Edition: July / September 2016


Zuma’s Rubicon

Memories of P W Botha’s failure loom large.

Funny, in a manner of speaking, how little is learnt from history. Paradoxically, given their long struggle of one against the other, the present ANC is exhibiting some discomfiting similarities with the previous National Party government.

Late in the day for the former, and too late for the latter, they awoke to the realisation of SA’s reliance on foreign capital. As disinvestment accelerated, and the economy stagnated, political fissures exacerbated. The effect on the onceimmutable National Party was disastrous, as the ANC might do well to recall.

It was 31 years ago that then President P W Botha delivered his so-called ‘Rubicon’ address. The dire consequences were aggravated by nondelivery of the reform promises that the world had been led to expect. Similarly today, President Jacob Zuma faces a ‘Rubicon’ that he addresses by contradictions.

Nobody knows what to expect. Zuma might go one way, giving the world the reassurance it anticipated after his reappointment of Pravin Gordhan as finance minister and his high-profile meetings with private-sector luminaries.


Or he might go quite another way, to shatter business and investor confidence. The test is whether he white-ants the efforts of Gordhan (if not Gordhan himself) to assert fiscal discipline, insist on sound governance at state and state-owned enterprises, and stimulate economic growth.

These are three prerequisites to avoid a relegation of SA sovereign credit to sub-investment grade. Should relegation not be avoided, junk status will herald disinvestment on a scale akin to the late 1980s.

Then, the good that came from the withdrawal of US and European bank loans hastened the demise of apartheid. This was intended. Now, the best intention of the rating agencies is to signal that no good could come from their demotion of SA’s sovereign credit to junk.


Then, Botha’s actions caused the imposition of financial sanctions. Now, Zuma has been warned. His actions will determine SA’s credit status.

As sanctions could have been avoided, junk can be too. Their commonality is in the political will to effect essential changes that challenge the embedded mindsets of party electorates. Then, Botha lacked the will. Now, Zuma has yet to show it.

Then, Botha’s reformist sentiments rang hollow. Now, Zuma’s promise to prioritise job creation – and give substance to the ANC slogan of “better lives for all” – does too. Then, Botha was eventually kicked out by once-loyal party colleagues. Now, Zuma hangs on because his grip on the organs of state and party (which Botha, like Thabo Mbeki, had lost) position him dictatorially.

Recall what happened when Botha disappointed the world. In the aftermath of his ‘Rubicon’ speech, there was a flight of capital from SA. In the ensuing debt crisis, the rescheduling of loan repayments had to be internationally mediated. Noose-like exchange controls were introduced. Commentators described a “bloodbath” on the JSE.

And the rand crashed to its lowest-ever level against the US dollar. In early July 1985, before ‘Rubicon’, one rand bought 52,0 US cents. In late July, immediately after, one rand bought 43,5 US cents having briefly sunk to 38,5 US cents. (At time of writing, incidentally, one rand buys 6,4 US cents.) Everybody gets hurt. What happens with pension funds, and other savings vehicles on which millions of South Africans rely for their future wellbeing, is illustrative. Late last year, the damage by Zuma’s fleeting appointment of Des van Rooyen as finance minister caused an immediate R95bn loss to the portfolio value the Government Employees Pensions Fund alone. Then, it was able gradually to recover.

But now the cold fact is that, to focus on pension funds’ portfolios only, the big Western savings institutions are strictly mandated by fiduciary duty to steer clear of asset classes rated as sub-investment grade. These funds’ departure from SA bonds and equities will not be a political choice but a mechanical reflex.

Given the extent of their exposure to SA, the 1980s can resonate with all the social instability that resulted. If ever there were a need for SA pension funds to stand up and be heard as a collective body in the interests of their members (TT April-June), it’s now.

Allan Greenblo, Editorial Director