The close relationship between South Africa’s new president, Jacob Zuma, and the country’s powerful trade unions had the private sector and investors worried. Would the payback for union support of his campaign, which helped sweep him to victory in April, be a leap to the left for a carefully charted, investor-friendly economic policy? Would there be rampant state spending to appease poorer sections of the population, for which Zuma’s promise of poverty alleviation was the answer to their prayers?
Certainly Zuma has appointed leading members of the trade union federation Cosatu and the South African Communist Party to critical roles in cabinet. There is talk of a social security net, a national health system and half a million new jobs, while youth leaders call for free schooling for all as “payment” for supporting Zuma’s election campaign. What all the plans do not detail, however, is how they will be funded.
Heightened expectations are a potential time bomb for the new government. Already the relationship with the trade unions is not as cosy as many imagined it might be. Following a spate of wage strikes since the poll, Zuma challenged labour at a high-level African business summit in June: “Can you, while you have this economic crisis, find an opportunity to have more strikes? Are they not exacerbating the issue?” He said the country was in an abnormal situation and it needed to apply extraordinary measures to meet the challenge.
Although South Africa has not experienced the worst of the world financial crisis because of strict regulations governing the domestic financial sector, important elements of its economy – manufacturing and mining – have been badly affected by the contraction in global markets and low commodity prices. Mining has been hit further by power shortages, following poor planning by the state utility Eskom over a decade, exacerbated by strong economic growth. Early last year, Eskom said it had insufficient power to keep the country’s lights on without huge cutbacks. The mines sector was in the front line for cuts, and so mining companies were unable to take advantage of high commodity prices during 2008.
After two quarters of negative growth – a 1.8 per cent contraction in the last quarter of 2008 and a sharp, 6.4 per cent quarter-on-quarter contraction in the first part of 2009 – South Africa has accepted that it is in its first recession for 17 years. GDP is projected to be just 1.1 per cent in 2009, down from more than 3 per cent in 2008 and 5.1 per cent in 2007. Consumer spending and house prices are down, job losses are up.
The economy has, however, been given a big boost by the South African government’s four-year (2006-2010) infrastructure building programme, worth $60bn, and covering roads, rail, water, power, ports and petroleum pipelines. It includes a budget of $2bn specifically for spending on the 2010 football World Cup.
There have been rumblings about Zuma’s expanded cabinet. However, the president has promised better delivery and consequences for non-performance of state officials. Private-sector concerns have been tempered by the retention of the former finance minister Trevor Manuel, who now runs a powerful new planning ministry. He has been replaced by the highly effective former tax revenue chief Pravin Gordhan, whose appointment has also been welcomed.
Zuma’s new government still has much goodwill behind it, but it faces a difficult balancing act: between alleviating poverty and delivering services, and keeping the economy afloat in tough economic times.
Dianna Games is executive director of Africa at Work. www.africaatwork.co.za
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