RW Johnson: Four things the World Bank and IMF want South Africa to do

RW Johnson - []

When asking how South Africa can survive the current crisis, one only has to look at the four things the World Bank and other international bodies have already pointed out in the past, according to best-selling author, political scientist and historian RW Johnson.

Firstly, the education system must be improved.

Secondly, labour laws and regulations must be liberalised so that it is easier for employers to hire and fire people and it is easier to import the skills the country needs.

Thirdly, the size of the “swollen” civil service must be cut. On top of that salaries in the civil service are now estimated to be about 30% higher than the private sector, Johnson said at Rode-Reim Real Estate Conference at the Spier Wine Estate near Stellenbosch.

Fourthly, the sustainability of state-owned enterprises (SOEs) must be addressed.

“I am not saying SOEs must be privatised, but they must stop losing money,” said Johnson.

He added that each of the four issues mentioned will, however, likely meet with union and political resistance in South Africa.

“Government must produce a more business friendly environment,” he said.

Becoming “spoilt”

In Johnson’s view South Africans have become “spoilt” in some ways, for instance in demanding free houses.

“Nowhere else in Africa are governments told to provide free housing. There is a sense of entitlement and unions are making demands that cannot be met,” said Johnson.

Another example for him is complaints from the Eastern Cape about Chinese “domination” in a auto plant investment for which it is supplying 60% of the funding.

“How can you complain about that? If they are providing 60% of the funding, surely they can also be calling the shots?” asked Johnson.

Tipping points

He is not a fan of scenario planning and sees it just as a way to “frighten the elite”.

“History does not go in a straight line. It goes through a series of tipping points,” said Johnson.

SA’s credit downgrades formed one such tipping point, which has changed the game. Another, in his view, will be when SA has to ask the IMF for a bailout.

“Like most African countries, SA is ruled by a bureaucratic elite practicing nepotism and that leads to a bloated civil service,” said Johnson.

The ANC leadership change will be another major tipping point for SA, in his view.

“Whoever becomes the next ANC leader will be an improvement on Jacob Zuma and will bring some positive uptick in the market for SA,” he said.

“However, we have had a year of negative campaigning in this regard. The ANC campaigned against white rule and would like to campaign against apartheid for the next 100 years if it could. That leads it to make promises of land, health and mining reform which will drive away investors and create bad market conditions.”

In his view, it creates a climate of great uncertainty where consumers hold out on buying so-called big ticket items like cars and houses.

“Whoever is elected as next ANC leader will face a tough situation,” said Johnson.

The next tipping point will, therefore, be to see if any of the radical promises made during campaigning will remain on the table afterwards.

Black middle class

Another factor for Johnson is the pressure on government by the back middle class as a new driving force in the SA society. He includes in this group those who are not yet part of the middle class but have aspirations to be.

“Yet, the government cannot give them what they demand to the same extent anymore, because the economy is not growing and BEE opportunities are, therefore, not available that much anymore,” said Johnson.

“The SA government is now weaker than at any time since 1994. The state is less and less able to fund the losses of SOEs and more and more banks do not want to roll over loans in this regard anymore.”

Pay increase

The next tipping point for Johnson will be in March next year when a new three-year pay deal for civil servants has to be determined. If these demands are too high, government would have to borrow internationally to be able to bear the payload.

“If government does this, the ratings agencies will see it as a very negative sign,” cautioned Johnson. “I feel sorry for whoever is Zuma’s successor as he or she will face a great mess,” said Johnson.

IMF loan

Since 2014 Johnson has not only predicted the ratings downgrades, but also that SA will end up having to apply for some sort of IMF bailout.

“This will not be all bad, as the IMF will insist on SA implementing the four things I mentioned earlier. The IMF is seen as a capitalist organisation in the eyes of militants in SA, but we are running out of institutions willing to lend SA money,” he said.

“I think it will be a difficult period until 2019 until a deal is made with the IMF, but I think then things will start looking up as it could be a chance for a fresh start.”