South Africa Budget – June 2007

The Battle for Succession Continues

The month of June saw the rise of two political crises in South Africa… and their apparent dispersal. “Apparent”, because the rumbling clashes between the African National Congress leadership and its leftwing have not yet been resolved and are bound to continue for at least six months.

The first crisis, described in our May report, came when the Council of SA Trade Unions (Cosatu) demanded a 12% wage increase for all public service workers, and then organised mass protests when Government responded with an offer of six-and-a-half percent. Settlement came in at a predictable seven-and-a-half percent – but only late in June, and after several weeks of emotive dispute with some some grandstanding. It led to a number of violent incidents involving illegal strikers among teachers and nurses, and to threats by union leaders of additional illegal strikes by police and emergency service union members. Senior ANC officials criticised Cosatu’s secretary-general for his demagoguery during the Public Service strikes. Some see mass militancy as an ominous card that might be used in future power plays.

National Policy Debate

The second crisis loomed when the national political power struggle over presidential succession was taken to the ANC’s mid-year policy conference. President Mbeki warned the Communist Party – strongly represented among the delegates and within the Cabinet itself – not to interfere with ANC policy. The Communist Party, in turn, is threatening to suspend any of its Ministers in the ANC Cabinet, or any communist MPs who implement government policy if it conflicts with its own. In this atmosphere, President Mbeki, as president of the ANC, offered himself as president of the ANC for a third term. (He is due to step down as President of South Africa in 2009). The Communist Party and Cosatu, who have shown signs previously of backing deputy ANC president Jacob Zuma for both posts, will publicly oppose Pres. Mbeki’s extended leadership of the ANC. Nominations for leader of the party open in September and the issue of succession will come to a head at an ANC national conference in six months time.

Power Shift Proposed

Meanwhile numbers of proposals have been adopted at this mid-year session for formal approval at the same December conference. The most significant was a unanimous resolution that aims to centralise political power at ANC headquarters – not in the President in parliament – and to strengthen the post of ANC Secretary-General. The two junior members of the government Alliance hail this move, and other actions at the mid-year conference, as “a shift to the Left”. But a majority of delegates saw it as a move away from presidential power to a wider more democratic system within the ruling party. However, some of the ANC conference’s proposals for socio-economic State intervention in the name of NDR (political-speak for ‘National Democratic Revolution’) and for centralization of police authority, may prove decidedly anti-democratic. The nation awaits the more measured and decisive national ANC meeting in December.

Economic Trends

Capital spending soared nearly 22 percent this year, according to the Reserve Bank’s quarterly bulletin released late in June. The surge pushed capital formation as a ratio of GDP above 20% for the first time in 18 years – well above the annual average of 16% during the decade 1995-2005. This trend is expected to increase productivity and thus help stem inflation (which was also held in check by the Government’s refusal to meet a demand for 12% wage and salary increases.) The bulletin states that the surge in capital formation suggests “attractive returns on fixed investment” during a period when production capacity is strained. It noted that growth in the construction industry was exceptionally strong this year, and that growth was driven mainly by the public sector investing in national infrastructure, including energy and transport. Growth in consumer spending was broad-based, with spending on most categories of goods remaining robust. Private Enterprise confidence barometre remained high.

The forecast by Nedbank in June was that Economic growth should ease further during the remainder of this year. Domestic spending should ease as growth in consumer spending moderates in response to rising inflation, higher interest rates and elevated debt burdens. Spending on roads, rail, harbours, and on major items such as sports stadiums for the Football World Cup in 2010 will continue apace.