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Nelson Mandela emerged from 27 years in apartheid jails in 1990 pledging to seize South Africa’s mines and banks. Four years later, his government slashed spending and courted foreign investors, paving the way for the longest period of growth in the country’s history.
He was instrumental in getting the ANC to embrace an open economy.
“Only a Mandela could have realigned the ANC’s economic policy from the mindset of the 1950s, with the development state, with socialism, with nationalisation, to the world of the 1990s and beyond,” UCT politics professor Robert Schrire said. “He recognised that for the poor to prosper, the rich had to feel they had a future in the country.”
Yet Mandela’s legacy of economic stability is beginning to come under attack as the country fails to slash unemployment and reduce inequality. The jobless rate is at 24.7 percent, while average earnings for black households are a sixth of their white counterparts.
The ANC’s youth wing last year waged a campaign for the nationalisation of banks and mines, the very policies ditched by Mandela in 1994, and poor communities have staged a series of protests against a lack of housing and basic services.
“We still have racial unemployment, racial poverty and racial inequality,” Cosatu president Sidumo Dlamini said.
“Our country is still in white hands.”
Mandela’s embrace of spending rigour and foreign capital allowed the economy to expand for 15 years, until the third quarter of 2008, when the global financial crisis pushed it into recession. That growth and rising tax receipts enabled the post-apartheid government to extend welfare grants to about 16 million people and give more than 85 percent of households access to electricity, up from 45 percent in 1996.
Instead of nationalising companies, Mandela lured foreign investors into the country.
Restoring confidence in South Africa’s economy in 1994 was a significant achievement. Apartheid had turned South Africa into a pariah state, subjected to international sanctions and boycotts. The economy was haemorrhaging foreign capital, had only enough reserves to cover 10 days of imports and was running a budget deficit of 9.1 percent of gross domestic product (GDP).
Mandela asked Chris Liebenberg, who had just retired as chief executive of what is now Nedbank Group, to become finance minister. He accepted the job on condition that South Africa would have a market-related economy and exercise fiscal discipline.
“Those were tough times,” Liebenberg said. “We were heading for bankruptcy. Mandela was very mindful that the ANC, having not been in government, would not be as astute in managing the economy as it should be. He came to me because I was a banker with lots of international contacts and experience.”
In his first budget, Liebenberg raised taxes, equalised the tax system for all racial groups and slashed the defence budget. Those measures helped the government to raise $750 million (R7.8 billion at current rates) in 1994 in its first post-apartheid international bond sale, 50 percent more than originally planned. By 1999, the Finance Department had cut the budget deficit to 2.3 percent of GDP.
Mandela also persuaded Chris Stals, the central bank governor, to postpone his retirement by five years to help manage the country’s transition.
“We made steady progress from day one on for those first five years,” Stals said. “Our main task was to bring us back into the world economy. Mandela certainly made a major contribution to that. The trust people had in him and his policies certainly enabled us to lay a very good foundation.”
That trust was hard won.
Mandela’s economic thinking was originally framed in terms of the ANC’s 1955 Freedom Charter, which called for nationalisation.
“Nationalisation of mines is a fundamental policy of the ANC,” Mandela said after his release. “I believe the ANC is quite correct in this attitude and we should support it.”
A year later, he assured foreign companies their investments were safe following talks with then Chinese premier Li Peng, who told him nationalisation wasn’t viable and that China was considering selling state companies.
“The world had changed while Mandela was in jail,” said Iraj Abedian, an economist who helped craft the Mandela administration’s 1996 hallmark economic policy, which won praise from international investors. “His engagement with the role players in the political, economic and financial world brought that reality home.”
Mandela helped set the broad parameters of economic policy, while leaving formulation and execution to his subordinates, according to Liebenberg.
“Until Mandela set his stamp on a policy I think it would not have been possible to drive it through the ANC,” Liebenberg said. “It certainly would not have been possible to drive it through government.”
Abedian was struck by the attention to detail that Mandela, a trained lawyer, gave to policymaking.
“He would go through every document word by word, line by line,” Abedian said. “It was a question of understanding the rationale for every step, weighing it up, questioning it in detail, far more than people would believe.”
Stals recounts how after Trevor Manuel was appointed finance minister in 1996 and the rand tumbled 8.8 percent in the space of a month, Mandela would phone him two or three times a day for market updates.
“He showed a great interest in what we did and he was always quite well informed,” said Stals. “He liked to discuss the monetary policy issues. He never really interfered.”
Still, the stability that Mandela engineered in those early years after apartheid never made South Africa an economic dynamo. Economic growth has averaged 3.5 percent since 2004, compared with 10.5 percent in China.
Moreover, the Gini coefficient, a measure of income inequality, has risen to 0.63 in 2009 from 0.59 in 1993, making South Africa one of the world’s most unequal societies.
Mandela never tackled labour laws that companies say stifle investment, or turned around an education system that has left South Africa with skill shortages.
Labour unions and the SACP blame the 1996 economic framework for entrenching apartheid-era inequity. The policy, which was described by Mandela as “non-negotiable,” sought to trim state borrowing, contain inflation and gradually relax exchange controls.
“Established capital benefited from stabilisation and liberalisation measures,” while the interests of the poor and working class were largely overlooked, SACP general secretary Blade Nzimande said.
Mandela did the best he could for the country under the circumstances, Abedian said.
“Very few people appreciated what unstable macroeconomic conditions apartheid had left behind,” he said.
“In that type of environment what was critical was to have a credible, not necessarily an instant, solution. Mandela realised what steps had to be taken to normalise and stabilise the economy.” - Business Report