The good, the bad and the ugly: an economic review of Zuma’s presidency
resident Jacob Zuma won the presidency of the African National Congress (ANC) in 2007. He was elected president of South Africa in 2009 at a time when the full impact of the 2008 global financial crisis hit. South Africa experienced its first recession in the post-apartheid era, with an unemployment rate of 24.9%.
The embattled Zuma is at the centre of the worst corruption and state capture allegations in South Africa’s history and the ailing economy faces great challenges. Admittedly, Zuma did inherit an economy in distress in 2009 but there is no doubt that it has worsened under his leadership.
The 2017 GDP growth forecast is 0.7%, unemployment is at 27.7% and gross national debt driven largely by state-owned enterprises has reached its highest level since 2008. The growth outlook reflects a continued deterioration in business and consumer confidence as a result of ongoing policy uncertainty and political instability.
There have been 12 cabinet reshuffles under the Zuma administration with the ninth leading to capital flight of R500 billion. These factors have cumulatively led to the technical recession in the first quarter of 2017 and the downgrading of South Africa’s sovereign credit rating by global rating agencies S&P and Fitch to junk status. Moody’s has opted to keep South Africa on a Baa3 rating, its lowest investment grade, with a threatened review to junk status after the 2018 February budget speech.
Faced with the reality of an ailing economy, Zuma‘s administration undertook a series of policy reforms to reignite economic growth, but most of them have been viewed as investor-unfriendly.
The Private Security Industry Regulation Amendment Bill, which afforded the minister of police the power to expropriate fully foreign-owned security companies and limit foreign ownership of local private security companies to 49% in breach of the WTO General Agreement on Trade in Services, was originally approved by the President in 2014, but was sent back to Parliament after resistance by the private security industry and the US threatening the non-renewal of South Africa’s membership of the African Growth and Opportunity Act (AGOA).
Government’s controversial attempts to amend the Mineral and Petroleum Resources Development Act to allow it to control 20% of new mining and petroleum ventures and to enable the mining minister to declare some minerals strategic thereby limiting their export in favor of local beneficiation, was met with huge resistance. The Chamber of Mines attacked the bill’s constitutionality insofar as it could be deemed an expropriation of a mining company’s income and its contravention of South Africa’s international trade agreements. Under threat of a legal battle with the Chamber of Mines, Zuma sent the bill back to Parliament in 2015 for reconsideration under the premise of it failing constitutional muster.
In 2017, the mining minister released the much-contested revised Mining Charter which gave already embattled mining companies 12 months to meet an increased 30% black ownership requirement. The Chamber of Mines headed to court and is still locked in a major legal dispute with the government over the proposed mining regulations. This stand-off between government and business is one of the biggest examples of regulatory uncertainty that drives investor and rating agency concerns about South Africa. It has also deepened the trust deficit between government and business at a time when the government desperately needs business support to revive the economy and create jobs.
The proposed 2016 land expropriation bill would enable government to enforce land purchases to redress past racial disparities in land ownership. Earlier attempts by the government to by-pass constitutional principles met resistance and the bill had to be shelved. However, under pressure of the 2016 local government elections, the ANC promised to speed up land redistribution and publicly proclaimed its intention to arrange a vote calling for an amendment to the Constitution allowing expropriation without compensation. Under the spotlight of rating agencies and business push-back, the controversial bill is yet to be approved.
Despite the negative perceptions about Zuma, his administration was successful in rolling out a massive infrastructure and social programme that has made the economy more inclusive. One example of decisive planning is the introduction of the Independent Power Producers Procurement Programme which made South Africa one of the top 10 investment destinations for renewable energy investment and the successful turnaround of Eskom’s power failures. Realising the need to streamline government strategies, Zuma constituted the National Development Commission which developed a long-term strategic vision on how government would eradicate poverty, reduce inequality and grow the economy by 2030 through the implementation of the Nine Point Plan and Operation Phakisa amongst other priority projects. However, the Commission’s National Development Plan still has a long way to go in terms of implementation.
Zuma’s other notable successes include the combatting of the HIV/Aids pandemic which is regarded by the UN Aids Programme as international best practice. In addition, he has continued the roll-out of a social grants scheme that was started by his predecessors of R150 billion, representing one of the largest social security nets in the developing world. Nonetheless, the distribution of the grants has been dealt a blow by a Constitutional Court judgment which found the contract was immensely costly and unconstitutional.
Finally, the government has announced its plans to adopt a national minimum wage of R20.00 per hour by May 2018. There is a great deal of recognition for the role of minimum wages in reducing inequality and the fact that higher wages are necessary for better living standards. On this premise, a minimum wage is a victory for the working poor, but there are remaining questions about how it will impact on the growth of small businesses.
‘Look East’ economic diplomacy
Economic diplomacy under Zuma had a largely ‘Look East’ focus. The most notable has been Zuma’s active pursuit of a strategic relationship with China which resulted in South Africa being upgraded to a Strategic Comprehensive Partner in 2010 and it successfully becoming a member of the BRICS grouping. By 2010, China was South Africa’s largest trading partner with a surplus in China’s favour and with massive Chinese investment in South Africa’s banking, infrastructure, mining, transport and renewable energy sectors. In relation to the BRICS, South African trade with the grouping increased from $27.9 billion in 2010 to $28.9 billion in 2016.
However, it could be argued that other important relationships had not received the attention it deserved such as the EU-South Africa Strategic partnership, which has in part been prompted by the cancellation and lapse of several of its Bilateral Investment Treaties (BITs) and insufficient uptake of the Economic Partnership Agreement after the long and difficult negotiations that led to its finalisation. The negotiation for the renewal of the African Growth and Opportunity Act (AGOA) for a further 10 years has been difficult and was settled only after South Africa removed its 15-year-old anti-dumping duties and health restrictions on US meat imports. While South Africa retained preferential access for its agricultural and automobile exports to the US market, it has to start urgently thinking about what comes after the lapse of AGOA in 2025.
On the African front, there has been slow movement on the trade and regional integration agenda despite South Africa’s chairmanship of the AU (from 2012 – 2017) with only small signals taken towards closer economic cooperation through South Africa’s joining of the Tripartite Free Trade Agreement (TFTA). Finally, South Africa has continued to play an important advocacy role on behalf of African concerns in the G20.
Zuma, the only democratically elected president to preside over South Africa’s two economic recessions in less than a decade, has delivered a mixed bag of notable successes, glaring failures and costly blunders.
(Main image: Franco Megannon/Gallo/Getty )