South Africa’s struggling power utility, Eskom, has implemented rolling power cuts to offset heavy debt and management problems. The four-hour cuts, which the state-run utility began this month, are causing loud complaints from residents and the highest levels of government. But the effects are being felt also in the most unexpected places, as VOA’s Anita Powell reports from Johannesburg.
Portugal has become a top destination for South Africans looking for offshore alternatives, says Sable International.
With its friendly investment and residence programmes, European lifestyle and easy Mediterranean climate, it’s a destination of choice for South Africans trying to get into the European Union. And in the face of economic and political uncertainty in South Africa, immigration agency Sable International has experienced a 300% jump in enquiries.
Andrew Rissik, MD of Forex and International Projects at Sable International, says Portugal is a good option, but it’s not all plain sailing becoming a Portuguese resident and people need to do their homework.
“South Africans like Portugal because it’s a first world country and it’s part of the EU. But it’s still a relatively poor country that is improving economically. There’ve been really solid capital gains in the last 3-4 years, and good rental yields. We see it as a very stable economy – Portugal has been upgraded recently by all the credit agencies, unlike South Africa.
Most importantly it’s a very tax-friendly jurisdiction. One needs to consider when investing offshore, what the tax implications are, what makes a country an attractive investment and the process of investing,” said Rissik.
In 2012, Portugal was bailed out with all the so called PIGS countries (Portugal, Ireland, Greece and Spain) unlike Greece and Spain, Portugal put together a whole lot of interesting incentives to attract investments and to modernise and stimulate the economy, the Golden Visa being one of them, primarily aimed at non-European investors buying real estate.
“For a minimum investment of €350,000, a non-European could qualify for Portuguese residency on fairly easy terms, provided certain conditions were met. This could then lead to Portuguese citizenship – the prospect of EU citizenship combined with a solid property investment, is very attractive to many South Africans at the moment,” said Rissik.
“The incentives included an attractive tax scheme, established to draw people from places like Sweden and France (which have high tax jurisdictions) to become tax residents in Portugal where they wouldn’t have to pay tax on their worldwide earnings for 10 years,” said Rissik.
The plan has worked and the Portuguese economy has been stimulated by people coming in, buying property and then often bringing their families in and settling there. Tourism is being very heavily driven by the government with airport taxes having been dropped, and Portugal is now a popular tourism destination for Europeans and South Africans.
“However despite the incentives, investing in Portugal is still complex – we’ve specialised in investment in the country and from hard experience we understand that obtaining residence in Portugal is at least a five-year process – there are no short cuts.
“There are risks on the residency and immigration side and on the real estate investment side of it. It’s a relatively simple programme, but if you’re trying to become a European citizen, there’s complexity and you need to know how to follow the process to the letter,” said Rissik.
Minimum residence requirements on Golden Visa
The Golden Visa was promulgated by the Portuguese government since it was first started in 2012, the opposition have come into power and they’re backing it heavily. It’s something that’s working really well for Portugal, but it is a programme that has been fitted in to existing Portuguese residency and nationality law.
In most countries, if you become either a permanent resident or a citizen, it’s normally through living there. This is quite a unique programme in that you only need to spend seven days a year in Portugal.
“We’ve noticed the government in Portugal has made a lot of changes to the law in order to accommodate non-resident residents,” said Rissik.
“The overwhelming feeling from all the lawyers that we deal with and the people that we talk to in Portugal is that the Golden Visa is working for the country and they will do what they can within the law to try and make it as easy as possible.”
How to become a Portuguese resident
In order to become a Portuguese tax resident and to take advantage of the non-habitual tax programme, investors need to legally be able to reside in Portugal and spend 183 days or more in Portugal.
“If you’re non-European then you can do this through a Golden Visa and go and live there for at least six months of the year, and you need to financial emigrate from South Africa and become a Portuguese tax resident,” said Rissik.
Tax considerations when buying property in Portugal
In terms of the Golden Visa, it’s a very simple tax situation. In order to own a property in Portugal, you have to have a local bank account and a local tax number. In Portugal, as a non-resident investor, you will pay 28% on your net income. If you’re renting your apartment out and you make €30,000 per year income, you’re going to pay 28% source based tax in Portugal.
“As a South African resident tax payer, you would declare that on your income tax return and you would get a credit for the 28% that you’ve paid in Portugal – this is because of the treaty between Portugal and South Africa,” said Rissik.
“Unfortunately there are some dubious schemes out there – My advice for anyone going offshore is to engage with an advisor you trust, who has the experience and understands the requirements.”
- South Africa’s ruling ANC party has withdrawn its farmland redistribution bill
- The bill, passed by parliament in 2016 enabled state to make compulsory purchases of land to redress racial disparities in land ownership
- Donald Trump told Mike Pompeo to study ‘South Africa land and farm seizures’
The ruling African National Congress (ANC) said the bill passed by parliament in 2016 enabling the state to make compulsory purchases of land to redress racial disparities in land ownership needed further consideration.
It comes after Trump criticised the country’s land reform plans in a tweet that touched on the overwhelmingly white ownership of farmland in South Africa – one of the most sensitive issues in the country’s post-apartheid history.
South Africa has withdrawn its white farmland redistribution bill – six days after Donald Trump warned he was closely studying the situation
According to President Cyril Ramaphosa, who himself farms cattle on a 5,100 hectare ranch, the white community that makes up eight percent of the population ‘possess 72 percent of farms’
It comes after Trump (pictured) criticised the country’s land reform plans in a tweet that touched on the overwhelmingly white ownership of farmland in South Africa – one of the most sensitive issues in the country’s post-apartheid history
‘I have asked Secretary of State… (Mike) Pompeo to closely study the South Africa land and farm seizures and expropriations and the large scale killing of farmers,’ tweeted Trump to his 54 million followers.
His tweet apparently followed a segment on conservative Fox News about Pretoria’s plan to change the constitution to speed up expropriation of land without compensation to redress racial imbalances in land ownership.
‘South African Government is now seizing land from white farmers’,’ said Trump’s post, which tagged the show’s host, Tucker Carlson, as well as the channel.
The country is in the middle of a racially charged debate over land reform, a lawful process that seeks to correct the legacy of decades of white-minority rule that stripped blacks of their land.
According to President Cyril Ramaphosa, who himself farms cattle on a 5,100 hectare ranch, the white community that makes up eight percent of the population ‘possess 72 percent of farms’.
In contrast, ‘only four percent’ of farms are in the hands of black people who make up four-fifths of the population.
The stark disparity stems from purchases and seizures during the colonial era that were then enshrined in law during apartheid.
South Africa’s government reacted angrily to Trump’s tweet with officials telling their American counterparts the comments were ‘alarmist, false, inaccurate and misinformed’.
The President asked Secretary of State Mike Pompeo to monitor ‘farm seizures and the killing of white farmers’ in South Africa, announcing this in an early morning tweet
People place white crosses, representing farmers killed in the country, at a ceremony at the Vorrtrekker Monument in Pretoria, South Africa
In July, Ramaphosa said the ruling African National Congress party would amend the constitution so the state could start to expropriate land without compensation to speed up the process of land redistribution, but that has not yet happened and no land has been seized.
A fringe group of the white minority claims land reform will inspire violent attacks, though experts say farm attacks reflect the country’s generally high crime rate and are on the decline.
Claims of ‘genocide’ against white South Africans, however, have been picked up by some white nationalists in the U.S., and leaders of a right-wing South African group traveled to the U.S. in May to lobby officials about the alleged targeting of white farmers.
Trump’s tweet was quickly lambasted by many in South Africa, with one top ruling party official, Zizi Kodwa, telling the Associated Press that Trump has never experienced apartheid and doesn’t know its legacy of stark inequality.
Later on Thursday, State Department spokeswoman Heather Nauert said the administration’s position was that land expropriation without compensation ‘would risk sending South Africa down the wrong path.’
Nauert toned down Trump’s language suggesting that massive land seizures were underway and did not repeat the president’s suggestion that large numbers of white South African farmers had been killed.
Trump’s tweet did find support among some South Africans, while some farmers spoke out about their security concerns.
‘We try very hard not to go and live in a walled security area somewhere, but it costs a lot of money in the first place to have the necessary security,’ said Leon Sholtz, a farmer in Broederstroom in North West province.
‘It is fact that we have lost four of our neighbors in the last 10 to 12 years due to farm murders. … I think it is something that the government should look into and try and stop as soon as possible.’
South Africa’s battle over land explained
President Cyril Ramaphosa has stated his plan is not a land grab
South Africa’s ruling African National Congress (ANC) wants to change the constitution to allow the expropriation of land without compensation.
Here are the key issues in the debate.
WHAT NEEDS TO BE ADDRESSED?
South Africa has a history of colonial conquest and dispossession that pushed the black majority into crowded urban townships and rural reserves.
The 1913 Native Lands Act made it illegal for Africans to acquire land beyond these reserves, which became known as ‘Homelands’.
While blacks account for 80 percent of South Africa’s population, the former homelands comprised just 13 percent of the land. The traditional leaders that oversaw the homelands still hold significant sway.
Estimates vary but the consensus is that most privately owned land remains in white hands, making it a potent symbol of the wider economic and wealth disparities that remain two decades after the end of white-minority rule.
WHAT HAS BEEN DONE?
Since the end of apartheid in 1994, the ANC has followed a ‘willing-seller, willing-buyer’ model under which the government buys white-owned farms for redistribution to blacks. Progress has been slow.
Based on a survey of title deeds, the government says blacks own four percent of private land, and only eight percent of farmland has been transferred to black hands, well short of a target of 30 percent due to have been reached in 2014.
AgriSA, a farm industry group, says 27 percent of farmland is in black hands. Its figure includes state land and plots tilled by black subsistence farmers in the old homelands.
Critics allege that many farms transferred to emerging black farmers have failed because of a lack of state support, an allegation Ramaphosa denies.
HAIL TO THE CHIEFS
The 17 million people who reside in the former homelands, a third of the population, are mostly subsistence farmers working tiny plots on communal land.
Critics of ANC land policy say that instead of seizing farmland from whites, such households should be given title deeds, turning millions into property owners. Reformers in the ANC have signalled their support for such a policy.
Former president Kgalema Motlanthe, who headed a panel of inquiry into the land issue, described traditional leaders as ‘village tin-pot dictators.’
Tribal chiefs were not amused, and warned the ANC in July to exclude territory under their control from its land reform drive. The Zulu King evoked the Anglo-Zulu war and the spectre of conflict over the issue.
Markets and investors are wary because of concerns about wider threats to property rights. The rand fell sharply and government bonds weakened after Ramaphosa’s announcement.
Yet analysts say South Africa is unlikely to follow the route of Zimbabwe, where the chaotic and violent seizure of white-owned farms under former president Robert Mugabe triggered economic collapse.
ANC officials have said unused land will be the main target.
Still, the risks are substantial. South Africa feeds itself and is the continent’s largest maize producer and the world’s second-biggest citrus exporter.
Agriculture accounts for less than three percent of national output but employs 850,000 people, five percent of the workforce. Threats to production would also fan food inflation, hurting low-income households.
Analysts say the ANC wants to appeal to poorer black voters, the core of the ANC’s support, ahead of elections next year.
The move also cuts into the platform of the EFF party, headed by firebrand Julius Malema, who has made land expropriation without compensation his clarion call.
Trump’s comments inflamed the high-octane debate on land, a country that remains deeply racially divided and unequal nearly a quarter of a century after Nelson Mandela swept to power at the end of apartheid.
Violent crime is a serious problem across South Africa and 47 farmers were killed in 2017-18, according to statistics from AgriSA, an association of agricultural associations. However the same figures show that farm murders are at a 20-year low.
But the issue has been a focus of outrage by right-wing organisations in South Africa and abroad.
Afriforum, which mostly champions white people’s rights in South Africa, has said it will intensify its campaign to inform the international community regarding the threat to property rights and farm murders in SA.
Some legal experts argued there was no need to amend the constitution because Section 25 states that if land is taken from a property owner, ‘compensation … must be just and equitable.’
To some, ‘just and equitable’ could mean no compensation, depending on the circumstances in which previous occupants or owners were deprived of or removed from the land, either in British colonial times or under apartheid.
Ramaphosa has said South Africans are taking part in public hearings on land reforms that are being held countrywide, as they wanted the constitution to make clear when compensation was or was not justified.
The ANC is then expected to take its proposal to parliament, where a two-thirds majority is needed to change the constitution. Together with the leftist Economic Freedom Fighters (EFF), it has more than enough votes in the 400-seat parliament to effect the change.
(ZH) South Africa’s white farmers have been desperately trying to sell their lands at record pace ahead of planned government land seizures, according to a local farmer’s union. However, there are no buyers.
As Ryan Martinez writes for PlanertFreeWill.com, tensions among the country’s white farming community have been rising since the election of Cyril Ramaphosa who assumed office earlier this year and committed his African National Congress (ANC) to land expropriation.
ANC chairman Gwede Mantashe sparked panic last week when he said:
“You shouldn’t own more than 25,000 acres of land. Therefore, if you own more it should be taken without compensation.”
“People who are privileged never give away privilege as a matter of a gift,” he continued. “And that is why we say, to give you the tools, revisit the constitution so that you have a legal tool to do it.”
Mantashe comments were condemned by both white and black farmers, with unions predicting such a move would lead to job losses and a situation in which South Africa may no longer be able to feed itself.
Omri van Zyl, head of the Agri SA union, which represents mainly white commercial farmers, said:
“The mood among our members is very solemn. They are confused about the lack of any apparent strategy from the government and many are panicking.
So many farms are up for sale, more than we’ve ever had, but no one is buying.”
“Why would you buy a farm to know the government’s going to take it?”
The National African Farmers’ Union (Nafu), which represents the country’s black farmers, said the scheme would lead to job losses.
Nafu president Motsepe Matlala said:
“From a practical and economical point of view it will not work.”
“Land will be a central issue in the looming 2019 election year, and rhetoric is always easier than transformative action.”
AfriForum, an influential lobby group, recently warned the government its plans would be “catastrophic”. Ian Cameron, the group’s spokesman, said: “We’re really heading for a state of anarchy if something doesn’t change drastically.”
Local newspaper City Press is reporting that two game farms in the northern province of Limpopo were the first to be targeted for unilateral seizure after negotiations with the owners to purchase the properties stalled.
While the government says it intends to pay, owners Akkerland Boerdery wanted 200 million rand ($18.7 million) for the land. However, they are being offered just 20 million rand ($1.87 million).
The farmers were forwarded a letter earlier this year which stated:
“Notice is hereby given that a terrain inspection will be held on the farms on April 5, 2018, at 10 am in order to conduct an audit of the assets and a handover of the farm’s keys to the state. Akkerland Boerdery obtained an urgent injunction to prevent eviction until a court had ruled on the issue, but the Department of Rural Development and Land Affairs is opposing the application. “
“What makes the Akkerland case unique is that they apparently were not given the opportunity to first dispute the claim in court, as the law requires,” AgriSA union spokeswoman Annelize Crosby told the paper.
The newspaper said employees at the department had been ordered to press ahead with the process at the Land Claims Court. If the seizures go ahead, it would be the first time the state refuses to pay market value for land.
Since the end of apartheid in 1994, the ANC has followed a “willing seller, willing buyer” process to redistribute white-owned farms to black Africans.
A 2017 government audit found white people owned 72 percent of private farmland in South Africa.
According to the 2011 census, there are about 4.6 million white people in South Africa, accounting for 8.9 percent of the population.
ANC spokesman ZiZi Kodwa refused to reveal details of the farms being targeted and has attempted to calm investor fears, adding the proposed seizures were “tied to addressing the injustices of the past”.
“Over time I think the markets, as well as investors, will appreciate that what we are doing is creating policy certainty and creating the conditions for future investment,” he told the press.
”The government was accused of drawing up a list of almost 200 farms it allegedly wants to seize from white farmers, with AfriForum, a civil rights group representing the white Afrikaner minority, adding the document was being circulated by ministers as the ruling powers prepare to implement the policy. It invited farmers to check if they were on it and urged them to make contact “so we can prepare a joint legal strategy.”
But the Department of Rural Development and Land Reform denied the list was real with spokeswoman Linda Page telling News24 that, “We don’t know where they got this from. There is no truth in this document.”
Analysts warn the move could undermine property rights and deter investment.
In Zimbabwe, violent land seizures which were authorized by Robert Mugabe in the 1990s which sent the country into a spiral of decline from which it has never recovered.
“Markets are sensitive to anything perceived to be ‘Zimbabwe-fication’ on the land-reform front,” market analyst Henrik Gullberg noted.
Agri SA states 20% of South Africa’s farms produce 80% of the food that feeds millions of people in southern Africa, and many of those properties would be affected by a 25,000-acre cap.
And, just as we warned previously, Ramaphosa’s decision all but guarantees a banking crisis in South Africa:
Another important point is that a lot of this land that the government wants to confiscate probably has quite a bit of bank debt.
Imagine – you just bought a farm for, say, 50 million rand (that’s about USD $3 million). And in order to do so, you took out a hefty loan from a South African bank.
Now the government comes along and steals your property.
Are you seriously going to keep paying the loan?
Of course not.
This means that the banks are going to be stuck with massive defaults and bad debts, leading to a wave of bank failures.
So in their crusade to bring Social Justice to South Africa, the government is effectively engineering a banking crisis in their country.
And sure enough, as the Chairman of South Africa’s Land & Ag Development Bank warned today of the potential for default if expropriation without compensation takes place… and implies a state bailout will be required…
It is our considered view that it would be futile to expropriate land without compensation without an associated re-alignment and adjustment of the institutional mechanisms to deliver land reform. Land reform should be conducted in conjunction with the provision of comprehensive support to the beneficiaries which include both financial and non-financial elements…
As the Bank is generally funded by the local debt and capital markets (and more recently international multilateral institutions such as AfDB, World Bank, KfW and the EIB), a poorly executed Expropriation without Compensation could result in the main sources of funding drying up as investors might not be willing to continue funding Land Bank in particular, or agriculture in general.
If Expropriation without Compensation were therefore to materialise without protection of the Bank’s rights as a creditor, we would be required to repay R9 billion immediately. A Cross Default clause would be triggered should we fail to pay when these debts fall due because of inadequate liquidity or lack of alternative sources of funding. This would make our entire R41 billion funding portfolio due and payable immediately, which we would not be able to settle. Consequently, government intervention would be required to settle our lenders.
So, we leave it to SovereignMan’s Simon Black to conclude:
This is criminally stupid behavior that puts South Africa on the same path that Zimbabwe followed in the late 1990s.
And as I told you a few weeks ago, when I first reported about this land confiscation in South Africa, anyone who is dumb enough to follow Zimbabwe’s economic model absolutely deserves what they’re going to get.
- Lobby group AfriForum claimed to have a list of 195 farms earmarked for seizure
- But South Africa’s government denied the claim saying the document was false
- The rand fell after the ruling ANC’s chair said owners should have land seized
South Africa‘s government has been accused of earmarking almost 200 farms for seizure from their white owners as the chair of the African National Congress said the state should take land from those who own more than 12,000 hectares.
The rand fell on financial markets after ANC chair Gwede Mantashe, an ally of President Cyril Ramaphosa, said this week that major landowners should have their land taken without compensation.
AfriForum, a lobby group which mainly represents white South Africans, claimed to have a list of 195 farms which the government was planning to seize.
But the Department of Rural Development and Land Reform denied the claim, saying there was ‘no truth to this document’, News 24 reported.
The rand fell on financial markets after ANC chair Gwede Mantashe, an ally of President Cyril Ramaphosa (pictured), said major landowners should have land taken without compensation
More than two decades after the end of apartheid, white people still own most of South Africa’s land.
Ownership patterns remain highly emotive as the government has been slow to transfer land to the black majority after centuries of colonial and racial oppression.
The ANC’s plans to amend the constitution to redistribute land have been interpreted negatively by some investors, who see them as undermining property rights.
The ruling party has sought to assuage those fears by saying that land reform will follow a parliamentary process.
‘You shouldn’t own more than 12,000 hectares of land and therefore if you own more, it should be taken without compensation,’ ANC Chairman Gwede Mantashe, who is also the country’s mines minister, told News24 in an interview published on Wednesday.
It was not immediately clear whether Mantashe’s comments represented official ANC policy. Four key party officials did not answer their phones when called by Reuters for clarification.
A man walks through a field of crosses erected near Pretoria, in 2003, to honour mostly white farmers who have died in farm attacks in South Africa
Mantashe is one of the top six most powerful officials in the ruling party and a close ally of President Cyril Ramaphosa.
The rand fell more than 3 percent against the dollar earlier, partly weakened by Mantashe’s comments, a report by Moody’s ratings agency on the struggling economy and a resurgent dollar, which struck a 13-month peak.
The ANC is under pressure to make headway with land reform ahead of next year’s national election, where the ultra-left Economic Freedom Fighters party has made faster land redistribution one of its main policies.
The 12,000 hectare land ownership limit was mooted in 2016, by then-rural development minister Gugile Nkwinti. But Nkwinti said the government would seek to buy, not expropriate without compensation, land from those owning more than 12,000 hectares.
AfriForum has criticised the ANC’s decision to endorse constitutional changes to allow the state to seize land without compensation, saying the move would be ‘catastrophic’.
The party has subsequently deleted the tweet and said it was quoting someone else, though lawyers say they can still be held accountable.
A tweet on the ANC’s parliamentary Twitter account shocked many on Thursday when it appeared to call all white people murderers.
The tweet, which has subsequently been deleted, read: “The biggest mistake we are making is to consult murderers. White people are 9% of the population, they own 79% of land. They never came and consulted us for the land. If they want us to forgive them now, then let us share the land, the mineral resources.”
It was not in quotation marks, so when it was read out of context it came as a bombshell to many, who assumed that this was the view of the ANC itself.
The party then told its critics that it had merely been quoting the remarks of one of the members of the public who had come to parliament’s constitutional review committee’s public hearing on the review of section 25 of the constitution that was being held in the town of Beaufort West in the Western Cape.
However, this didn’t sit well with critics, who pointed out that the party should have made that clearer, by at the very least putting the statement in quotation marks.
Subsequent to the criticism, that was what the account began to do, in an attempt to make it clearer that it was not necessarily expressing the views of the ANC itself.
Nevertheless, this still didn’t well with some. A legal expert, Helene Eloff, also weighed in to make it clear that the ANC had blundered and could be held liable for the view expressed, since a disclaimer can’t be applied retrospectively.
The ANC in the Western Cape on Saturday congratulated the joint constitutional review committee for successfully conducting public hearings into whether the constitution should be amended to allow for expropriation of land without compensation.
The committee had held public meetings across the Western Cape in the past week, and on Saturday finished the public consultation process with a public meeting in Goodwood in Cape Town.
In a statement, the party said: “The people of the Western Cape have spoken. From Oudtshoorn to Beaufort West, Citrusdal to Swellendam, and finally, the Cape Metro, our people have unequivocally and overwhelmingly said section 25 of the constitution must be amended in order to fulfil the broad and fair land ownership across the province.
“The ANC is proud of its members who came out in numbers and made solid contributions in the public hearings. Our members and supporters are saying land reform through the amendment of section 25 will open the province’s productive forces and, contrary to popular belief, will actually increase agricultural productivity and be the catalyst for the broad industrialisation of our country as millions get absorbed into mainstream economy.
“Our people are saying land is the basis for all economic activity and exclusion of the majority of citizens from land ownership prevents them from full participation in the economy. There is a clear message that land expropriation will have a positive impact also on social challenges as people are freed from burden of landlessness and lack of assets.”
The statement added: “Our people believe that instead of affecting food security, land expropriation will actually expand it. Instead of causing social and economic upheaval, new economic players will emerge, and our economy may experience a leap forward.”
The party said that contrary to the fears of some, including right-wing organisations, the ANC had made it clear throughout the process, and in its National and Provincial Land Summits, that “not only are we concerned about food productivity, we seek maximisation of all agricultural land, so instead of removing some productive forces from the system, more will be added”.
Parliament’s joint constitutional review committee on Saturday concluded the provincial public hearings into section 25 of the Constitution in the Cape Metropolitan Area with one of the biggest gatherings to date.
The committee, which held a total 34 hearings in all nine provinces of South Africa, was instructed by the National Assembly and the National Council of Provinces to ascertain whether a review of this section and other clauses were necessary, to make it possible for the state to expropriate land in the public interest without compensation. It was also asked to propose the necessary constitutional amendments where necessary.
Hundreds of members of the public attended Saturday’s hearings at the Friend of God Church in Goodwood. The church has a capacity of 1,500. Long queues were still seen outside during the hearing and, as people finished submissions, they made space for others to come into the venue.
Co-chairperson of the committee Vincent Smith said that following the hearings, the committee would assess the hundreds of thousands of written submissions it received after which it will invite those submitters, who indicated that they wanted to make oral presentations, to hearings at parliament.
Once the process had been concluded, the multiparty committee would deliberate extensively on this matter before it reported to both houses of Parliament.
The ruling ANC this week announced that it was going ahead with its intention to review the contentious section.
In a late address on Tuesday, ANC leader and SA President Cyril Ramaphosa said his party will, through the “parliamentary process, finalise a proposed amendment to the Constitution that outlines more clearly the conditions under which expropriation of land without compensation can be effected”.
(BBG) A unit of the South African Police Service said it’s started an investigation into an alleged cryptocurrency investment fraud that has affected more than 28,000 people and led to losses of more than 1 billion rand ($80.4 million).
The allegations involve “BitCaw Trading Company, commonly known as BTC Global,” the police unit said in an emailed statement on Friday. “Members of the public are believed to have been targeted as part of the scam and encouraged by BTC Global agents to invest with promises of 2 percent interest per day, 14 percent per week and ultimately 50 percent per month.”
“BitCaw Trading was not involved in the BTC Global scam and we are shocked to see our name connected with it,” Andrew Caw, who set up BitCaw Trading, said in messages via Facebook on Friday. “BitCaw Trading assists people with buying & selling Bitcoin as well as other Bitcoin related services. We do not manage third-party money or offer any kind of investment” and BitCaw didn’t set up BTC Global, he said.
BTC Global’s services are suspended, according to that company’s website. In a statement on the site it blames its financial woes on a former employee. No contact details are given for BTC Global.
“We are as shocked and angry as everyone,” the BTC Global team said in the statement. “If you feel you’ve had a crime committed against you, you need to follow the legal procedures to deal with the matter.”
Bitcoin prices have declined 45 percent this year and 58 percent since the high of $19,511 reached on Dec. 18. It was 0.9 percent lower at $7,485 as of 9:14 a.m. in New York.
Former President Zuma has been linked to corruption cases for years.
The only question is the amount of time it has taken to charge him.
But, “better late than never”
South Africa’s former President Jacob Zuma is to face prosecution for 16 charges of corruption relating to a multi-billion-dollar arms deal.
The case centres on a 30bn rand ($2.5bn; £1.7bn) deal to modernise the country’s defence in the late 1990s.
The charges – which Mr Zuma denies – include counts of fraud, racketeering and money laundering.
Mr Zuma, 75, was forced to resign as president last month by his party, the ruling African National Congress (ANC).
He was facing his ninth no-confidence vote in parliament before he left office.
Chief Prosecutor Shaun Abraham said he believed there were “reasonable prospects of a successful prosecution” in the case.
French arms supplier Thales will also face charges, a prosecutor said. Thales declined to comment, reports the AFP news agency.
Mr Zuma is alleged to have sought bribes from Thales to support an extravagant lifestyle. His financial adviser at the time was found guilty of soliciting those bribes in 2005 and Mr Zuma was later sacked as deputy president.
Original charges against Mr Zuma were controversially dropped shortly before he became president in 2009.
He now faces one charge of racketeering, two charges of corruption, one charge of money laundering and 12 of fraud.
Shaun Abrahams, head of the National Prosecuting Authority, said a trial court was the appropriate place for the matter to be decided.
He dismissed representations made by Mr Zuma asking that the charges be dropped.
The former ANC chief had argued that the charges against him were characterised by misconduct, “irrational behaviour” and media leaks on the part of prosecutors, Mr Abrahams said.
Mr Zuma has always denied the allegations against him.
Long court battle awaits
Analysis by Milton Nkosi, BBC News, Johannesburg
As Jacob Zuma is no longer president, he cannot use state resources to support his defence.
But let’s not get too ahead of ourselves – Mr Zuma is known for fighting every single battle right until the end.
Therefore, expect some pushback even after this heavy blow.
He is, by law, allowed to challenge this decision. In other words we might see a delay before any trial actually starts.
And even when the trial begins, it will be long and drawn out.
But for now his political enemies, particularly the opposition, are celebrating that he is closer to facing a judge in court than ever before.
Mr Zuma weathered an array of corruption allegations during his nine years in power.
In 2016, a report by South Africa’s anti-corruption watchdog alleged that the billionaire Gupta family had exploited their ties with him to win state contracts.
Both the Guptas and Mr Zuma deny any wrongdoing.
The same year, South Africa’s highest court ruled that Mr Zuma had violated the constitution when he failed to repay government money spent on his private home.
An anti-corruption body found he had spent $23m (£15m) on refurbishments including a swimming pool and an amphitheatre. He has since repaid some of the money.
Zuma’s corruption charges: A brief history
- First filed in 2005 when Mr Zuma’s financial adviser, Schabir Shaik, was jailed for fraud and corruption.
- Mr Zuma went on trial in 2006 but the case collapsed when the prosecution said it was not ready to proceed more than a year after he was charged.
- South Africa’s National Prosecuting Authority (NPA) controversially dropped the charges in 2009, shortly before he won the presidency.
- Political opponents campaigned tirelessly for him to face trial.
- South Africa’s High Court reinstated the charges in 2016 and Mr Zuma lost a Supreme Court appeal to overturn them.
- The country’s chief prosecutor, Shaun Abrahams, has now decided to pursue a case against the former president.
The controversial arms deal
In 1999, the South African government announced its largest-ever post-apartheid arms deal, signing contracts totalling 30bn rand ($5bn; £2.5bn) to modernise its national defence force
The deal involved companies from Germany, Italy, Sweden, the UK, France and South Africa
Allegations of bribery over the deal dogged the governments of both President Jacob Zuma and and one of his predecessors, Thabo Mbeki.
Schabir Shaik was found guilty in 2005 of trying to solicit a bribe from Thint, the local subsidiary of French arms firm Thales, on behalf of Mr Zuma. He was released on parole on health grounds after serving just over two years
Another official, Tony Yengeni, who was chairman of parliament’s defence committee at the time of the deal and chief whip of the ANC, was convicted of fraud in 2003. He was also freed on parole after serving five months of a four-year sentence.
(GUA) Former anti-apartheid activist turned businessman replaces Jacob Zuma, who dramatically resigned on Wednesday night.«
Cyril Ramaphosa has been elected president of South Africa by a parliamentary vote less than 16 hours after the resignation of his rival Jacob Zuma, following days of defiant refusal to leave office.
Ramaphosa – who, as deputy president, became interim leader immediately after Zuma’s late-night resignation on Wednesday – is being sworn in as head of state by South Africa’s chief justice in Cape Town.
The ruling African National Congress has a substantial majority in parliament and the vote is effectively a formality. Though deeply divided, the ANC has already closed ranks after the crisis of recent days and has rallied around Ramaphosa, 65, who was pictured jogging and posing with local residents on the Cape Town seafront early on Thursday morning.
The former president’s resignation put an end to an intense political crisis that threatened to inflict significant damage on the ANC, which has ruled South Africasince the country’s first free elections in 1994.
In a televised address to the nation late on Wednesday, Zuma said he was a disciplined member of the party, to which he had dedicated his life.
“I fear no motion of no confidence or impeachment,” he said. “I will continue to serve the people of South Africa and the ANC. I will dedicate my life to continuing to work for the execution of the policies of our organisation.
“No life should be lost in my name. The ANC should never be divided in my name. I have therefore come to the decision to resign as president of the republic with immediate effect.”
The announcement ended an extraordinary day in South African politics, which began with a dawn raid on the business family at the centre of recent corruption allegations levelled at Zuma.
Then, at noon on Wednesday, ANC officials announced they would vote for an opposition party’s no-confidence motion in parliament on Thursday.
Late in the afternoon, Zuma gave an angry and rambling TV interview that sought to justify his refusal to obey his party’s order to step down.
But his late-night speech was more confident and warm. Zuma started with a joke about the late hour and his trademark chuckle. He expressed his gratitude to the ANC and South Africans for the privilege of serving them at the “pinnacle” of public life, before saying “thank you” and “goodbye” in three local languages.
Zuma, a former anti-apartheid activist who has led the ANC since 2007 and been South Africa’s president since 2009, was due to leave power next year. His tenure has been marred by economic decline and multiple charges of graft, undermining the image and legitimacy of the party that led the struggle against apartheid.
The crisis of recent days has further damaged the ANC, as well as angering many South Africans who are becoming increasingly impatient with the party’s opaque internal procedures.
In December, Ramaphosa won a bitterly fought ANC leadership election. Party strategists wanted Zuma to be sidelined as quickly as possible, to allow the ANC to regroup before campaigning starts for elections in 2019.
The party suffered significant setbacks at municipal polls in 2016 and could be forced into a coalition government at the national level, experts say.
As president, Ramaphosa will have to balance the need to reassure foreign investors and local businesses with the intense popular demand for dramatic measures to address South Africa’s deep problems. The former trade union leader has said South Africa is coming out of a “period of uncertainty, a period of darkness, and getting into a new phase”.
Richard Calland, an expert in South African politics at the University of Cape Town, said the departure of Zuma from office would give Ramaphosa “the chance to rebuild government and the party at the same time”.
In recent days, the rand has strengthened and many analysts have revised upwards their predictions of South Africa’s economic growth.
After Zuma’s address on Wednesday night, the ANC immediately closed ranks. Jessie Duarte, the party’s deputy secretary general, told reporters the ANC was “not celebrating” at a “very painful moment”.
(Reuters) South Africa is planning to grant diplomatic immunity to Zimbabwe’s first lady Grace Mugabe, allowing her to return to Harare and avoid prosecution for the alleged assault of a 20-year-old model, a government source said on Friday.
South African police have put border posts on “red alert” to prevent Mugabe fleeing and said she will not receive special treatment, after Gabriella Engels accused Mugabe of whipping her with an electric extension cable.
But a senior government source said there was “no way” Mugabe, 52, would be arrested because South Africa would weigh the need to seek justice against the diplomatic fallout.
“There would obviously be implications for our relations with Zimbabwe. Sadly the other countries in the region are watching us and how we are going to act,” the source said, asking not to be named.
“What is likely to happen is that she will be allowed to go back home, and then we announce that we’ve granted diplomatic immunity and wait for somebody to challenge us.”
The source acknowledged the view widely held by legal experts that Mugabe is not entitled to diplomatic immunity because she was in South Africa for medical treatment, and said her immunity might be challenged in court at a later date.
Rights group Afriforum, which is advising Engels, said it would be illegal for Pretoria to give Mugabe immunity and branded the plans a “disgrace”.
Harare has made no official comment on the saga, which erupted on Monday, and requests for comment from Zimbabwean government officials have gone unanswered.
Zimbabwe’s 93-year-old President Robert Mugabe arrived early in Pretoria for a regional southern African summit this week to help resolve his wife’s legal problems, the source said.
Grace Mugabe is expected to attend the summit as part of a “first spouses” program.
Engels said she was assaulted by Mugabe on Sunday evening as she waited with two friends in a luxury Johannesburg hotel suite to meet one of Mugabe’s adult sons.
A lawyer for Mugabe identified by Reuters refused to comment.
(Fin24) Cape Town – Ratings agency S&P Global Ratings on Monday downgraded South Africa to sub-investment grade and said a massive Cabinet reshuffle shortly after midnight on Friday has put policy continuity at risk.
The decision follows a Cabinet reshuffle which claimed the jobs of Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas.
Barely 24 hours into his new job as Minister of Finance, Malusi Gigaba clarified two important aspects of his new appointment which represent major shifts from his predecessor. Both aspects of the new Gigaba era should leave South Africans concerned and calling for greater scrutiny than ever before on government, political analyst Daniel Silke earlier wrote on Fin24.
“Firstly, Gigaba unambiguously placed the highly contentious nuclear power build project firmly back on the agenda.
“The second aspect of the first 24 hours of Gigaba’s reign is perhaps more worrying. At his first media briefing, Gigaba expressed a more populist view of not only economic policy but also his world view,” Silke wrote.
The rand reacted immediately to trade at R13.71/$. By 17:53 it changed hands at R13.67 to the greenback.
S&P said the executive changes initiated by President Jacob Zuma have put at risk fiscal and growth outcomes.
“We assess that contingent liabilities to the state are rising,” the global ratings agency said in a statement.
S&P lowered the long-term foreign currency sovereign credit rating on the Republic of South Africa to ‘BB+’ from ‘BBB-‘and the long-term local currency rating to ‘BBB-‘ from ‘BBB’.
It also lowered the short-term foreign currency rating to ‘B’ from ‘A-3’ and the short-term local currency rating to ‘A-3’ from ‘A-2’. The outlook on all the long-term ratings is negative.
In addition, S&P lowered the long-term South Africa national scale rating to ‘zaAA-‘ from ‘zaAAA’, and affirmed the short-term national scale rating at ‘zaA-1’.
“The downgrade reflects our view that the divisions in the ANC-led government that have led to changes in the executive leadership, including the finance minister, have put policy continuity at risk.
“This has increased the likelihood that economic growth and fiscal outcomes could suffer. The rating action also reflects our view that contingent liabilities to the state, particularly in the energy sector, are on the rise, and that previous plans to improve the underlying financial position of Eskom may not be implemented in a comprehensive and timely manner.
“In our view, higher risks of budgetary slippage will also put upward pressure on South Africa’s cost of capital, further dampening already-modest growth.”
…”a relegation that could take years to undo”…
(Bloomberg) South Africa might be just hours away from losing its investment grade at S&P Global Ratings — a relegation that could take years to undo.
With a credit assessment due on Friday, the country’s foreign-currency debt is at risk of being rated junk by S&P for the first time in more than 16 years. Only six of 20 countries reduced below investment grade by S&P over the last three decades have regained it, and that took from 13 months to more than 11 years, data compiled by Bloomberg show. Seven of 12 economists surveyed by Bloomberg last month said the nation’s foreign-currency rating will be downgraded to junk on Friday, while three foresee it happening in June.
Political turmoil in Africa’s most-industrialized economy, including now-dropped fraud charges against Finance Minister Pravin Gordhan, has overshadowed efforts to boost investor and business confidence. The slowest gross domestic product growth this year since a 2009 recession will complicate Gordhan’s pledge to narrow the budget deficit and to limit government debt, while promised structural reforms have been hampered by infighting in the ruling African National Congress and government departments.
“If South Africa does get a downgrade, I think we are looking at at least three to five years before it could possibly get upgraded again,” Per Hammarlund, chief emerging-market strategist at SEB SA in Stockholm, said by phone. “Given the way politics are moving now, it seems as if the political paralysis will continue and that doesn’t bode well for economic reforms.”
Fitch Ratings Ltd. on Nov. 25 changed the outlook on its BBB- rating, which is one level above junk, to negative from stable and warned that continued political instability could result in a downgrade. Later the same day, Moody’s Investors Service, which rates South Africa’s debt at the second-lowest investment grade level, with a negative outlook, said in a credit opinion political infighting that generates policy uncertainty and impedes structural reforms could lead to a cut.
While a reduction to junk on the foreign-currency rating may hurt sentiment and add to woes for the rand in a year of emerging-market uncertainty — fueled by Brexit and the election of Donald Trump as U.S. president — it won’t necessarily lead to significant forced bond selling by foreign investors. South Africa’s local-currency ratings, which are usually referenced for inclusion in global benchmark indexes such as Citigroup’s World Government Bond Index, are still above junk, even after Fitch cut its assessment to the lowest investment-grade level in July.
“We think S&P will look to downgrade the country’s local-currency rating on Friday from the current BBB+,” Jeffrey Schultz, a senior economist at BNP Paribas Securities in Johannesburg, said an e-mailed note. “Such a move, we believe, would serve as a warning signal that S&P is uncomfortable with the direction in which South Africa’s debt-to-GDP ratio is moving and that should structural economic reforms not materialize to boost growth before June next year, a foreign-currency downgrade is inevitable.”
A cut by S&P would move the company’s rating of the nation’s foreign-currency debt to the same level as Russia and Portugal. Investors already consider South Africa more risky than Russia, with the cost of insuring against non-payment of debt for five years using credit-default swaps 15 basis points higher than for that country. The rand strengthened 0.3 percent to 14.07 per dollar by 8:15 a.m. in Johannesburg.
Gordhan, 67, has led efforts to stave off a downgrade while wrangling with President Jacob Zuma over the management of state-owned companies and the national tax agency. A failed bid at the ANC’s National Executive Committee meeting this week to oust Zuma increased speculation he will be replaced as the nation’s president.
The economy will probably expand 0.4 percent this year, according to the central bank. That will make it difficult for Gordhan’s to meet his target to narrow the budget deficit to 2.5 percent of gross GDP by 2020, from a projected 3.4 percent this year, and to rein in gross government debt that’s forecast to peak at 53 percent of GDP in the year through March 2019.
“The past has shown that regaining an investment-grade rating isn’t easy,” George Herman, head of South Africa investments at Citadel Investment Services in Cape Town, said. “We need some structural changes in the economy to improve growth, but those are going to take tough political decisions.”
Divisions within the governing African National Congress are deepening and a potential downgrade of South Africa’s debt rating to junk isn’t fully priced in by markets, according to Goldman Sachs Group Inc.
The rand slumped as much as 4.3 percent against the dollar on Tuesday, the most since June, and bond yields rose to the highest in more than a month after prosecutors said Finance Minister Pravin Gordhan must appear in court on Nov. 2 on fraud charges. Five-year South African credit-default swaps, an indication of risk, climbed 15 basis points on Tuesday to 265, the highest level since July 8 and above those of Russia, Brazil and Turkey, which all have junk credit-ratings.
“There is clearly a sharpening of the knives between the various factions within the ANC,” Colin Coleman, a partner and head of Goldman Sachs Group in South Africa, said in an interview on Bloomberg TV. The reaction to the news on Tuesday in the country’s financial markets was “less than expected,” meaning that the risk of South Africa losing its investment-grade status hasn’t been fully factored in, he said.
While a downgrade to junk is evident in the swaps market, it hasn’t been “fully priced in,” Coleman said. There is a reasonable prospect that South Africa could keep its investment-grade status by remaining “focused on the structural reform agenda” being led by Gordhan, he said, adding that such an outcome would result in a rebound in the value of the country’s assets. “If the finance minister is removed, that will lead to a certain cut.”
S&P Global Ratings and Fitch Ratings Ltd., which will both review their credit assessments in December, kept their assessments at one level above junk in June, and S&P kept its outlook at negative. The companies said the government must take decisive steps to bolster growth and end political turmoil.
Gordhan is leading joint efforts by the government, business and labor unions to re-ignite economic growth headed for its slowest expansion since the 2009 recession. The ANC, which has led South Africa since Nelson Mandela swept the party to power after the end of apartheid in 1994, will hold a conference in December 2017, when President Jacob Zuma is scheduled to step down as head of the party. He is set to leave office in 2019 after two terms.
The charges relate to Gordhan approving the early retirement of a former colleague at the revenue service and then allowing him to be rehired on a contract basis during Gordhan’s first stint as finance minister. Gordhan was reappointed in December to the position he held from 2009 until 2014 after Zuma was forced to reconsider his decision to replace Nhlanhla Nene as finance minister with a little-known lawmaker.
Gordhan, 67, on Tuesday called the summons politically motivated and said “there is no case.” The minister has repeatedly clashed with Zuma, who had dismissed his request to fire the nation’s current tax chief, Tom Moyane, for insubordination and delayed his attempts to install a new board at the loss-making state airline. The president reaffirmed his support for Gordhan and urged the prosecutor “and other institutions concerned to conduct the matter with the necessary dignity and respect.”
The rand extended losses against the dollar on Wednesday, weakening 0.8 percent to 14.4827 by 12:47 p.m. in Johannesburg, the lowest level on a closing basis since Sept. 2 and the worst performer among 31 emerging market and major currencies. Yields on South African local-currency bonds due December 2026 rose three basis points to 8.96 percent. Banking stocks fell the most in seven weeks on Tuesday.
The rand’s reaction on Tuesday was “less than could’ve been the case,” Coleman said in a text message response to questions. The currency, which fell to a record low of 16.8717 in in January is still far off its worst levels and “may have run more,” he said. “The market’s not thinking Pravin will be fired.”
The matter “has to go to the courts,” Coleman said, adding that Gordhan needs to be kept in the post because markets have confidence in him and he has support from the business community to drive the economy. “What we need in South Africa more than anything is growth and jobs,” he said.
(BBG) A ruling by South Africa’s top court that President Jacob Zuma violated the constitution doesn’t mean he’s leaving office anytime soon. He can still count on his African National Congress’s parliamentary majority to shield him from impeachment or a no-confidence vote.
Backed by the majority in the ANC’s decision-making National Executive Committee and with his party holding a 62 percent majority in the National Assembly, Zuma, 73, retains plenty of support as he faces the biggest challenge of his seven years in office.
“President Zuma also benefits from continued control over the intelligence and security services, and enjoys crucial political support from rural traditional leaders and key party fundraisers,” said Robert Besseling, the executive director of risk advisers Exx Africa. “As long as Zuma retains such support, he is unlikely to face a significant challenge to his presidency.”
The Constitutional Court ruling was the latest setback Zuma has faced since his decision in December to fire his respected finance minister, Nhlanhla Nene, sparked a sell-off in the rand and government bonds. Since then, senior ANC officials have gone public with charges that the Guptas, a wealthy Indian family who are friends with the president and in business with his son, offered them cabinet posts in exchange for business concessions. His position may weaken further if the main opposition parties, the Democratic Alliance and the Economic Freedom Fighters, take control of major cities, including Pretoria and Johannesburg, in municipal elections due after May.
The controversies have undermined an administration already facing an economy that’s set to grow at the slowest pace since the 2009 recession and a possible credit-rating downgrade. Standard & Poor’s has a negative outlook on its BBB- rating, one level above junk. Moody’s Investors Service rates South Africa’s debt one level higher. The rand strengthened 1.4 percent against the dollar to 14.7334 as of 3:24 p.m. in Johannesburg. Yields on rand-denominated government bonds due December 2026 fell 5 basis points to 9.11 percent, the lowest in almost three weeks.
“The only thing that will lead to Zuma stepping down is if his supporters turn against him,” Bonita Meyersfeld, a law professor who heads the University of Witwatersrand’s Centre for Applied Legal Studies, said by e-mail. “I don’t think that will happen.”
In Thursday’s ruling by the Constitutional Court, Chief Justice Mogoeng Mogoeng said Zuma “failed to uphold, defend and respect the constitution and the supreme law of the republic” because he failed to abide by graft ombudsman Thuli Madonsela’s 2014 findings that he should repay some of the 215.9 million rand ($14.6 million) spent on his private home.
Zuma argued that he didn’t need to pay because he didn’t order the renovations that included a swimming pool and a chicken run at his home at Nkandla in the eastern KwaZulu-Natal Province. The president backtracked when the case came before the Constitutional Court, and his lawyers said he accepted Madonsela’s recommendations had to be implemented.
The amount he must pay will be set by the Treasury, headed by Finance Minister Pravin Gordhan. He’s been engaged in a dispute with Zuma since the president refused to bow to his demand to fire tax chief Tom Moyane and backed a probe into a special investigations unit set up at the revenue service when Gordhan led it.
Zuma appointed Gordhan in December four days after his decision to replace Nene with a relatively unknown lawmaker sent the markets into a downward spiral.
The court ruling will strengthen Gordhan’s hand, said Dirk Kotze, a politics professor at the University of South Africa in Pretoria.
“Maybe this is one of the reasons why Zuma wanted to have a more sympathetic person as minister,” Kotze said. “There is almost no scope for President Zuma to justify his actions of the past.”
In its unanimous ruling, the court also found that the National Assembly violated the constitution for failing to hold the president to account and instructed Zuma to reprimand his police and public works ministers, who cleared him of any wrongdoing.
The ANC said it respected the ruling, calling the court “the guardian of the constitution,” while the government said Zuma was considering the judgment.
Zuma, a former intelligence operative who’s led the ANC since December 2007, has weathered a series of scandals over his political career. The former head of the ANC’s intelligence wing, he took office in May 2009 just weeks after prosecutors dismissed graft charges against him.
“This ruling has far-reaching political implications for the ruling African National Congress, especially in parliament,” Susan Booysen, a politics professor at the University of the Witwatersrand in Johannesburg, said by phone. “No longer does that party rule apply ‘to protect your president at any cost,’ but they actually have to scrutinize his conduct with regard to the prescriptions of the constitution.”
(FT) The legacy of injustice has shaped the country. Now it needs growth, of the right kind.
ast week, I visited South Africa for the first time in 15 years. In 2000, when euphoria over the transition to democracy gripped the world’s imagination, I was concerned that the economic challenges would prove overwhelming. Only brave, skilful and honest leadership could deliver a successful future. Inevitably, it has fallen short of these requirements. A downward spiral of populism and declining performance looms.
Edmar Bacha, a Brazilian economist, applied the label “Belindia” to his own country in the 1970s. Belindia combines Belgium, a small and rich modern country, with India, a large and poor one. Apartheid South Africa was even more Belindia than Brazil: a small, white rich country within a large, black, poor one. Whites lived even better than in Belgium, since they could hire cheap servants from their own India. South Africa was the second most unequal economy in the world, after Brazil. But the racial injustices that drove this inequality were vastly more poisonous.
This legacy of injustice has duly shaped post-apartheid South Africa.
Members of groups previously excluded from South Africa’s Belgium promptly entered it. This reduced inequality between whites and blacks, while increasing it among blacks. Yet today, pre-tax inequality is as high as 20 years ago. It is also the world’s highest. The inhabitants of its Belgium are also taxed more heavily, in order to transfer income and resources to those in its India. Public spending has doubled over the last decade in real terms, with particularly large rises in education, health and social protection. Access to electricity, water and sanitation has much improved. Despite the Aids disaster, life expectancy has risen to close to 60 and infant mortality has fallen sharply.
These choices were both inevitable and right. But neither insertion of a favoured few into the modern economy nor the transfer of resource to the rest can solve the country’s problems. Worse, it cannot even continue on its present path. The potential rate of economic growth is down to 2 per cent. There is a structural fiscal deficit of close to 4 per cent of gross domestic product, while government debt has risen from 22 per cent of GDP in 2008-09 to 44 per cent this year. At 33 per cent of GDP, government spending is high for a middle-income country. (See charts.)
Within the bounds of prudence, the largely zero-sum redistributive policies of the early democratic period are exhausted. So what are the options now? There would seem to be three.
First, the country could seek to stabilise the unsatisfactory status quo. This would mean managing the political fallout of a slow-growing and unequal economy blighted by mass unemployment and racial inequities. Worse, groups with the most votes would have the worst deal. This cannot be workable.
Second, politics could take an evermore populist turn, as politicians make promises of a better life to the discontented at the expense of the still contented. But this would make policy increasingly negative-sum: losses imposed on the successful would exceed gains for the less so by an ever-rising margin. Zimbabwe has demonstrated the folly of such an approach. But political entrepreneurs will choose it. Julius Malema of the opposition Economic Freedom Fighters is already doing so. The government will meet the threat by raising its own bids.
The third approach would be to adopt policies for faster, employment-generating growth. Harvard’s Ricardo Hausmann notes powerfully that “if South Africa had a labour force employment ratio similar to Latin America, employment in South Africa would be higher by 66 per cent”. This shows how far South Africa is falling short of what is needed. But faster growth of today’s modern economy, even if feasible, would never generate the jobs the country needs.
Fifteen years ago, I argued that the least bad option would be to allow the Indian parts of the country to develop under appropriate prices (including low wages). To accelerate growth there, the government would need to focus investment and subsidies upon it. One possibility might be to turn parts of the country into free economic zones. In essence, South Africa would do what China did under Deng Xiaoping: build a new economy around the old one.
The question, however, is whether it is still possible for politics to shift from an increasingly negative-sum orientation to a positive-sum one. The gains from growth must go to the disadvantaged. That is evident. But for that to work, there must be not only more growth, but also the right kind of growth.
The present difficulties of the economy, notably the collapse of the rand (down more than a fifth in real terms since 2010) are even an opportunity. This should improve the profitability of production for exports (including of tourism services). It would be wise for South Africa to follow other countries and intervene in foreign currency markets, if necessary, to keep the exchange rate competitive. Fiscal policy should be used in support of such a strategy.
These are, however, just details. The fundamental point is that if the country does not shift to a path of faster, employment-generating growth, the populist disaster seems increasingly inevitable. It may be too late to make the needed switch, particularly with President Jacob Zuma at the helm. But the stagnation and high unemployment of today are a politically unsustainable combination. Change will come. Let it be in the right direction.How-South-Africa-can-escape-the-‘Belindia’-trap-FT