The 4 things that will lead to the downfall South Africa (if not stopped in its tracks):
1. Disregard for private property rights
Farmers and mine owners around the country cringe every time they hear someone like Gwede Mantashe or Julius Malema speak, because they almost invariably talk about things like ‘state expropriation of land’, or other things they are clueless about. Since Malema and Mantashe are both old school communists turned champagne socialists, they lack the insight to see the crucial necessity of property rights to any civilised economy. They do however know that they have to make the right noises to keep their supporters happy, and what’s easier than scapegoating some white farmer stereotype.
The ruling party has fared badly in setting any stable, pro-market economic policy, hence the dismal growth rates which hamper growth and prosperity for the average man. Naturally however, the poorly educated supporters of government fail to see the reasons for these failures as being the poorly performing economy, and that is why simply taking land or anything else which they claim will give them ‘dignity’ seems such an attractive option.
How anyone can still ‘believe in the ideals’ of the Freedom Charter in this day and age is mind boggling. It has been obsolete since the day it was written by soviet backed white communists some 60 years ago.
2. Disregard of the rule of law
Following the recent African Union summit scandal, where wanted Sudanese dictator Omar Al-Bashir was escorted out of the country by the South African authorities once it became known that a court order had been issued for his arrest. It has become clear that senior members of government won’t hesitate to ignore and get away with trampling the legal system, and the judicial branch.
There are claims that the ICC is simply an organisation which is run by ‘the west’, and only ever seems to target African and other selected individuals for prosecution. This is probably true, based on merit, the likes of Bush and Obama ought also be on trial for crimes against humanity. When it comes to genocide, there can’t be any relativism. South Africa is a member of the ICC, and Bashir is a wanted man for good reason.
But that is not what this is about, this is about the precedent it sets for the future. If government gets away with this, what is next, what is the point of having a judicial branch of government?
3. The looming inevitable fiscal crisis
The sums don’t add up.
The South African government has a budget of R1.35T for 2015. Of this, almost 10% goes to paying interest on the debt outstanding. South Africa is adding public debt amounting to 3.8% of GDP in 2015. The government intends on balancing the budget by 2018.
For a start, they won’t be able to balance the budget, since doing so (under the Keynesian philosophy) would require a robust economy showing organic growth. The world economy probably won’t be growing by 2018, and South Africa’s certainly won’t be growing.
So, money will need to be spent on things like social grants, SOC bailouts and other social services to keep the populace happy and to maintain any semblance of a functioning economy with a competent public sector.
Where will this money come from?
Government only has 3 sources of funding:
1. Taxation – Government taking from productive individuals to fund its operations. This is already at it’s limits. 1.1 million South Africans contribute 69% of all income tax, meanwhile approximately 19 million receive social grants. Increasing the tax rate only places more strain on taxpayers, and won’t necessarily lead to greater proceeds, especially if economic growth is stagnant.
2. Debt – Government issuing interest bearing bonds. Our bonds are currently only marginally above ‘junk’ status. This means that if our economy, and government finances were to start deteriorating faster, there is a real possibility that rating agencies will downgrade our bonds to junk status. At this point, pension funds and investment managers around the world will be obligated to sell our bonds. A massive dumping of our bonds will cause yields (interest rates) to sky rocket, this will also have a massive negative effect on the value on our currency. This means that any new debt issued after this point will be issued at much higher interest rates in order to justify the increased risks of inflation or a default. So it is uncertain for how much longer our government can continue racking up debt.
3. Money printing – Printing money, physically or digitally. The favourite final play of the failed African state. This is very detrimental for obvious reasons, and usually comes along with other forms of government tyranny.
4. A crisis of democracy
Imagine it being 2 days after the 2019 or 2024 general election. The ANC has 41% of the vote, the DA or EFF (heaven forbid) has 43%. Will the ANC peacefully give up power and vacate office? If we get to this point, will we even be having free and fair elections? If the executive can simply overpower the judicial or even the legislative branches of government, will it become desperate and go to extremes to cling onto power?
Conclusion
South Africa needs foreign investment to build factories, extract recources and generate wealth. It has become a cliché to say this, but it is true. If there is one thing investors hate however, it is uncertainty. Investors, and indeed concerned citizens of a country dislike nothing more than uncertainty. They don’t want to live with the uncertainty that their property may be expropriated, or that the local currency may be volatile and lose its value.
Let’s make it very clear: As RW Johnson says in his new book How long will South Africa survive, SA can have a civilised industrialised economy, or it can have an ANC government. It can’t have both.
The ANC has failed dramatically at every level for the last 21 years. We are at the point where political correctness, false activism and obsession with ‘-isms’ aren’t helping. We need solutions to real problems.
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