Work is being done to update the education system, but time frames are long.
BusinessMap’s Jenny Cargill argues that the government needs to see through the consequences of its policy decisions. “It’s been implied that with Gear choices don’t exist. They do.”
If labour is less flexible, then the education system needs to be coordinated with the economy, so that we are educating people for the kind of economy that will work in our circumstances – whether it’s tourism, or finance, or information technology.
Privatisation, where it has been applied, as in the sale of six privatised radio stations and 30% of Telkom, has attracted substantial capital. Those who promoted it believe it will speed up delivery of services as well.
But its progress is slowed by the inefficiency of Stella Sigcau’s Ministry of State Enterprises, and even after Deputy President Thabo Mbeki’s office moved in to help, there are still fears of foreign or white ownership, and job losses.
Both Mandela and Mbeki have supported the policy of opening up the economy. They have criticised their critics, sometimes in strong language. But there have not been visionary speeches of the “African renaissance” kind, to persuade their followers that there is a new economic vision.
Clearly it is still a political hot potato. But the course has been set.
The revolutionaries have been sobered by high office, responsibility and the obligation to perform. So what happened to Maharaj the revo-lutionary? “I believe I’m still being a revolutionary. The idealism is still there for me. I still use the tools of Marxism to analyse situations. And I’m not pre-empting the future.”