Edition 03/09 2009-01-26 Friedrich-Ebert-Stiftung, Focus South Africa SOUTH AFRICA OFFICE Publication for political and socio-economic issues in South Africa FOCUS South Africa Effects of the global financial crisis South Africa in a balancing act between the economic crisis and the election campaign After the lengthy growth phase of the South African economy, the country at the Cape now also finds itself afflicted by the turbulences of the global financial and economic crisis. The economic growth has weakened exports, while business and domestic demand have decreased. The interim government of President Kgalema Motlanthe does not plan any hasty interventions during the period running up to the elections in April 2009. The collapsing economies and the election campaigns have forced the parties, however, to position themselves clearly. Notably the African National Congress(ANC) has found itself facing serious competition for the first time. The newly-created party, the Congress of the People(COPE) has already submitted its first concepts. Business federations, trade unions and the media have used the pre-election campaign in order to place demands. “The biggest challenge we face is how to ensure greater equality, imroved human development and social justice in South Africa.” Kgalema Motlanthe, South African President

Effects of the global financial crisis The current situation After more than nine years of uninterrupted growth and development a distinctly downward trend in South Africa’s economic growth has become apparent. In the third quarter of last year the South African national economy grew by only 0.2 percent. The country’s largest platinum producer, Lonmin, predicts the dissolution of 1500 jobs in its mines in the Up: Lonmin platinum mine Down: Lonmin workers in a platinum mine Limpopo Province. According to the company, this is inevitable and due to the world-wide decrease in the sale of cars and luxury items as well as the drop in prices. In May platinum reached record prices in the international markets. The governing statistics body in South Africa, Statistics South Africa(SSA) recorded a dissolution of 32 000 jobs in the mining industry sector in the third quarter. According to Jaco Kleynhans of the South African Trade Union Solidarity, the figures across all the divisions are disconcerting. This crisis is most evident in the motor industry. According to Brand Pretorious of McCarthy, the country’s largest car sales chain,“The demand for new cars dropped by 35 percent in November last year. More than 100 branches were forced to close while 1600 licensed affili ates had to cut back their sales expectations.” In addition the branches had invested millions in the development of their production and sales divisions. Now however, they are faced with the problem of having surplus capacity. McCarthy was forced to freeze 300 positions until the end of the year.“It is very sad and unfortunate, but what is happening is due to the dramatic changes in new vehicle sales, which have resulted in huge losses. All other vehicle dealerhips are in a similar position.” Analysts expect the dismissal of 5000 employees. Banks are experiencing similar problems. The dramatic decrease in credit rates and homeloans has forced ABSA and First National Bank to dismiss employees as well. They hold high taxes responsible and criticize the rigid rules of the National Credit Act. Turbulences in the international finance markets and the rigid fiscal po licies of the South African government have strengthened their scepticism regarding its safety measures. An increasing number of cars and properties change ownership through auctions. The declining domestic demand has affected in particular the mining, construction and trade industries. According to Tony Twine of the management consultancy firm, Econometrix,”We are now twao-and-a-half year into a downturn in the growth in spending.” For the first time since 1992 it is assumed that this is due to a dramatic decrease in the sales quotient. According to Derek Engelbrecht of Ernst& Young,”After calculating the official statistics the retail industry now finds itself in a recession and has demonstrated a decline for the last two quarters.” Engelbrecht predicts a similar trend for 2009. 2 Friedrich-Ebert-Stiftung, FOCUS SOUTH AFRICA 01/2009

Effects of the global financial crisis A question of vulnerability The behaviour of the government The current estimations regarding the middle and South African President Kgalema Motlanthe, who long-term vulnerability of the South African national replaced Thabo Mbeki after his resignation from ofeconomy to the global financial and economic crisis re fice, reflected concern regarding the current situa main disputed. Some experts predict an abrupt end to tion. In a speech delivered to the National Economic the demand for natural and raw materials, which will and Employment Council, the President angreatly affect the South African nationounced:“The rise in inflation and aossciated nal economy. This threatens not only the interest rates hikes and the relative weakness collapse of the export delivery, but also a of the Rand have placed increased pressures long-term weakening of the local markets. on the South African economy and particularThe currently low oil prices will be balanly on the poor.” He sees the economic policed by the volatile South African currency cies of the time as having been placed under (ZAR). its first true test. According to Motlanthe: “It may be imperative to strength the curOther experts regard the effects of the rent social diaolgue so that it play an even, financial crisis in a less dramatic way. Ac constructive role in facilitating growth and cording to analyst Michael Power of Investec social dialogue.” Asset Management:“For South Africa, and other resource-rich countries, I see that demand Motlanthe was made President in for resources used for industrial activity, incluSeptember, after Thabo Mbeki withding platinum, gold, iron ore, coal and oil does drew from office following internal not come to a grinding halt.” He says, that the conflict within the governing party dollar will become increasingly weaker in the the African National Congress(ANC). next three years, and raw materials will become Motlanthe remains close to ANC-Preincreasingly affordable for many sident Jacob Zuma and has not made buying states. Taxes will drop to changes to the governing of the Minisuch a low level that the world will stry of Finance and the South African face decades during which raw maReserve Bank. Furthermore he has avoterials are needed even more so than ided programs directed towards advancement and they have been in the last decades. state intervention. Power refers to Asiatic Tiger States, as well as China and India.“Asian Minister of Finance, Trevor Manuel and the economic growth will slow to 5-6 per Governor of the South African Reserve Bank, Tito cent, with China down to 7-8 per cent Mboweni stand for a rigid domestic and financial – but the major source of Asia’s ecopolicy. Despite high unemployment, inequality nomic growth of the past two years – * see end of the page and poverty, both remain committed to domestic goes into a spending hibernation, the Asian discipline and the fight against inflation as instru consumer wakes up.” In December the South Korean ments for economic advancement. Manuel agrees that steel giant, Posco, bought into a manganese mine for South Africa had been affected by the global financial 200 million US-Dollars, while the Indian GMR-Group and economic crisis, but states that“the epicentre of the acquired five percent of the South African Homeland crisis does not lie on our shores”. Manuel announced to Mining and Energy for 15 million US-Dollars, with the National Assembly that:“The economic and social the option of acquiring an additional 45 percent at costs of a prolonged period of hyper inflation or deflation, 155 million US-Dollars. caused by wayward or ill-conceived monetary policies, * Up to down: Kgalema Motlanthe(South African President), Trevor Manuel(South African Minister of Finance), Tito Mboweni(Governor of the South African Reserve Bank) 3 Friedrich-Ebert-Stiftung, FOCUS SOUTH AFRICA 01/2009

Effects of the global financial crisis cannot and should not be tolerated.” He recommended an the international financial and economic crisis. Official increase in exports and a reduction in the dependency on ly the unemployment rate in South Africa is estimated foreign investment. at around 28 percent, although unofficially this figure is assumed to be around 40 percent. At the introduction of Central bank governor Mboweni bases his estimates on the election manifesto Zuma announced:“The creatian improvement in future inflation rates, warns, nonethe- on of decent work is the the centre of all our economic less, of a slow development. At the end of Decem- policies. We will put in place a comprehensive stateber he announced the first decrease in the interest led industrial policy that will direct public and private rate since 2005 – by half a percentage point to investment to support employment creation and broa11.5 percent. In this manner South Africa joins der economic transformation.” Zuma was applauded the circle of global reserve banks attempting not only by the left wing of the ANC, the revitalisation of the economy through but also by the members of the South the lowering of taxes.”All scenarios exer- African Communist Party(SACP) as cised that we went through show infla- well as the trade union organization, tion is going to radically come down,” the Congress of South African Traaccording to Mboweni,”I am quite de Unions(COSATU). Zuma plans certain that we made the correct call in on instigating a developing state fothis instance.” This decision was wel- cussed on interventions in the battle comed by South Africa’s largest bank, against poverty and the creation of emABSA. According to Jacques Schinde- ployment opportunities. hutte, financial director of ABSA:“This re leases pressure. If the Reserve Bank keeps red- In this manner he differs from ucing interest rates, the consumer won’t be his predecessor in the office of the down and out.” However, many analysts ANC-President, Thabo Mbeki as and portions of the population had hoped well as from the newly-established parfor more generosity from Mboweni. ty, the Congress of the People(COPE), The election battle which recently broke away from the ANC, and which promised a more economically friendly policy such as the Although South Africa is under pressu- policy favoured by President Thabo re, the global financial crisis does not play Mbeki. The two principal initiators a significant role in the election battle of the of COPE are the former Minister of political parties. Parliamentary and presiden- Defence Mosiuoa Lekota and Mbhatial elections take place in April 2009. The go- zima Shilowa, the former premier of verning party, the African National Congress the province of Gauteng which inclu(ANC) has already submitted its election maniJacob Zuma, des the economic metropolis of Johannesfesto with a particular focus on five themes. The ANC-President burg and the seat of government in Pretoria. party, which has been in power since the end of apartheid, has promised the creation of secure jobs, as COPE has not submitted an election program yet but well as financial support for education and development, promises an end to ANC domination, corruption and health, agricultural development and the war against the abuse of official power. COPE criticizes the ANC crime. ANC-President Jacob Zuma, who served as Vice- of abusing public positions as a reward for loyalty to President of the ANC between1999 and 2005, and who is the party and demands more independence and efficien the prime candidate for the presidential office, promises to cy. This COPE hopes to facilitate through the creation create secure jobs and employment. In so doing he invol- of employment opportunities, the war against poverty ves himself in the most significant problem faced by the and increased investment in the areas of justice and decountry, a problem which has merely been worsened by velopment. By January 24 a detailed election program 4 Friedrich-Ebert-Stiftung, FOCUS SOUTH AFRICA 01/2009

Effects of the global financial crisis will be submitted but for now the Motlanthe, ANC General-Secretary party is concerned with its initial Gwede Mantashe and ANC Treadevelopment. surer, Matthews Phose, as well as the The demands of COSATU two COPE politicians, Mosiuoa Lekota and Mbhazima Shilowa and is not able to establish any significant The left wing of the ANC and differences related to economic the Congress of South African Tra- and financial questions. Contrary de Unions(COSATU) demands a to fears held by business affiliates resolution of the rigid domestic po- that a turn to the left by the ANC licies as well as the stringent fixati- under Zuma could jeopardize the on on the war against inflation. Ac- already rigid stability and result cording to COSATU General-Secre- in the loss of jobs, ultimately leatary Zwelinzima Vavi,”South Africa ding the country into bankruptis ripe for a new economic outlook. cy, the management consultancy The important political shifts, have firm Goldman Sachs predicts now created the space to advance al- stability:“Policies resulting ternative economic policies. Policies from South African elections which produce high growth, but which and political transitions could benefit only a few, while reproducing prove to be one of the‘top continued high levels of infant morsurprises’ of 2009, especially tality, poverty, illiteracy, casualisation, Zwelinzima Vavi, if Jacob Zuma, the leader of the ruunemployment and inequality, are out.” Vavi COSATU General-Secretary ling ANC and the likely winner of demands the diversification of the South Af the election, turned out to astonish rican economy and the construction of a labour-intensive observers in the same way that Brazilien President Luiz industry. According to the COSATU General-Secretary: Inacio Lula da Silva did.” Goldman Sachs calculates “we have to break with the excessive dependence on exthat Zuma will not shake the foundations of the current port on raw materials.” course of growth. ANC Chairperson, Jacob Zuma, demonstrates similar intentions, and remains, nonetheless under heavy pressure from international investors and South African businesses. Even when President Thabo Mbeki resigned from office, Zuma did call for a change of control of the Ministry of Finance or the Central Reserve Bank. Instead, together with interim president Kgalema Motlanthe, it was decided to focus on continuity. A current study conducted by the South African Institute for Race Relations indicates that no dramatic changes in economic policies can be expected after the elections. The study compares the speeches delivered by the most important ANC politicians, including Jacob Zuma, Kgalema Summary Despite domestic problems such as the energy crisis, inadequate development and education of most South Africans, the AIDS pandemic, high levels of criminality, the collapsing infrastructure and the effects of the international financial and economic crisis, the South African government has demonstrated relatively little movement. In the election campaign battle no shortterm interventions or attempts at stabilizing the current political situation have been demonstrated. The manner in which the most likely candidate for the office of the president of South Africa, Jacob Zuma, will deal with the demands of South Africa’s current problems is quite clear. The international financial and economic crisis does not pose any new problems for South Africa, since these are problems which have been dealt with intensively in the past. 5 Friedrich-Ebert-Stiftung, FOCUS SOUTH AFRICA 01/2009

Effects of the global financial crisis Editorial The newsletter FOCUS SOUTH AFRICA appears in a series according to current political and economic events and is written and published by the FES Johannesburg Office. It is published in English and German. The FES Johannesburg Office supports the pro cess of political, social and economic transformation in South Africa, thereby wishing to consolidate democracy and social justice in the largest country in southern Africa. The newsletter aims at providing background reports and analysis of the current political, economic and social developments. The FOCUS SOUTH AFRICA can be obtained free of charge. Please do not hesitate to contact us. Our homepage provides a complete set of all issues: www.fes.org.za. Authors of this number Jérôme Cholet Editor in chief Axel Schmidt Translation Kendall Petersen/Jérôme Cholet Layout& Design Andreas Dorner Friedrich-Ebert Stiftung Johannesburg Office 34 Bompas Road, Dunkeld West Johannesburg, South Africa P.O.Box 412664, Craighall 2024 Phone:+27(0) 11-341 0270 Fax:+27(0) 11-341 0271 Email: fokus@fessa.co.za Web: www.fes.org.za Advertisement Oliver Tambo Luli Callinicos Bey th o e nd Engeli Mountains ISBN –86486-642-9 Cape Town- New Africa Books 2004, 672 p. Supported by the Friedrich Ebert Foundation- South Africa Office 6 Friedrich-Ebert-Stiftung, FOCUS SOUTH AFRICA 01/2009