South African Capitalism’s Train-Smash

8 January 2016 by Patrick Bond

CC - Flickr - tsn92

The great sweeps of capital accumulation flowing above, through and from South Africa are leaving local businesses weaker than at any other time in memory. This may be just the medicine a mostly divided and yet often over-confident left opposition requires in 2016. Corporations are now at their most unpredictable and unpatriotic, with rapid expatriation of dwindling profits, the near death of several mega-mining firms that once ruled the roost, and a schizophrenic ruling class giddily backslapping some days, but inconsolably depressed most others.

The country’s surface-level political drama should not distract from deeper fissures.

The great sweeps of capital accumulation flowing above, through and from South Africa are leaving local businesses weaker than at any other time in memory. This may be just the medicine a mostly divided and yet often over-confident left opposition requires in 2016. Corporations are now at their most unpredictable and unpatriotic, with rapid expatriation of dwindling profits, the near death of several mega-mining firms that once ruled the roost, and a schizophrenic ruling class giddily backslapping some days, but inconsolably depressed most others.

The financial roller-coaster ride that nearly all the emerging markets barely survived in 2015 could become more exciting yet in 2016, here, especially if rising forces on the political left manage to derail the faultiest, most dangerous cars. For a change, these also appear to be the ones most ready to tip over in any case, carrying the chief executive officers most oriented to brutal labor exploitation, to mining and smelting, and to reaping profits from investments elsewhere in Africa. Those cars are also bearing the load of boorish, overweight politicians like President Jacob Zuma, whose punch-drunk behavior in the last month suggests he might well flip the whole train.

Zuma’s desperation musical-chairs cabinet reshuffling from Dec. 9-13 began when he fired a finance minister who was brutal to (black) poor and working people – insofar as his 2015-16 budget reduced their welfare grants and restructured retirement funds against their wishes – and generous to the (white) rich. Those who profited from apartheid and its neoliberal aftermath can now take offshore US$700,000 annually (up 2.5 times from last year), which, explains a Moneyweb reporter, “effectively ended [exchange] controls for all but the most wealthy South Africans.”

According to insiders, Zuma was opposed to Nene’s stay because he threatened to deny state funding to presidential friends in the airline and nuclear reactor industries (the latter, especially, from Moscow). After an uproar and as an obvious fig leaf, on December 11 Zuma publicly earmarked Nene to head up the future Johannesburg branch of the BRICS New Development Bank (NDB).

Former Finance Minister Trevor Manuel scorned this as an 85 percent job responsibility cut for Nene, revealing local elite contempt for the institution which so many commentators hoped would offer a genuine alternative to orthodox finance. (One of the two BRICS Bank directors chosen from South Africa, the erratic former central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

governor Tito Mboweni, had earlier derided the NDB as “very costly” and yet just after his appointment, he told Bloomberg that nuclear financing “falls squarely within the mandate of the NDB.”)

Thanks to his unabashedly neoliberal record, Nene was so beloved by orthodox financiers that three of them – Barclays Africa CEO Maria Ramos, Investec CEO Stephen Koseff and Goldman Sachs’s Colin Coleman – were, The Times reported, “in constant consultation with the ANC [and] forced the ANC to demand that Zuma reverse his decision” to replace Nene with an apparent yes-man, David van Rooyen. And behind Barclays, Investec (the fifth largest local bank) and Goldman Sachs lurked three even more threatening institutions: Moody’s, Standard&Poor’s and Fitch, all holding the power to downgrade South Africa’s credit rating to junk bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. status in coming weeks.

Immediately after Nene’s firing, an estimated US$28 billion in local financial assets evaporated in two days, as investors fled. Major banks took the main hit, with one losing 10 percent of its stock market value. After banker armtwisting and to save face, on Dec. 13 Zuma shifted van Rooyen sideways to the local government ministry and rehired as finance minister Pravin Gordhan, a man just as loved by the markets as Nene and Manuel, during his 2009-14 period of neoliberal fiscal management and financial deregulation.

When the musical chairs finally halted, Gordhan quickly opposed Zuma’s closest airline ally on a prohibitively expensive deal with Airbus, but apparently agreed to a vast bill for several future nuclear reactors. However, the conditions he’ll face in 2016 and subsequent years are going to be exceptionally tough in part because of the desperation that businesses are now facing, and in part because his prior permission to let profits flow abroad put South Africa’s foreign debt close to US$150 billion, double the amount he initially inherited from Manuel in 2009.

Worse, according to a new Global Financial Integrity report, from 2004-13 alone, the supposedly fiscally-responsible Manuel, Gordhan and Nene allowed an average of nearly US$21 billion in annual illicit financial outflows by multinational corporations. Many of the worst were apartheid’s beneficiaries – Anglo America, De Beers, Old Mutual, SAB Miller, Investec, Didata, BHP Billiton, Liberty – which from the mid-1990s to early 2000s gained ANC permission to relist in London, New York and Melbourne.

As a result, a sovereign debt Sovereign debt Government debts or debts guaranteed by the government. crisis appears on the medium-term horizon. Nearly five years ago, discussing the North African (‘Arab Spring’) uprisings and predicting a ‘Tunisia Day’ for South Africa within a decade, Moeletsi Mbeki offered a scorching critique of the ANC’s sell-out to big business. The country’s richest white men, according to Mbeki, “took their marginal assets, and gave them to politically influential black people, with the purpose, in my view, not to transform the economy but to create a black political class that is in alliance with the conglomerates and therefore wants to maintain the status quo.”

The strategy’s contradictions have been unmasked on many occasions, including the August 2012 Marikana Massacre, in which the notorious Lonmin mining house tried to end a platinum workers’ wildcat strike when South Africa’s now Deputy President (and then 9 percent Lonmin owner) Cyril Ramaphosa emailed in a request for “pointed” police action against the “dastardly criminals,” resulting in 34 shooting victims the next day. But now the companies responsible for doing the killing are themselves under fire, losing money at a ferocious pace.

It is hard to know how much, given South African elites’world-leading level of tax fraud, misinvoicing and transfer pricing. But the share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of company tax within total state revenue dropped from 27 percent in 2008-09 to 19 percent last year, as only 25 percent of 653,000 companies in South Africa reportedtaxable income. In contrast, South Africa was scored as having the third highest profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. rate in the world by the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
in 2011, before the 60 percent crash of commodity prices.

Most mining houses have likewise shrunk in half or more, with Lonmin in the pits at less than 5 percent of its 2012 share value today; indeed, a few weeks ago, a US$407-million rights issue was undersubscribed by 30 percent. The South African state is jumping in with ‘lemon socialism’ financial underwriting, via a civil servants’ pension fund Pension Fund
Pension Funds
Pension funds: investment funds that manage capitalized retirement schemes, they are funded by the employees of one or several companies paying-into the scheme which, often, is also partially funded by the employers. The objective is to pay the pensions of the employees that take part in the scheme. They manage very big amounts of money that are usually invested on the stock markets or financial markets.
. And today worth just 10 percent of its share valuation peak, Anglo American Corporation recently announced a two-thirds staff downsizing.

Finally, investments by South African capital up-continent are showing some of the same trends, especially mining houses, retail and cellphone firms. The latter witnessed the most spectacular one-year loss in African history when the continent’s largest communications firm, MTN, was fined US$3.9 billion in November for having failed to disconnect more than five million of its phone lines for which people did not provide state-sanctioned identification. The firm was also recently unveiled for illegitimately channelling billions of dollars in profits to its Mauritius offshore accounts, during Ramaphosa’s term as chairperson.

How South Africa’s civil society and parliamentary left aims to avoid more destructive roller-coaster capitalism awaits another column.

Courtesy of the author.

Source : teleSUR

Patrick Bond

is professor at the University of Johannesburg Department of Sociology, and co-editor of BRICS and Resistance in Africa (published by Zed Books, 2019).

Other articles in English by Patrick Bond (95)



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