Despite huge potential, South Africa’s embroiled in turmoil

Less than 10 years ago, South Africa looked on the cusp of a glorious period. Instead it is in danger of throwing it all away through misstep after misstep, writess Kyran Fitzgerald.

Despite huge potential, South Africa’s embroiled in turmoil

South Africa is a bit like a gangling teenage boy — you can spot his potential yet there is a nagging concern that it all could go badly wrong.

Less than a decade ago, the mood in the country was upbeat in spite of a very serious ongoing health crisis stemming from the Aids epidemic.

The country was tagged on to the main group of so-called ‘Bric’ countries, including Brazil, India, China and Russia, as their African representative. As one of the world’s leading producers of gold, coal and platinum, South Africa rode high on the back of the boom in East Asia and beyond.

All the talk was of South Africa’s economic potential. The Brics as a group looked set to challenge the old economic order, yet it hasn’t worked out this way.

Since then, commodity prices have tanked, hitting the country’s economy hard while the ruling African National Congress, led by President Jacob Zuma, has become embroiled in a succession of scandals.

The rand, the local currency, has collapsed in value. GDP measured in dollar terms has fallen from just under $450bn in 2011 to just over $330bn. Investment in the mining sector has been hit by uncertainty surrounding the legislative regime.

Abroad, the Chinese are moving to seize the initiative as price makers in international commodities markets while the value of the US dollar could rise further on the back of a hardening in lending rates.

In recent weeks, South Africa has been in the news for all the wrong reasons. First, the presidential address by Mr Zuma to the national parliament in Cape Town was disrupted by groups of hardline leftist MPs. Security forces were called to the chamber to break up the protests.

More serious has been a spate of marches by groups opposed to immigration from elsewhere in Africa, protests culminating in violence and attacks on property in the capital Pretoria and the commercial centre, Johannesburg.

Nigerian migrants were caught up in the clashes. Retaliatory attacks on South African interests were staged across Nigeria, a long-time ally and key market for South African businesses. The official SA unemployment rate is 27.6% and the streets of South Africa are filled with men begging, or rooting in bins.

Migrants drive taxis and run shops which undercut local businesses. The flow of migrants from places like Zimbabwe whose dictator Robert Mugabe recently turned 93, appears unceasing.

Some trade union figures have suggested that wage rates are being eroded as employers take on migrants so as to circumvent the country’s tight labour laws. Former president Thabo Mbeki has however reminded people of the debt owed to other African nations which were supportive during the struggle to achieve democratic rule.

As one drives into Cape Town from the airport, one can spot groups of shanties and some multi-coloured houses erected by the Mellon charity.

On the other side of the road lies the 900-bed Groote Schuur hospital, the largest in Africa, where a surgical team led by Dr Christian Barnaard performed the first human-to-human heart transplant on Louis Washkansky 50 years ago.

Low-rise townships sprawl out by the bay close to the soaring concrete and glass buildings of the commercial centre, while new builds encroach on the whale-like Table Mountain nearby.

The country’s property market has taken a bit of a hammering recently, but many of those with spare cash clamour for the relative safety of apartment living. This has helped boost construction activity.

But security concerns abound. Many properties have been turned into gated fortresses. With murder rates, particularly in the townships and on isolated farms, among the highest in the world, it is hard not to be struck by how friendly locals are to visitors.

Metropolitan Cape Town’s population has jumped by 45% in less than 20 years, a rate of growth typical in burgeoning Africa where urbanisation is rapidly occurring.

The infrastructure is struggling to cope. Months of drought has left reservoirs at just one quarter of capacity. Heavy water users are being named and shamed. There is talk of investment in water desalination plants.

Inland in the wine-growing region around the university town of Stellenbosch, fires have been erupting across the spectacular mountain ranges. Some blame the fires on disgruntled local agricultural workers.

The vineyards have been investing from serious investment on the part of consortia of business people while the tourist trade is buoyant.

Visiting the national library in Cape Town, one finds the place packed with readers. There is clearly a thirst for knowledge. The school children are smartly turned out, dressed in traditional 1950s uniforms.

The British influence is fading but remains real, yet Africa is everywhere in the form of the red soil and dramatic landscapes, the groups of farm workers standing on trucks and the mini buses swooping in to pick up fresh custom.

However, the financial markets do not trade in sentiment. South Africa recently dodged a bullet when credit agency Standard and Poors opted not to downgrade the country’s debt to junk status.

Investor confidence will not have been helped by recent statements from the president indicating support for confiscations of white-owned farms, which still account for the bulk of the land in ownership.

Jacob Zuma, under pressure from his left flank and keen to copper fasten support in his rural base, risks alienating wealth creators. His Finance Minister, Pravin Gordhan, has the confidence of the markets.

Gordhan ironically served for years as a member of the South African communist party. His ANC enemies were behind charges of corruption that were levelled against him. These were withdrawn following an outcry.

Any moves to remove Gordhan would almost certainly trigger a ratings agency downgrade which could impact on debt service costs.

The country has shown a great ability to muddle through. However it remains over dependent on commodities which account for almost one half of exports even in the more diversified Western Cape region.

Employment in the manufacturing and mining industries has been shrinking while Zuma and ANC cronies build up financial empires through questionable dealings.

The best hope lies in the emergence of a new generation of political leaders, either within the ANC, or in the Democratic Alliance, which captures several large cities in the recent local elections.

Such reforming leadership is unlikely to come from Julius Malema, a demagogue with a growing appeal among the army of the dispossessed, many of whom have been angered by the heavy handed tactics of the security forces.

Gazing out over the country’s spectacular landscape, it is hard not to believe that the country has a real future. However, there are serpents lurking in the darker corners of this African paradise.

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