Durban, South Africa.
African National Congress (ANC), is having a miserable time. On February 12, President Jacob Zuma’s State of the Nation address was heckled – “Pay back the money”, referring to state subsidies to his rural mansion – by the Economic Freedom Fighters (EFF) opposition party. In the melee, police goons broke the jaw of one EFF member of parliament.
Last week Finance Minister Nhlanhla Nene gave his maiden Budget Speech, bending over to demands by big business, bank economists and the ultra-rich. That meant ignoring anguished calls of poor and working-class people and those seeking ecological sanity, even though around 3000 angry leftist protesters from the new United Front marched to parliament against him.
The day before, Environment Minister Edna Molewa agreed to allow the country’s 120 worst polluters another five years grace period to comply with long-standing air quality legislation. This reversal on her promise to enforce the law six months ago left climate activists furious, for not only will SO2 and toxins continue to soil the local air, but there is now far less chance of also cutting co-pollutants CO2 and methane from the same firms.
According to Samson Mokoena, Coordinator at the Vaal Environmental Justice Alliance, “Not only has Eskom been granted postponements, but so has the largest [single point source] emitter of carbon dioxide in the country, Sasol.” The firm’s Secunda operation squeezes coal and gas to make liquid fuel, originally a technology developed in Nazi German and then by the apartheid regime to bust sanctions.
It is yet another instance of Molewa rolling-back what had once been impressive-sounding environmental regulations; instead, fast-track infrastructure legislation now trumps ecological values. Any pretence of Molewa addressing GreenHouse Gas emissions is now conclusively over, in the wake of last year’s attempts to justify her budget cuts in climate programming (including rudimentary emissions measurement).
Meanwhile, activists on the ecology, freedom-of-expression, Palestinian solidarity and internationalism beats were appalled when hundreds of revealing “Spy Cables” (leaked to Al Jazeera) blew wide credibility holes in South Africa’s State Security Agency and its allies. The whistle-blow, as devastating here as were Chelsea Manning’s and Edward Snowden’s, proves conclusively how Washington, London and Tel Aviv yank Pretoria’s chain from one direction, and Moscow and Beijing from another.
We’ve known of the relay between the imperial-subimperial capitals. But the week prior to Israeli Apartheid Week beginning in our major cities, revelations of Mossad’s brutal toying with the South African state and arms manufacturers stunned the society. In one illustrative case, Mossad allegedly threatened a cyber attack against South Africa if the government did not shut down an energetic Boycott Divestment Sanctions campaign.
But even greater danger to South Africa lurks in the form of an inevitable mugging by banksters. As Budget Day dawned on February 25, ratings agencies Moody’s, Standard & Poors and Fitch mulled over a downgrade to junk status. On Business Day’s front page, leading economist Iraj Abedian asserted that Nene would only satisfy the agencies by cutting civil service salaries and, for social grants, ensuring any increases came in “way below inflation.”
Nene followed that advice, announcing “consolidation of government personnel numbers” and substantial cuts to the real social wage. The child grant was up a nominal 4.8% from 2014’s average monthly $27; the old age and disability grant rose 4.4% from last year’s $117; and the foster care grant increases just 3.6% from $72. But inflation recorded last month for the lowest fifth of South Africans was 5.6% (and for all of us just 4.4%), as a result of the downward spike in petrol prices which probably won’t continue. If instead you use 2014 average inflation of 6.1% and lower-end inflation above 7%, then indeed Abedian can celebrate that poor people took a whack, with Nene’s grant increases “way below inflation.”
As for the bloated bureaucracy, Nene is chopping the wrong part, according to the secretary of new left movement the United Front, Mazibuko Jara: “Previously frozen posts of teachers, health-care workers, technicians, etc. have now been done away with. This will seriously undermine the delivery of basic and essential services such as water, sanitation and electricity.” There was also not a cent in the budget for a National Health Insurance program promised since 2007.
This is disastrous for the poor majority. Although one may debate World Bank staff about their dubious 2014 claim that South Africa’s world-leading inequality has shrunk substantially thanks to state social spending, at least Bank staff say that cuts to social grants should be avoided. Yet they certainly helped create the austerity mood. A Moneyweb article last month was headlined, “A fiscal tightrope: World Bank warns South Africa to cut spending.”
On the other hand, for the first time since 1995, a finance minister imposed a 1% personal income tax rise on those of us in the middle- and upper-classes (with above a $1300 monthly income). Still, it’s so minimal as to be mostly brushed off – aside from those suffering over-indebtedness to the point of “credit impairment,” i.e., nearly half the borrowing population, according to Nene and the National Credit Regulator.
There appears no serious relief on that front, for Nene merely endorsed a process already underway in which, no thanks to a deregulatory Treasury which slept while unsecured loans soared, debtors are finally beginning to contest widespread abuse of “emolument attachment orders” (also called garnishee or stop-order payments).
But as US interest rates begin to rise in coming months, South Africa won’t be far behind, given how vulnerable we are to capital outflows, in turn thanks to Treasury’s steady exchange control liberalisation. That process began in earnest exactly 20 years ago when the early controls (the finrand) were abolished, akin to a ruptured economic condom, resulting in unsafe international financial intercourse.
Since then, the largest corporations and richest individuals have moved vast shares of national wealth abroad. Examples include Lonmin’s Bermuda platinum marketing scam and De Beers’ missing diamond invoices of $2.6 billion from 2004-12.
Big corporations also celebrated the reduction of top primary tax rates from 48% in 1994 to 28% five years later. These were not touched in Nene’s 2015 budget because so many other countries’ corporate taxes were also ratcheted down to such low levels during the neoliberal era.
Nene is apparently deterred from hiking corporate taxes thanks to our excessive reliance on foreign capital inflows. That vulnerability is reflected in our foreign debt, which has doubled to $140 billion since 2009 in large part so as to pay for profit outflows. Exchange controls could halt the rot but would alienate Nene’s banker mates.
Meanwhile, Nene at his most benevolent permits the stampede of White Elephant infrastructure projects across the landscape to continue unimpeded by austerity barriers. Claims about the developmental state were made in Parliament last week, mostly on behalf of coal mining house Exxaro, by Minister of Economic Development Ebrahim Patel. He’s best remembered for arranging sunshiney eNews coverage for Zuma just prior to the 2014 election: hyping mega-projects in exchange for apparent regulatory favours.
Patel’s first Strategic Investment Project is already sinking what will be tens of billions of dollars into climate-frying subsidies to lubricate coal exports via rail to the port of Richards Bay, which boasts the world’s single largest coal export terminal.
Uh oh: China shrunk its demand for thermal coal imports 5% last year and the price crashed from $140/tonne in 2011 to what Citigroup estimates will be just $55/tonne this year. The state agency Transnet apparently didn’t get the news, so in 2013 borrowed $5 billion from the Chinese government to buy mainly Chinese-built locomotives for the Richards Bay run.
The single biggest White Elephant in terms of a site-specific project on Transnet’s agenda remains the proposed South Durban “Dig Out Port”: $25 billion. Last week, international shipping consultant Jamie Simpson, invited by the municipality to keynote a packed workshop, recommended it be suspended indefinitely because of weak demand.
Transnet’s group strategy general manager Irvindra Naidoo was furious. But he also confirmed that there’s no serious “road-to-rail” planning underway for the millions of containers now on dangerous trucks leaving the Durban harbour – again thanks to the 1990s’ deregulatory spirit that has left so much Transnet capacity idle.
The three languishing mega-power plant projects – Medupi, Kusile and Ingula – that Eskom cannot quite bring to fruition illustrate the risk of Patel’s expensive obeisance to the Minerals-Energy Complex. Repaying the World Bank its $3.75 billion for its largest-ever loan – mostly for Medupi, already five years late – should be rethought given lender liability on manifestly corrupt project. To his credit, Nene at least avoided any obvious commitment to the $100 billion worth of dubious nuclear energy reactors likely to be bought from Russia, though he did endorse fracking.
Nevertheless, here in Durban, we continue to be trampled by White Elephant infrastructure. What with the cost of Transnet’s explosive Durban-Johannesburg “pipeline to hell” replacement soaring from $565 million in 2006 to $2.09 billion today and still not complete; the $1 billion farcically below-capacity King Shaka “aerotropolis”; two mostly empty world-class sports stadiums that even World Cup 2010 local organiser Danny Jordaan apologised for (amidst reports this week of a $550 billion 2022 Commonwealth Games bid so reminiscent of Fifa follies); and ongoing municipal subsidies to the continent’s largest convention centre.
Nationally, Treasury sloth is exemplified by Nene’s gift of $2 billion to Eskom, urgently required to buy diesel fuel so as to generate electricity costing $0.26 kWh; yet 5% of the grid feeds BHP Billiton’s smelters, for which they pay just $0.01 kWh.
The new StatsSA report recalculates a basic basket of food and essential services and puts our poverty rate at 54% of society, not 46% as the state previously claimed. Contrary to the banker buzz, South Africa’s state social spending is extremely low: just half what Brazil spends in relation to the size of the economy. On that standard measure, we’re actually fifth from the bottom of the top 40 economies, even though our inequality is by far the highest, and getting worse.
Still more troubling, Treasury plans to steadily cut the size of welfare grant expenditure from 3% of GDP to 2.3% by 2040. At such low levels, these social policies are, like free basic electricity of just 50 kWh per household each month, best considered tokenistic.
In stark contrast, the top ten South Africans alone have shareholdings worth a conservatively estimated $18 billion. In addition, 58 South Africans – including notorious arms deal advisor Fana Hlongwane – enjoy overseas Swiss bank accounts worth $2 billion in HSBC, just one of the many Zurich banks known for looting Africa.
With Nene following bankers’ advice to squeeze the poor instead of demanding the rich “Pay back the money,” more economic stresses down below will result, followed by more protests. In his meant-to-be-soothing State of the Nation address, Zuma confessed that last year, police counted a record 1907 violent protests (while activists say intolerant cops initiate violence, not them).
No surprise, then, that the police force got a major budget boost. But is this really the right moment for Nene to cut $139 million in 2015-17 funding for municipal water supplies, urban settlements and rural household infrastructure?
Best known for his 25-second Youtube fall from grace in 2008, Nene may now be setting the stage for a more profound political crash. At some point these protests may aggregate into something akin to the Tunisian uprising which, at least temporarily, kicked out an unaccountable ruling clique and their crony-capitalist and unreformable-IMF allies. Local commentator Moeletsi Mbeki once projected that South Africa’s “Tunisia Day” will come in 2020; but Nene appears to be speeding up that process: whacking the poor and instead allying so very closely to bankers and the unpatriotic bourgeoisie.
Patrick Bond directs the University of KwaZulu-Natal Centre for Civil Society.