/ 8 July 2011

A Lula Continua, Zweli

A Lula Continua

I’m confused. Both Julius Malema, the ANC Youth League leader, and Zwelinzima Vavi, Cosatu’s general secretary, the new vanguards of nationalisation, have used Brazil as an example of economic success. Vavi has even suggested that President Jacob Zuma should be more like former Brazilian president Luiz Inacio “Lula” da Silva.

But Brazil’s is a story of successful privatisation, not nationalisation. And although Lula may have grown the state infrastructure during his two-term tenure in office, it is widely acknowledged that he built on the success of neoliberal reforms and steered clear of nationalist rhetoric, instilling investor confidence through policy continuity.

Brazil’s recent success in social development is now well known. Lula’s administration is widely credited for lifting 40-million people out of poverty. But fewer here in South Africa seem to know the full story and formula behind this success, which dates back to Lula’s predecessor, Fernando Henrique Cardoso, and his reforms in the 1990s.

Difficult structural reforms and liberalisation policies implemented by Cardoso provided the necessary foundation and revenues for Brazil to benefit from the commodity boom and ultimately grow. Capital and growth were essential prerequisites for the far-reaching social policies that followed under Lula.

One of the best examples of privatisation through this period was the national iron-ore champion Vale. The rationale behind Vale’s privatisation from a completely state-owned and state-controlled enterprise was clear. By the early 1990s, in the face of rising competition, Vale had fallen from its grand status as a cutting-edge mining company of the 1970s, unable to sustain its over-resourced commitment to its 20 000 employees as returns on investment and profits were reducing rapidly.

Privatisation helped raise the capital needed to diversify beyond Brazil and beyond purely iron ore mining. Vale’s growth exceeded all expectations. Under the leadership of Roger Agnelli, an investment banker who was part of the new consortium of shareholders, Vale’s market capitalisation grew from about $7.5-billion in 1998 to an astonishing $160-billion in 2010. It employs more than 140 000 people around the globe and is the second-largest mining company in the world.

It is true that the government retained a stake in Vale both as a direct shareholder and through a complex arrangement of shares held by the national development bank and civil-servant pension funds. But like other national champions, including Embraer, the leading aircraft manufacturer, privatisation has ensured competitive growth through foreign investment and improved technology, which the Brazilians themselves insist would not have been possible under state control.

These companies form an important part of the Brazilian development model and the country’s rise as a new global power. Lula’s support for the internationalisation of Brazilian firms by leveraging political diplomacy to further economic and development interests abroad has brought commercial players and Brazilian foreign policy closer together.

This was an extension of domestic efforts back home and a new development philosophy that emerged under Lula, which sought closer co-operation between Brazilian industry and government in meeting the country’s development imperatives. Partnerships between the government and independently driven enterprise are part of the next phase of economic progress that followed Cardoso’s structural adjustments and the country’s global integration, championed by companies such as Vale. It is clear that the seamless succession from Cardoso to Lula has not only proven to be an effective combination but also one that was crucial for progressive growth and development in the country.

After prioritising structural adjustment in the 1990s, Lula’s role in convincing civil society’s left of the long-term benefits of such bitter-pill liberal reforms has been paramount for sustainable success. The country is no longer sidetracked by silver-bullet solutions for growth and economic inclusion, which had hamstrung Brazilian development in the past.

In short, Brazil learned from previous experiences and the experiences of others, which had shown radical policies such as nationalisation to be outright failures. Foreign investment, the lifeblood in economies such as Brazil and South Africa, need open policy continuity.

Vavi may be correct. What we do need in South Africa is a Lula to build a common consensus and vision between the government, business and civil society. Following his election in 2002, Lula instilled confidence in both Brazil and the international community — not through radical notions of nationalisation but rather through policy continuity. This was followed by highly successful social development, strongly supported by business. Lula built common ground among divergent interests.

Brazil provides instructive lessons for South Africa in areas of leadership and planning. It has shown that a balanced approach to growth and development can work in dynamic markets like ours and in the face of difficult socioeconomic challenges. But it is important we understand the full story and that leaders and policymakers avoid simply taking a snapshot that favours their political orientation or speaks to their constituencies.

The policy debate in South Africa is increasingly a war of hearts and minds and not one based on facts and figures. Sadly, we appear to be where Brazil and other leading Latin American countries were 20 years ago. In Brazil emotionally charged and politically inspired debates about economic policy have started giving way to much more pragmatic solutions that seek to improve competitiveness in the global economy. This is a far cry from South Africa today.

Perhaps, on this point, I tend to agree with Vavi and Malema. Brazil and other leading economies in Latin America, such as Chile, certainly do offer valuable insights and lessons in leadership and policymaking towards a more competitive and globally integrated economy.

Dr Lyal White is the director of the Centre for Dynamic Markets at the Gordon Institute of Business Science