23 February 2018 — Pambazuka News
After Jacob Zuma’s firing, South Africa risks budget austerity and even renewed BRICS “poisoning”.
Cyril Ramaphosa’s soft-coup firing of Jacob Zuma from the South African presidency on 14 February 2018, after nearly nine years in power and a bitter struggle to avoid resignation, has contradictory local and geopolitical implications. Amidst general applause at seeing Zuma’s rear end in the society, immediately concerns arise about the new president’s neo-liberal, pro-corporate tendencies, and indeed his legacy of financial corruption and class war against workers given the lack of closure on the 2012 Marikana Massacre.
Internationally, the emergence of the Brazil, Russia, India, China and South Africa (BRICS) alliance in 2010 (when Beijing invited Pretoria on board) was Zuma’s main legacy, he believed: BRICS offered enormous potential to challenge abusive Western hegemony. The reality, however, has been disappointing, especially in the most unequal and troubled of the five countries, South Africa, where Moscow-trained leadership expertly talked left… but walked right.
After Zuma, more extreme fiscal austerity and a return to mining-centric accumulation under Ramaphosa will amplify the misery locally – while likely leaving South Africa’s commitment to the BRICS project in the doldrums. The first evidence of this came on 21 February when Ramaphosa’s inherited finance minister, the corruption-tainted Malusi Gigaba, imposed austerity and liberalised exchange controls.
The end of Zuptanomics
Zuma’s fall was due to a balance tipping in recent weeks between, on the one hand, patronage-based support within his African National Congress (ANC) leadership, mainly as a result of large-scale corruption paid for by a fast-rising public debt (from 28 to 55 percent of gross domestic product (GDP) since 2009). On the other, the resulting threat to ANC electoral prospects in 2019 came from the often farcical way Zuma fused dubious personal ethics, an ethnic traditionalism founded on patriarchy, and capital accumulation via criminal syndicates.
Two months ago, the ANC’s leadership narrowly voted in Ramaphosa (against Nkozasana Dlamini-Zuma, who had last served as African Union Commission Chairperson and was considered loyal to her ex-husband) with the hope he can restore the party’s prestige, won in the ANC’s 1912-1994 era as a liberation movement and then during the 1994-99 presidency of Nelson Mandela. Yet Ramaphosa is himself also guilty of sustained corporate tax-dodging during his leadership of Lonmin’s platinum mines and the continent’s largest cellphone company (MTN). Also contributing to his riches were his controversial Shanduka coal mining house and the local McDonald’s and Coca Cola franchises – all of which were divested by 2016 when his estimated wealth of £500 million was placed in a blind trust.
Now Ramaphosa has little more than a 15 month window in which to erase the electorate’s visceral memory of the so-called “Zupta” circuits that – along with Ramaphosa-aligned “White Monopoly Capital” – that so malevolently influenced the South African state over at least the past decade.
The Zupta nickname fuses Zuma’s family and cronies, operating under the direction of three often vulgar-rich brothers, the Gutpas, who are Indian immigrants. The latter “state capture” strategy began in the early 2000s but only came to the citizenry’s attention during a luxurious Gupta family wedding in 2013 which notoriously violated immigration and airport security regulations for Indian guests. Moreover, to pay the $2.5 million bill, the Guptas and their allies – apparently including the new ANC secretary general, Ace Magashule – raided an agricultural support fund meant for black farmers in the Free State province, whose official leader is still Magashule.
In ANC balloting last December, Magashule barely beat Ramaphosa’s running mate for the top organisational job. But his fate rests on the extent of prosecution of the Guptas and whether testimony emerges as to his involvement in raiding provincial coffers on their behalf. If the Guptas avoid arrest in South Africa and hence do not offer damning testimony about Magashule, he may retain the job for months or even years to come, the way Zuma did in spite of widespread concern about his probity.
Nearly US $1.25 billion per year was lost to Zupta looting, reckons former finance minister Pravin Gordhan, particularly via the big energy and transport parastatals. To be sure, however, that is a small fraction of the US $22 billion lost annually to overcharging on state procurement contracts by what is the world’s most corrupt business elite, as ranked by PricewaterhouseCoopers (PwC). In the Johannesburg, Cape Town, Stellenbosch and Durban circuits of White Monopoly Capital, PwC reports that “eight out of ten senior managers commit economic crime,” especially procurement fraud, money-laundering, asset misappropriation and bribery.
Upon winning the ANC leadership last December, when Ramaphosa defeated former African Union Commission chairperson Nkosazana Dlamini-Zuma (an ex-wife of Jacob), the new leader graciously thanked his predecessor. Only two legacies were mentioned: promoting the 2012 National Development Plan (NDP), and providing four million South Africans with free AIDS medicines.
The latter accomplishment did indeed raise life expectancy by 12 years from the early 2000s trough of 52. But the Treatment Action Campaign’s world-historic battle against Big Pharmacorp profiteering and former president Thabo Mbeki’s AIDS denialism had already been won largely without Zuma’s visible assistance back in 2004, long before he assumed the presidency in 2009.
Ramaphosa himself will proudly enforce the NDP in coming years, as he was its co-author. Lacking climate-change consciousness, the plan’s top priority infrastructure commitment is a US $75 billion rail line, mainly to export 18 billion tons of coal, entailing 50 major projects of which 14 have already begun. The rail agency, Transnet, has a US $5 billion credit from China to finance Chinese-made locomotives that are sufficiently strong to carry three -kilometre-long coal trains, though Zupta corruption is already a major problem with the acquisitions.
Zuma’s attempted £100 billion purchase of eight nuclear energy reactors from Rosatom is now highly unlikely thanks to Pretoria’s worsening debt crisis. So that really leaves just one accomplishment as the former president’s legacy: annual networking with leaders in Beijing, Brasilia, Delhi and Moscow.
Conventional wisdom, as expressed by foreign policy scholar Oscar van Heerden late last year, is that Zuma “ensured our ascendency into the BRICS Geo-Strategic grouping, made up of Brazil, Russia, India and China: the emerging economies in the world. This is important because in the pursuit of a more equitable and fairer world order, this grouping provides a counterweight to the dominant Western powers. BRICS provides access to better trade relations as well as better global security arrangements.”
Zuma has also articulated this pride, in part through his avatar, the politician-businessman Gayton McKenzie who authored a Fire and Fury-type tell-all, Kill Zuma by Any Means Necessary.
But both conventional wisdom and Zuma apologists need a reality check: in spite of repeated rhetorical gestures from Pretoria to the contrary, the BRICS have amplified unfair and inequitable world order processes. While three (South Africa, Brazil and Russia) of the BRICS played host to the corruption-riddled FIFA World Cup from 2010-18 – which is the most glaringly obvious, albeit superficial case of sub-imperial assimilation into (Sepp Blatter’s football) imperialism – just as revealing is the BRICS’ pursuit of global governance “reforms”:
- In world finance, the International Monetary Fund (IMF)’s 2010-15 board restructuring left four of the BRICS much more powerful (China by 37 percent, Brazil 23 percent, India 11 percent and Russia 8 percent) but most African countries now have a far lower voting share (e.g. Nigeria’s fell by 41 percent and even South Africa lost 21 percent). Does a higher BRIC voting share – not quite the 15 percent required for a veto – make any difference? After all, the bloc’s directors thrice (in 2011, 2015 and 2016) agreed with Western counterparts to endorse IMF leadership by Christine Lagarde, even though she was prosecuted – and in 2016 declared guilty of negligence – in a £380 million criminal corruption case dating to her years as French finance minister. Lagarde’s free ride suggests that the BRICS is not only her neo-liberalism, but the appearance of systemic political bribery at the top of the world financial order. Moreover, the BRICS’ £80 billion Contingent Reserve Arrangement – a notional bailout fund – strengthens the IMF by compelling borrowers to first get an IMF loan and structural adjustment programme, before accessing the other 70 percent of their quota contributions during times of financial emergencies. And leaders of the BRICS New Development Bank – which has no civil society oversight – brag of co-financing and staff sharing arrangements with the World Bank.
- As for global warming, the 2015 Paris Climate Agreement left victims without any “climate debt” options against the West and BRICS, since legal claims for signatories’ liability are prohibited. The Paris emissions cuts commitments are too small and in any case non-binding – as witnessed when Donald Trump exited last June with no official punishment. Military, maritime and air transport emissions are not covered. Carbon markets – the “privatisation of the air” – are endorsed. Thus climate catastrophe is inevitable, mainly to the benefit of high-carbon industries in the rich and middle-income countries.
- Regarding global trade, the 2015 Nairobi World Trade Organisation (WTO) summit essentially ended agricultural subsidies and hence food sovereignty thanks to crucial alliances made with by Brasilia and New Delhi representatives with Washington and Brussels negotiators. The pro-corporate WTO leader is Brazilian, suggesting that the simple replacement of Northern elites with Southern elites will continue to hurt the Global South.
BRICS leaders were vital allies of the West in each of these recent sites of global malgovernance. However, short-term deals that benefit their neo-liberal, pollution-intensive corporations and parastatal agencies do come at a difficult time. The allegedly “better trade arrangements” that van Heerden identifies in the BRICS era, in reality, accompanied a major relative decline in trade measured in relation to GDP.
Although 2017 provided higher trade volumes, from 2008-16 global trade/GDP declined slightly, from 61 percent to 58 percent. It was the BRICS which led the slide: China’s trade/GDP rate fell from 53 percent to 36 percent; India’s from 53 percent to 40 percent; South Africa’s from 73 percent to 60 percent; Russia’s from 53 percent to 45 percent; and Brazil’s from 28 percent to 25 percent. In the first two BRICS, the crash was a function of rebalancing through higher domestic consumption rather than export-led growth.
But declining trade shares for South Africa, Russia and Brazil reflect peaking commodity prices just before the global financial meltdown that year, followed by subsequent recessions. Since early 2016, a rise in commodity prices boosted extractive-dependent countries, even pulling Brazil, Russia and South Africa out of recessions, But the renewed world economic volatility of 2018 – e.g. trillions of dollars evaporating from stock markets practically overnight earlier this month – threatens a return to extreme vulnerability for primary commodities, as witnessed in the wild price swings of 2007-15.
Commodity price volatility, 2002-2018
Ironically, regarding the supposedly “better global security arrangements,” the world is much more dangerous since the BRICS took their present form in 2010: in Syria and the Gulf States, Ukraine and Poland, the Korean Peninsula, the Sahel and Horn of Africa, and the South China Sea. Even the Chinese-Indian border is rife with confrontations, as fighting between the two giants nearly derailed the mid-2017 BRICS annual summit.
Narendra Modi’s boycott of the Belt and Road Initiative summit last May was due to Beijing’s mega-project trespassing on what New Delhi considers its own Kashmir land, now held by Pakistan. For Xi it is the crucial turf linking western China to the Arabian Sea’s Gwadar port.
As a geopolitical bloc, the BRICS’ public security interventions have occurred strictly within the context of the G20. First, in September 2013, the BRICS prevented Barack Obama from bombing Syria using pressure at the larger group’s St Petersburg summit. Second, six months later in Amsterdam, the BRICS supported the Russian invasion (or “liberation”) of Crimea once the West made threats to expel Moscow from the G20 – just as the US and Europe had thrown Vladimir Putin out of the G8, now G7. However, when Donald Trump came to last July’s G20 summit in Hamburg, the BRICS leaders were extremely polite notwithstanding widespread calls to introduce anti-US sanctions due to Trump’s withdrawal from global climate commitments just a month earlier.
Fortunately, military and political security in the southern African region has improved from prior eras. More than two million people were killed by white regimes and their proxies in the frontline anti-colonial and anti-apartheid struggles during the 1970s-80s, especially in Mozambique and Angola. More millions died in the eastern Democratic Republic of the Congo (DRC) during the early 2000s’ period of extreme resource extraction. The two recent armed interventions by Pretoria in the region were to join United Nations peacekeeping troops in the DRC (2013-present) and aid the beleaguered authoritarian regime in the Central African Republic (2006-13).
These are considered sub-imperialist political-military failures insofar as violence continues in both sites. In the latter’s capital city Bangui, more than a dozen of Pretoria’s troops were killed in March 2013 defending Johannesburg firms pursuing lucrative contracts, just days before the BRICS’ “Gateway to Africa” summit in Durban, South Africa.
As for local security, major upsurges of protest against injustice in each BRICS country have been met with crackdowns and extreme surveillance. The worst moment in South Africa was 16 August 2012, when three dozen mineworkers were massacred by police. They were “acting pointedly” at the explicit request (by email the day before) of the main local shareholder of the Lonmin platinum mining company, who demanded “concomitant action” against the “dastardly criminals” – i.e., 4000 mineworkers on a wildcat strike over miserable pay and living conditions. That shareholder was Cyril Ramaphosa.
Ramaphosa’s 2017 apology for the email phrasing was dismissed by victims’ families as posturing, not genuine. His legally-binding commitment – as board head of Lonmin’s Transformation Committee in 2010-13 – to build 5500 houses for mineworkers was never met; during his reign only three were built, leaving the shack settlements of Wonderkop and Nkaneng without basic sanitation and electricity notwithstanding vast pylons overhead providing power to the platinum smelter a few hundred meters away.
His excuse was alleged financial shortfalls after the 2008 world economic meltdown, yet the World Bank gave him a US $100 million loan for that purpose. Ramaphosa instead chose to use company funds to purchase US $100 million worth of marketing services in Bermuda, via his Shanduka firm’s control of Lonmin’s main Black Empowerment partner, a firm that, in the words of Lonmin’s lawyer, “for very many years refused to agree to the new structure” to halt the Bermuda tax dodge – just as he utilised tax havens for his other firms.
So most conventional wisdom about the BRICS’ anti-Western agenda remains dubious. And even at the level of personal security, several leading South African politicians are worried. Zuma himself regularly claimed his near death from the toxic compound ricin in 2014, before rapidly acquiring treatment over two weeks in Russia, was BRICS related.
Last August, he told his rural home constituency ANC members in KwaZulu-Natal (the site of scores of political assassinations), “I was poisoned and almost died just because South Africa joined BRICS under my leadership.” Zuma repeated the allegation three months later in a national television interview, implying a Western plot. In the days before he was fired, his family regurgitated the notion that “the West” was responsible for his fall.
Is Ramaphosa the antidote to Zuma’s gaming of his BRICS accomplishments? Yes, according to the BRICS Post, whose South African correspondent called for an immediate leadership replacement. The South Africa chapter of the BRICS Business Council, led by local newspaper magnate Iqbal Survé, offered surprising cynical headlines after Zuma’s speech to the ANC congress in December: “Vintage Zuma delivers a vengeful swansong, devoid of any responsibility” and “Ramaphosa prepares to confront South Africa’s bleak future.” Such headlines joined the cacophony of business and civil society complaints about Zuma, which, along with a rapid power shift within the ANC, led to his ouster.
The BRICS also became a factor in domestic politics, for just hours before he left office on 14 February, Zuma told the national broadcaster, “When the summit comes, the BRICS, I should be in a position to introduce to you (Ramaphosa) to other leaders to say this is the comrade who is taking over from me. So also to remove the perception out there that Zuma is being elbowed out.” And according to Zuma, his successor “agreed. He said this is a good proposal. We all agreed.” The double-cross on that agreement came a few days later.
The collective sigh of relief that came from most quarters of South African society – mostly from the bourgeoisie and petty bourgeoisie – is tempered on the left by a terrible knowledge: of Ramaphosa’s commitment to extreme mining. It’s quite possible that – even though he has looked to Western corporate power and wealthy South African whites for his funding flows and franchising opportunities to date – Ramaphosa will also turn to new BRICS allies, especially if he winds up with more dirty responsibilities such as imposing fiscal austerity.
More likely, though, is that after reluctantly hosting the BRICS summit in Sandton, South Africa he will simply give it a half-hearted, tokenistic nod. And this is the way Ramaphosa will very likely govern within South Africa too: going with the flow so as to not upset the capitalist cart. In a country with the world’s worst inequality, it’s a different but not unrelated kind of persistent poisoning.
Talk left, budget right
On Tuesday 20 February, Ramaphosa offered these fine words in a formal reply to critics of his State of the Nation Address in the country’s main legislative chamber: “The most important people in this country are not those who walk the red carpet in parliament, but those who spend their nights on the benches outside its gates.”
On Wednesday 21 February, in spite of claims to the contrary, Finance Minister Malusi Gigaba’s tax strategy disproportionately hurt the nearly two thirds of South Africans who survive below the poverty line (not the 55 percent claimed by StatsSA, for the agency uses a poverty line at least a fifth lower than it should be, according to the Labour and Development Research Unit of the University of Cape Town, South Africa). And for those above it with savings, an additional US $43 billion of the country’s US $843 billion in institutional investor funds could soon move abroad as a result of looser exchange controls.
The Value Added Tax (VAT) replaced a general sales tax in 1991 at the behest of the IMF, in spite of vigorous protests by the Congress of South African Trade Unions (COSATU). At least COSATU demanded – successfully – that a few basic foodstuffs be zero-rated. And due mainly to labour’s subsequent lobbying; the last VAT increase was in 1993. COSATU president S’dumo Dlamini recalled: “The apartheid government succumbed because they were under pressure as the country was in a transition to democracy. Now, 25 years later, we are increasing VAT. It’s not good at all for the poor. It’s not good for those workers who are toiling every day.”
Moreover, observed Business Day’s Carol Paton, “on the spending side it was poor communities that were the biggest losers, with cuts made to public entities such as the Passenger Rail Service of South Africa and infrastructure grants to provinces and municipalities savaged.”
Added the South African Communist Party, “It is simply untrue to argue, as the Minister of Finance did, that the 20 percent poorest will be unaffected by the VAT hike. What is more, other indirect taxes, like the increase in the fuel levy, will further impact on the cost of living especially for the poor.”
One of the most respected anti-poverty non-governmental organisations, the Pietermaritzburg Agency for Community Social Action (Pacsa), surveys a monthly low-income consumer’s food basket and now finds that since fewer than half its 38 items get a zero-rating, monthly food-related VAT alone will now cost US $19 (the one percent VAT increase translates to US $1.30). As Pacsa researcher Julie Smith observes, “In order to provide a meal working class households don’t just use zero-rated foods. A mother does not send her child to school with a few slices of brown bread; she sends her child to school with a sandwich that in addition to the brown bread will require margarine, peanut butter, or jam, cheese, polony – these are all subject to VAT.”
The monthly Child Support Grant rises 6.6 percent to US $35.50 per month by October, as against an expected 5.4 percent inflation rate. However, Pacsa argues that for more than 12 million children reliant on the grant, inflation has been rising much faster: “Over the past six months the cost of feeding children aged between 10-13 years a basic but nutritional diet increased by 8.8 percent to US $51.” The old age grant to 3.4 million pensioners also rises above the official inflation rate, to US $148 per month by October, but that is still below the current food inflation rate.
As for winners, several years of fierce university student protests were rewarded with an average US $1.65 billion annual increase through 2020, so that at least the beginning of free tertiary education is budgeted.
“A full-blown neo-liberal assault”
But revealing where the society’s real power lies in the world’s most unequal major country, Gigaba imposed no substantive wealth tax. Obviously pleased, John Campbell of Chartered Wealth Solutions remarked, “There were no changes to the marginal rates of individual income tax, the rate of tax on trusts (45 percent) or the rate of tax on companies (28 percent). Transfer duties on the sale of properties remained unchanged too.”
To be sure, those in higher income brackets will suffer because inflation-drag on personal income tax will result in a further US $600 million take, but that’s less than a third of the US $1.9 billion raised from the regressive VAT increase. A few other tax hikes, including US $0.05 per litre of petrol, will raise an additional US $600 million.
As a result, Gigaba has shifted the total debt/GDP ratio from a trajectory rising from today’s 53 percent to just 55 percent in seven years’ time, instead of the 63 percent he had projected last October. That alone is expected to appease Moody’s credit rating agency so that it does not deliver the final junk rating on South African bonds that was threatened within a month.
The leader of the South African Federation of Trade Unions, Zwelinzima Vavi, criticised Gigaba for leaving the main business tax at half its 1994 level: “Corporate taxes are not being touched and it’s a full blown neo-liberal assault on the poor. This is being done in the mistaken belief that if the rich are spared they would then invest their money and that the poor will eventually benefit. It’s the whole notion of a trickle down economy which has proven to be a disaster.”
Indeed Gigaba’s trickle-out permission for insurance and pension funds to remove another five percent of their assets offshore also bears examination. Last October, the Johannesburg Stock (JSE) Exchange’s ratio of market capitalisation to GDP hit an all-time high, at more than R16.2 trillion (about US $ 1.38 trillion) in share values against 2017’s R4.6 trillion GDP, a 350 percent ratio (more than three times higher than the world level). Hence diversification would be welcome.
But to let the investors search abroad for higher returns than the 8.1 percent that South Africa’s own state bonds pay – still amongst the world’s highest, equivalent to Russia and Venezuela – is to invite yet another financial tragedy. With part of the Old Mutual insurance company now returning to the JSE for a primary listing in the wake of its messy ordeals on the London Stock Exchange, and immediately following the multi-trillion dollar meltdown on the world bourses earlier this month, should such international financial volatility not be met with exchange control tightening, instead of liberalisation?
Gigaba admits that “high foreign debt redemptions” will hit hard within a year, but at close to US $160 billion (48 percent of GDP) as measured by the South African Reserve Bank, South Africa’s total foreign debt is now way beyond any historical precedent, including when PW Botha defaulted (at a debt rate of just 42 percent of GDP).
Given that Ramaphosa says he is committed to fighting illicit financial flows – and his own record of promoting tax havens at Lonmin, MTN and Shanduka suggests a certain familiarity with tax dodging – it would have been more logical for Pretoria to follow Beijing’s lead: sharpening not blunting the state’s residual capital controls. But that reversal is consistent with Ramaphosa’s stated commitment to the poor, also sabotaged by Gigaba’s budget.
In all these respects, Ramaphosa may fit in easily with other neo-liberal tendencies emerging within the BRICS, as the mantle of pro-globalisation policies and projects shifts from the US to China. Even if he will never adopt the faux anti-imperialism of Zuma, Ramaphosa can be expected to turn to nationalist themes given his extraordinary record in student politics, organised labour and the ANC. But it is the record of an uncaring, unpatriotic bourgeois that Ramaphosa must live down. And it is in the likes of Gigaba – unless he is fired alongside ministers of energy, mining, social development, local government and public services who all were Gupta allies – that a new nickname may stick to this government for the period ahead: the Ramazupta regime.
* Professor Patrick Bond is co-author of South Africa – The Present as History (Jacana Media, 2014) and Elite Transition: From apartheid to neo-liberalism in South Africa (Pluto Press, 2014).