Economic Watch

Zuma administration at war with itself

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The Zuma administration increasingly looks as though it is at war with itself, while the South African economy is battling to come to grips with a sluggish global economy undergoing structural changes.

While its central supposedly policy-guiding document, the National Development Plan (NDP), is gathering dust amidst raging ideological battles, different key economic arms of the executive are at loggerheads with one another, at times almost seeming to sabotage one another’s efforts.

It makes for an extremely confusing business environment, with often seemingly conflicting messages coming from different government quarters – sometimes even from within the same ministry.

Presently the mining industry is in the eye of the storm, caught in a crisis due to the worldwide slump in commodity prices, protracted labour unrest and power constraints. Hard on its heels are the tourist industry, hit by new visa regulations, the steel industry and the associated manufacturing sector.

The mining sector has shed 23 000 jobs since April of this year, bringing the total over the past two years to 35 000. At least another 16 000 more jobs are in imminent danger as mining houses are contemplating cost-cutting restructuring to stay afloat.

Last week, as Minister of Mineral Resources Ngoako Ramatlhodi was entering into crisis talks with mining sector stakeholders (from mining houses to trade unions), his colleague for Economic Development, Ebrahim Patel, said the sector “was in trouble”.

In a radio interview Patel said South Africa needed to boost agriculture, tourism and the manufacturing sector to mitigate the fallout from the instability in the mining sector. Government would boost these sectors to diversify the economy from its reliance on mining. He added that the private sector could do more to create jobs.

Mixed signals

Ironically, almost coinciding with the announcement of the urgent meeting with stakeholders to develop a “consolidated plan” to stem the looming ‘blood bath’ in mining jobs, Minister Ramatlhodi used strong-arm tactics against Glencore by revoking its mining licence at its Optimum coal mine and ordering the suspension of all operations at the mine.

In July Glencore announced a restructuring of its operations at Optimum, which resulted in a net 380 jobs lost. The net result of the latest development is that the mine has now been placed in business rescue with 1 500 jobs in danger of being lost. At the heart of Optimum’s trouble is a disputed contract with state utility Eskom to which it claims it has to deliver coal below production costs.

Minister Ramatlhodi claims that Glencore did not follow prescribed procedures during the retrenchment process, but the company claims the opposite. Ramatlhodi also threatened other mining companies with the same fate if they cut jobs.

At the meeting Minister Ramatlhodi also lashed out at another government department, Water Affairs, which has suspended the water use licences of at least ten mines supplying coal to Eskom, forcing them to operate illegally. Some of the mines have been waiting for two years for a response to their licence applications.

He accused Water Affairs of acting without consulting with his department and acknowledged that lack of proper communication within the government sector was damaging. “It is very clear to me that what we do on the one hand can hurt the other hand if we are not harmonised,” he said.

At the time the urgent meeting of mining stakeholders was on, another one of Minister Ramatlhodi’s senior cabinet colleagues, Blade Nzimande in his capacity as General Secretary of the South African Communist Party (SACP), launched a scathing attack on private companies, and the mining houses in particular.

In an article on the SACP website under the appropriate tag “Red Alert” for the more than 2 500 words article, heavily laden with Marxist ideology, he accused “the bosses” of “attack on the workers” and of “blackmail” of the “whole economy”. He even accused some of them of being responsible for having “engineered” the strikes of 2012 on the platinum belt that led to the Marikana shootings.

And, unable to resist the temptation the play the race card, under the subhead “What is to be done?” he wrote: “The transformation of the mining sector cannot, and should not, be taken in isolation from our overall national democratic strategic priorities. At present, our immediate task is to radically reduce the persisting high levels of racialised and gendered class inequality, unemployment and poverty. Job creation is an essential component of this task. However, we must be under no illusion that jobs alone can do away with class inequality and poverty.”

He pleads for “state ownership” including “strategic nationalisation” (his emphasis) and attacks how Black Economic Empowerment (BEE) policies have been “hijacked” and “legislated” to “serve the narrow primitive accumulation interests of the emergent black capitalist stratum …”

Tourism, agriculture and manufacturing

Of the three sectors singled out by Minister Patel as drivers of diversification in the South African economy, two (tourism and manufacturing) are themselves at present in deep crisis because of either government action or inaction.

In the case of tourism, government also seems to be at war with itself – with a public spat in recent times between Minister of Tourism Derek Hanekom and Minister of Home Affairs Malusi Gigaba,

At issue are new visa regulations introduced by Gigaba and his department, which have seen a dramatic decline in South Africa’s tourism industry. Moneyweb Today last week reported on a drop of between 15% and 20% in inbound revenue and a 25% drop in inbound volumes.

Forward bookings with Sun International from China and India were down by as much 70% in June and the situation is said to be hurting some of South Africa’s neighbours as well, because of the country’s gateway status.

On the manufacturing front, a report we carried last week indicated how the neglect of the government to take steps to protect the country against the dumping of cheap steel from China is hurting not only local steel producers and endangering jobs, but also has a knock-on effect on local manufacturing.

Regarding the third sector, agriculture, supposedly earmarked to help drive the diversification of the South African economy, another report spelled out how ill-conceived policies over many years have left it in dire straits. In the 1970s agriculture used to employ over two million people on farms alone, or about a quarter of the employed. By 2014, fewer than 700 000 were employed on farms, less than 5% of the employed.

Conclusion

There is no doubt that South Africa is feeling the impact of commodity prices that have declined by 40% since their peak in 201; the slow-down in growth rate in China and its own adjustment from a production economy to one driven by consumerism; and structural changes in just about every major economy in the world, from the USA to Europe to Japan. In short, the new normal, still largely unknown, that is developing across the globe.

It makes for challenging times, which call for well-considered and coordinated policy responses. South Africa has a plan, the NDP, but unless we get to vigorous implementation soon, we run the risk that the economic strains could quickly morph into widespread social unrest.

 

by Piet Coetzer

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