IT’S AN old joke that gentiles leave without saying goodbye and that Jews say goodbye but never leave.

I’m getting close to the end of my time writing this column, and I would like to say goodbye and never leave. I’ve been writing in this space for an inordinate time — more than five years.

It sometimes filled my Sundays with dire deadline trepidation and sometimes with happy mental stimulation; often both simultaneously.

But before I go, I would like at least to try to answer the questions that I, and many other journalists, get asked most often: what do you think is going to happen to South Africa ?

It’s a vast, broad, and variable question. It’s so big, it’s flattering to get asked, even if most people who ask it often have very fixed views about what they think is going to happen. It suggests you might know the answer, and like everybody, I don’t. Journalists tend to get asked this question because it’s assumed they have an inside track.

Actually, mostly we don’t.

But it is a persistent question, and it’s easy to see why.

South Africa has been part of a momentous political and economic transition, and transitions are by their nature full of risk and uncertainty.

Analysts of companies use the term "execution risk", and that sword of Damocles still hangs over the country and its future.

The notion of execution risk is appropriate in other ways too. It’s usually used to suggest company strategists know where they want to go, but for some reason, there is some doubt about whether they will be able to achieve their goals. South Africa ’s social and economic goals are pretty ordinary and self-explanatory.

The problem is not the goal, it’s the getting there.

The "execution risk" tag helps explain why South Africans tend to cleave toward grand plans, like the National Development Plan, even though they really don’t say very much more than we all already sense anyway. The idea of a plan tends to appease those who fear execution risk, even if nothing in the plan ever gets implemented.

But what of the country’s future? Like most people, I vacillate. There are times when I feel the country is sliding inexorably toward the precipice. I sometimes feel South Africans actually prefer it when the country is sliding toward a precipice. So much so that even when it isn’t, we pretend it is. It’s part of the notion of a grand moment precipitated by a great crisis that is now embedded in our political culture.

There is an interesting notion suggested to me by political analyst Claude Baissac which proposes that South Africa ’s biggest challenge is really a question of synchronicity. South Africa , like many other countries in its position, needs to align the incentive systems between its political culture and its productive sector.

I really like this idea. In some ways, this is an academic way of saying that politicians and business need to recognise and agree on their mutual interdependency. When business fails, so does government. Just ask any Zimbabwean. But the opposite is true too.

However, this is not just a question of agreeing; this is the trap into which we too often fall.

The underlying incentive systems need to be operating in alignment too. Governments need to be rewarded for economic success — and be punished for economic failure. If that dynamic doesn’t work, then the precipice beckons.

Looking historically, it’s possible to recognise periods of synchronicity and periods when consumptive and productive sectors have moved out of alignment. Why they do so has a lot to do with global macroeconomics, but the domestic economy is important too. Think about three key measures: gross domestic product (GDP) growth, inflation and the rand/dollar exchange rate.

The periods of the Mandela and the early Mbeki presidencies were periods of flux, and there were erratic movements to these key measures. In a sense, these movements were linked to international events, like the emerging market crisis in 1998, but the rand crisis in 2001 was largely rooted in domestic events.

But taken broadly, the measures were moving roughly in the right direction. This was, in other words, a period of neither convincing convergence nor increasing divergence.

But the later Mbeki years were distinctly a period of increasing convergence. The improvement of the international economy, and more specifically the improvement in commodity prices, laid a basis for an improving local economy.

But once again, domestic economic events also played a role.

Not only did GDP go up, but inflation came crashing down. South Africa began to sense its organic potential. All of the economic actors began moving in concert.

This all came to a thumping end with the simultaneous decline in the global economy and the rise of the Zuma faction in the African National Congress (ANC). The result has been an increasing level of statism and the gradual emergence of a political class developing a different incentive system to that of the productive sector. One aspect of this is that in effect the trade union movement has a veto over all economic policy.

The result has been a stultifying tug of war. The alliance between the Congress of South African Trade Unions and the ANC has never been more intense — nor more strained.

Not surprisingly, all the indicators have begun moving out of convergence; inflation is moving up, the dollar down, and growth is sub-par.

Because of its position in the world somewhere between a developed and a developing economy, South Africa ’s growth often tracks global growth. Yet it’s interesting to note how South Africa ’s growth rate has lagged global growth over the past four years. That is the consequence of decreasing synchronicity.

Taken to its extreme, this scenario is negative.

It creates a negative feed-back loop, which tends to increase, not decrease, convergence. The ultimate outcome is disaster.

Yet I just don’t think this is our fate. South Africa is increasingly commercially linked to Africa, which is moving erratically but measurably forwards. In Zambia and in Kenya, sitting governments have been peacefully ejected; whether the new government will be an improvement is debatable, but the fact of the changeover is a great step forward.

What South Africa shares with the continent is a demographic bulge at the bottom which helps underpin real economic growth.

As long as South Africa ’s economic system remains more or less intact, that demographic dynamic ought to be able to express itself. The easiest way to recognise this is by inverting Europe’s economic position.

European economies are facing intensifying fiscal crises, and part of the reason is that generous welfare systems can’t keep up with ageing populations. African countries, on the contrary, have an expanding, emerging youth, which is modern, consumerist and energetic.

What remains to be seen is whether that energy can find a way to take root in a productive way — or whether it will be cajoled or persuaded to believe in some failed doctrine, or to travel down some ideological blind alley.

...

 

Questionable deals pose risks for us all

THAT’s all rather up in the air, but here’s a real-life example. The Mail & Guardian broke a big story this week that helps explain why Energy Minister Dipuo Peters ordered a preliminary investigation of PetroSA.

The newspaper obtained affidavits made to police by a PetroSA director, Rain Zihlangu, who said he felt compelled to request an investigation as he suspected corruption. The investigation focuses on the 10-month tenure of acting CE Yekani Tenza which ended last May, but involves other executives too.

Two main deals are mentioned: the acquisition by PetroSA last year of a company with crude oil acreage in Ghana, and a plan to buy petrol stations across South Africa . In the petrol stations deal, the M&G says, transaction advisers HSBC were fired, incurring a R19m cancellation fee. Tenza replaced them with a company called Harith Fund Managers, which the M&G describes as "a much smaller local firm".

I’m not sure that description is entirely fair. Harith has some well-known money men and women. Its board includes former deputy finance minister Jabu Moleketi, chief investment officer of the Public Investment Corporation Daniel Matjila, chief financial officer of the Development Bank of Southern Africa Kameshni Naidoo, and Ignatius Sehoole, deputy CEO at PwC. The company does some interesting investing, and bought Lanseria airport a few years ago.

The problem is Harith CEO Tshepo Mahloele has been connected to what might be called "insider" deals. It’s alleged that after PetroSA fired HSBC, it hired Harith on a success fee that would have amounted to R371m. This was renegotiated to R187m after Tenza left PetroSA, but was still five times the success fee HSBC would have earned had it stayed on.

The thing is made more suspicious by the fact that the petrol station deal was apparently all but done when Harith was appointed. Zihlangu said Harith’s appointment was a bit like placing a player "to simply kick the ball (through) empty goalposts", as HSBC had already identified a company to acquire and done much preparatory work.

Harith was approached by the M&G, and has claimed confidentiality and that it operates ethically. I think in the circumstances the company should be more forthcoming. But the point is there are too many questionable deals coming to light involving government departments and institutions. They underline the notion of a government developing an incentive system outside the politic dynamic, and that is for obvious reasons a dangerous thing.

The notion of a grand moment precipitated by a great crisis is now embedded in our political culture

When business fails, so does government. Just ask any Zimbabwean. But the opposite is true too.